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  • Yes, Sylvia, there is a Santa Claus

    My mother died seven years ago on December 19, 2001. Simon Walter (named for my father Walter) Lovely, my grandson, was born to my son Ross and his wife Emma on December 19, 2008. A strange coincidence you might say, but there is more.

    My mother was diagnosed in July 2001 with advanced cervical cancer, a particularly cruel form of a cruel disease – robbing its host of all dignity along its monstrous path of destruction. It doesn’t help if its victim is bewildered by the world in general and given to bouts of depression. And, so it was with my mother.

    She was born poor in Appalachian Kentucky. Like many girls in Appalachian families, she left school early to go to work to support and educate the others. It seemed better that way – perhaps one or two could “make it out” of poverty. She was the one who always seemed to be left out. Christmas didn’t come often to the hills. One year when gifts were sent home from the cousins who had gone on to work in the factories up north – she was the only one not to get one. No one could explain the mix up – an incident she never forgot.

    She and my father left Kentucky in the early ’50s like thousands of others for what must surely have been the “Promised Land.” They gave up dirt farming, packed up the beat up old pickup with all their possessions – my brother and I – and headed to Dayton, Ohio. My father tells of “running, not walking” to a foreman he knew to beg for a job after being turned down by “personnel.”

    However, at age 55 he was laid off. There was time when a man could get a good job in the early ’50s with an 8th grade education. However, those times had run out. My mother and father applied for and got the only job they could get – being nanny to our boys, Ross and David.

    Her sudden illness in the midst of my charmed life brought on some reconsideration about the hectic pace of my life. My parents’ sacrifices had allowed me to become educated, not stopping at undergraduate school, but going on to law school. Later, I landed my dream job working to build great communities all over the world. As my mother lay increasingly stilled in her hospital bed in my parents’ tiny home I would be on my way to some “important” meeting and be called back by my father. “I can’t take care of her today – you’ll have to come home.”

    Together at her hospital bed, I reconnected with my father. I heard his stories of being uprooted from a strong culture of community and family life and ties to the land – and of my mother’s particular sadness at her being later disconnected from those things. I learned that big important meetings would go on without me just fine, and that the needs of “little people” like my parents made my work in building opportunity important not only philosophically but in the most personal way.

    Towards the end, my mother grew particularly reliant on Ross, our 20-year-old son. The most spiritually oriented of our immediate family, he was the only one with whom she would discuss death – that she knew was imminent. “Are you afraid to die?” he would ask her. “Yes,” she replied quickly. In addition, then hesitating, “Well, in a world where 20-year-olds die, how can I be afraid?” In addition, yet she was. For my part, I grew bitter at a world of suffering where someone shy, modest and kind could suffer so much. How could this happen and what did it portend? How could there be a God in such a world?

    She finally died on December 19, 2001, to our relief.

    However, the story does not end there. When he arrived, Simon Walter Lovely surprised a reluctant grandmother. I was after all, a hard-driving executive – not given to pausing for much of anything, much less cooing at babies.

    However, in his coming, he also brought a message. Two weeks late, he decided to show up on, of all days, December 19. I held Simon and then watched as my 88-year-old father, Walter, for whom Simon is named, awkwardly take his turn. I grabbed onto something at that moment. Call it hope; call it belief or something else. Perhaps, I can believe in what my mind, my education and my rational mind can’t explain – that maybe, just maybe … there is a Santa Claus.

    Sylvia L. Lovely is the Executive Director/CEO of the Kentucky League of Cities and the founder and president of the NewCities Institute. She currently serves as chair of the Morehead State University Board of Regents. Please send your comments to slovely@klc.org and visit her blog at sylvia.newcities.org.

  • Phantom Bonds Update: The New Treasury Bond Owner’s Manual

    Shortly after my piece on Phantom Bonds, Blame Wall Street’s Phantom Bonds For The Credit Crisis, posted here on NewGeography.com in November, a friend called from New York to ask if I’d seen the latest news. Bloomberg News reported on December 10 that “…The three-year note auction drew a yield of 1.245 percent, the lowest on record… The three-month bill rate [fell] to minus 0.01 percent yesterday.” The US Treasury is seeing interest rates on its notes that are “the lowest since it started auctioning them in 1929.”

    My friend is an intelligent person, a lawyer who managed to accumulate more than $1 million working a 9-to-5 job in a not-for-profit firm and retire in her 50s. Some of her portfolio is in Treasury bonds, so she had a lot of questions. In the course of our conversation, it became clear that I wasn’t going to be able to explain all she needed to know on the phone, despite her background. I decided to write this short owner’s manual.

    Here’s how it works, and how it ties back to the problem of phantom bonds. When the US government needs to raise money it authorizes its agent, the Federal Reserve Bank (FRB), to sell securities. The different names for these securities are associated with how long they will remain outstanding, like the term of a loan: bills are up to 1 year, notes are up to 7 years, and anything longer than that is a bond. We’ll just call them bonds to make it easy.

    The FRB has relationships with several primary dealers like Citigroup, Goldman Sachs, JP Morgan, and Morgan Stanley. When notifications are sent out that some bonds will be sold, these primary dealers submit bids in the form of prices. If a financial institution bids $99 for a $100 bond, then that bond will essentially pay – or ‘yield’— roughly 1% from the US Treasury (UST) to its holder. If the investor bids $101 for the $100 bond, then it will pay 1% for the privilege of lending money to the UST; the bond’s ‘yield’ would then be minus 1%. That’s a very good thing if you happen to be the UST, which of course we all are because it’s all taxpayer money.

    So— as the prices of bonds rise, the yields fall, and these yields translate into the interest rate that the UST pays to the bondholders in order to borrow the money it needs to fund the budget deficit (and to refinance the existing national debt).

    This is all roughly speaking, of course. But the idea is that the interest rates are set based on the prices that are bid in something that’s like a blind auction. The bidders don’t see the other bids, but because there are more bids than there are bonds available, financial institutions will bid the highest prices they can to avoid being shut out altogether. (FRB usually gets bids for 2 to 3 times as many bonds as they have available to sell.) This is good for UST, with a heavy emphasis on the “us”! High bond prices translate into low interest rate loans for UST.

    Bonds are funny that way: when a bond’s price goes up, its interest rate goes down, and interest is the cost of borrowing money. So we should like to see Treasury bonds selling at very high prices, and with very low costs to the UST. Unfortunately, all those fails-to-deliver — those phantom bonds — especially over the past few months, had the effect of pushing down the price of bonds by (artificially) increasing the supply. That was keeping the interest rate paid by UST higher than it needed to be over the last year or so.

    When bond prices are high — or inching up, as they are now — we all benefit. UST sold $32 billion in 30-day Treasury bills on December 9th at a yield of 0%, meaning that investors are lending UST money for nothing except the promise to return their money without losing any of it. Investors bid for four times as many of these particular Treasury bills as were available for sale. This is as it should be.

    As the primary brokers rush to cover their phantoms — those failed to deliver Treasuries of the past — in order to settle their transactions, we’re seeing a surge in the price of treasury securities. The prices of bonds are rising, the yield is falling; the UST is paying lower rates on the money it borrows from investors.

    An increase in the price of the new bonds can also mean that the price of existing bonds – those already outstanding – will also increase. The increase in the prices of outstanding bonds will help my friend in New York. A good part of her $1 million retirement portfolio is invested in Treasuries. Treasury bond funds, like Merrill Lynch and Vanguard, are earning 11 to 12 percent for their investors.

    These high rates of return in Treasury bond funds won’t last forever, of course. The number of fails-to-deliver in Treasuries is falling quickly, now that the spotlight is on. When settlement is final and on time, then the usual rules of supply and demand will apply. Prices of new bonds and those bonds in the funds (the outstanding bonds) will even out. But the demand for UST bonds will likely stay strong as long as there is global financial turmoil. And that demand turns out to be good for the US (lower interest rates) and good for us (higher prices for the bonds in funds).

    People like my friend in New York ask me if Treasury bonds are safe. I tell them: if the US Treasury fails to pay you back, you’ll have bigger problems than a decrease in the value of your portfolio.

    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.

  • America Has No Cause to Fear Political Dynasties

    It’s been a tough winter for those concerned about dynastic politics.

    One-time First Daughter Caroline Kennedy is angling for a Senate appointment from the governor of New York. In Delaware Vice President-elect Joe Biden tapped a longtime aide as a placeholder for the Senate seat he will soon vacate, so his son, state Attorney General Beau Biden, will have a leg up in the 2010 special election. And an oft-mentioned Colorado Senate replacement for Interior Secretary-Designate Ken Salazar is his brother, Rep. John Salazar.

    There’s nothing new about this story. Political dynasties are as old as the Republic itself. Our current president, 43, was elected just eight years after his father, the 41st, chief executive, was booted from office. The aforementioned Kennedys are an icon of American politics. In January 2009 the Senate will include a pair of first cousin freshmen lawmakers, Mark Udall (D-Colo.) and Tom Udall (D-N.M.)

    The built-in advantages of political lineages are obvious. Voters, like, product consumers, are apt to go with a name brand. Moreover, parents or spouses in office can help raise campaign cash from contributors and lobbyists, thereby creating financial advantages early that can scare off primary opponents.

    But political anti-royalists still can take heart that despite the best efforts of cunning pols and their operatives, voters have often rejected wannabe heirs to political thrones. The halls of Congress are full of lawmakers who beat kin and spouses of legislators who tried to keep their seats in the family.

    Last month Republican John E. Sununu lost his New Hampshire Senate seat to the woman he defeated six years earlier, former Gov. Jeanne Shaheen. Sure, it could be argued that the younger Sununu might have never won high office in the first place were it not for a name strikingly similar to his father, former New Hampshire governor and White House chief of staff John Sununu. Still, in increasingly Democratic-leaning New Hampshire voters nonetheless bounced the political offspring at the first opportunity.

    In North Carolina this year Sen. Elizabeth Dole of North Carolina also lost a Senate seat she had held for only one term. The wife of former Senate Majority Leader Bob Dole, the 1996 Republican presidential nominee, failed to impress Tar Heel voters with her performance. She had spent a minimal amount in North Carolina, preferring the comfy D.C. environs of her Watergate apartment. Her legislative record, meanwhile, was scant. Famous last name or not, voters went with Kay Hagan, a previously little-known state senator.

    The House, too, is littered with the political bodies of defeated congressional relatives. There children of some of the highest-ranking and most influential politicians in the land have come up short.

    Even a politician with relatively enduring popularity, former New Jersey Gov. Christie Todd Whitman, couldn’t help an offspring win high office. In June 2008 her daughter, Kate Whitman, sought an open House seat in the state’s bucolic central regions. But a famous name mattered little to voters, and on Election Day Whitman lost the Republican primary to veteran state legislator Leonard Lance by more than 20 points.

    Or consider Scott Armey, who in 2002 sought the Dallas-area seat being vacated by his father, House Majority Leader Dick Armey. The younger Armey finished first in the Republican primary, but because he did not earn more than 50 percent, a runoff was needed. He ended up losing to Michael Burgess, a doctor and political novice whose literature reminded voters, “My dad is not Dick Armey.”

    The same year, Brad Barton ran for the House in east-central Texas. He is the son of longtime Republican Rep. Joe Barton, who once served as chairman of the powerful Energy and Commerce Committee. Voters were unimpressed just the same, and the junior Barton finished third in his primary.

    Most famously, political royalty did not assert itself in the 2008 presidential race. Former First Lady Hillary Clinton once seemed a shoo-in for the Democratic nomination. But Barack Obama, son of working-class Hawaii and lacking famous relatives, had other ideas. Soon the presidential spouse will be working for Obama, as his secretary of state.

    Should Caroline Kennedy be appointed as Hillary Clinton’s replacement in the Senate, representing New York, she would certainly have advantages in name recognition and fundraising ability over political rivals, Republicans and Democratic primary opponents alike. But the recent history of political offspring and spouses does not mean she can expect voters to keep her around when they next get a say in the matter.

    David Mark is a senior editor at Politico.com and author of Going Dirty: The Art of Negative Campaigning.

  • Good-Bye, Gentry

    The proposed investiture of Caroline Kennedy as the replacement senator for Hillary Clinton has inspired a surprising degree of opposition – at least from other claimants to the throne, such as the Cuomos, and from those obstreperous parvenues, the Clintons.

    Perhaps less obvious may be a wider disdain expressed by even liberal New Yorkers who feel Kennedy’s elevation may be one celebrity rising too many. Although the big New York editorial boards are expected to line up, like so many obedient lap dogs, grassroots dissent seethes. Queens Congressman Gary Ackerman, in a remarkable display of chutzpah, groused: “I don’t know what Caroline Kennedy’s qualifications are except that she has name recognition. But so does J. Lo.”

    Other liberal New Yorkers I have spoken to detest the idea of Kennedy replacing Hillary Clinton – particularly without even having to battle, as she did, through the elective process. One reporter even spoke of a discernible “populist backlash” against this ultimate insiders’ deal among lower-level pols, reporters and grassroots Democratic activists.

    Still, these yelps are not likely to stop the Kennedy juggernaut. The forces behind Caroline – like moneybags Mayor Michael Bloomberg, Wall Street bagman-in-chief Sen. Charles Schumer – are too powerful and well-heeled to be resisted. The word is out that dissenting on Kennedy could result in loss of the kind of largesse that can make or break political careers.

    The disquiet about her appointment does offer a glimmer of hope about our battered democracy. It could point toward a backlash against the gentrification of liberalism, the Democratic Party and much of American politics. Gentry, of course, have been involved in American politics from the earliest time, but generally as a conservative influence tied to the protection of their moneyed interest or privileges.

    Of course, some wealthy hierarchs also supported liberal politics. Perhaps the most important examples were Theodore and Franklin D. Roosevelt. Yet if the Roosevelts favored the middle class and the poor, they often did so at the expense of being labeled class traitors by their peers.

    In contrast, the current gentry liberals increasingly reflect the biases of their own social class. The upper echelons of Wall Street, academe and the media have been moving toward what passes for the “left” for over a generation. Ironically, this movement became most evident in the early 1960s in the elite support that gathered around Caroline’s father, John, who brought with him into office “the best and brightest.”

    As historian Fred Siegel has noted, the Kennedy phenomena differed greatly – in both style and substance – from the “lunch pail” liberalism epitomized by President Harry Truman and, to an extent, that of both Lyndon Johnson and his vice president, Hubert Humphrey. Their Democratic party was sustained by appealing to the economic interests of working and middle-class Americans.

    As opposed to gentry politics, whose bastions lay in fashionable urban districts and college towns, Truman-style democracy reached into the vast suburban dreamscape – even into small towns and rural areas.

    Over recent years this version of the party, with its more geographically diverse middle-class base, has lost influence. It’s been a process of both addition and subtraction.

    A series of strong Republican politicians since Richard Nixon and Ronald Reagan lured many middle-income voters out of the Democratic Party by appealing to their patriotism, economic self-interest and, in some cases, prejudices.

    At the same time, the core of the elite liberal constituency – academics, high-tech businesspeople and media figures – has been growing steadily in wealth and influence. By marrying this constituency to poor minority voters, gentry liberals have turned our core urban areas into a collection of electoral “ditto heads,” with so-called “progressives” winning as much as 70 or 80% of the vote in presidential elections.

    This year’s thrilling primary battle between Sens. Hillary Clinton and Barack Obama represented a clash of these two tendencies. Although Clinton herself enjoyed strong ties to some gentry liberals, she campaigned, particularly toward the end of the marathon, as Harry Truman in a bright pantsuit. Obama, for his part, sallied forth from a solid base of academics and well-educated professionals, as well as African Americans.

    In first the primary and then the general election, Obama’s growing fundraising advantage stemmed increasingly not from his early base among students and liberal professionals, but from his strong ties to the highest echelons of the gentry. As we now know, it was big money – hedge funds, Silicon Valley, Hollywood – not small donors who helped propel Obama’s financial juggernaut.

    Then it’s not surprising that, so far, the Obama pre-presidency reflects the values of the gentry class. His appointments in key economic posts have been very much in sync with the Schumer-Robert Rubin Wall Street wing of the party. Contrary to the hyperventilations of some conservatives, Obama seems as unlikely to confiscate the holders of mega-wealth, inherited or otherwise, as that muddle-headed blueblood, George W. Bush.

    If the president-elect looks to raise taxes, a more likely target will be the less-well-heeled small businesspeople, farmers and others who have tended to remain closer to the Republican Party. These are the people who earn about $250,000 a year and may now be demonized as “rich.” Another source of pain for the middling classes may come from carbon trading, which could boost energy prices.

    Indeed, Obama’s most liberal positioning may come on environmental issues, a favorite concern of many gentry liberals. “Green” politics appeal to these factions in part because it poses little threat to “information” industries like finance, software and entertainment. Instead the losers will be blue-collar polluting industries – such as traditional energy production, trucking or manufacturing – which have largely remained close to the GOP.

    Another arena may be found in new federal initiatives on urban and planning issues. Many gentry liberals, starting with Al Gore, have long disdained suburban lifestyles that allow most Americans an enviable level of privacy, safety and comfort. After all, members of the gentry don’t need supports since they can afford both spacious city digs and country retreats.

    But it’s not only ideology or cultural preferences that drive the gentry agenda. Many venture capitalists and investment bankers see a carbon-trading regime and massive subsidies for renewable energy as a potential source of windfall profits.

    Yet for all of these synergies, Obama’s embrace of the gentry agenda also poses some longer-term political risks. For one thing, there’s a growing cadre of congressional Democrats from non-gentry constituencies – the Great Plains, various suburbs and exurbs – who may find the Obama approach both not sufficiently populist and too dismissive of their basic economic concerns.

    The patterns of this dissent can be seen in the early opposition among these Democrats to the initial plan for the financial bailout proposed by President Bush and House Speaker Nancy Pelosi. It might be further stimulated if the administration seeks to smother fossil fuel, agricultural and industrial development as well as steer the stimulus away from financing the roads and bridges critical to the suburban and rural economies.

    For right now, the drive for the Kennedy nomination suggests how powerful, pervasive and even cocky the gentry class has become. But if the economy worsens and grassroots anger grows, the new president may want to avoid emulating JFK and instead follow another playbook, one oriented toward the middle class and epitomized by Harry Truman – the very same approach that almost helped elect his primary rival and new secretary of State.

    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.

  • Undelivered US Treasury Bonds, 2008

  • Will the Bubble Burst Aspen?

    Aspen is a great town. Its uniqueness extends beyond its spectacular geography to its amenities, people and community spirit. It’s a world-class, year-round Rocky Mountain resort offering great food, music, skiing, shopping – great everything – right in the middle of a real, functioning, small American community.

    It’s no surprise people like it, want to keep it going. And not just the good, smart people who live in Aspen full-time and those who own second homes there (including some of the wealthiest people on Earth), but the thousands of good, smart people who visit every year to address big issues at the Aspen Institute and numerous other forums. These include elites of American arts, sciences, politics and economics with amazing amounts of brainpower and money at their disposal.

    But geographic realities plus inexorable economic, demographic, and social trends are conspiring against the best of intentions. The future of Aspen – playground to the smart, rich and famous – may soon become untenable.

    The financial crisis dominates thinking now. Could it be the catalyst that signals the beginning of the end of business as usual: the start of a major, long-term and permanent change?

    The list of interested parties includes a wide cross section of year-round residents, second homeowners, business and property owners, public officials, visitors, employers and employees, builders and construction companies, managers and personnel at SkiCo (the town’s largest employer).

    I have both personal and professional interests in trends in Aspen, and have been fortunate to visit many times and spend considerable time there over the past 35 years. My in-laws have been gracious and generous hosts (how lucky is that?), and in my role as an analyst of economic and demographic trends, I have been invited to speak, make presentations and attend seminars on many occasions (I always accept!).

    Over the years I have personally seen the transformation from funky (I think the first time I skied there was in jeans and a sweatshirt) to glam and chic. To me it has always posed the classic development problem: how do you both improve and preserve what you’ve got, without setting forces in motion that undermine what you were trying to protect?

    Before the housing and economic meltdown Aspen’s future was considered in State of the Aspen Area 2008, a report commissioned by the Aspen City Council and Pitkin County Board of Commissioners to provide guidance for future decisions on issues ranging from housing to growth management to transportation. The goal was to generate a 10-year community vision for the future, but that future may have to be put on hold.

    The report highlighted several trends that seemed to pose serious challenges for Aspen. Most prominently, it suggested that the Aspen economy was becoming dangerously dependent on real estate and construction, as opposed to the original drivers of skiing, lodging and retail/restaurants. There were many new jobs, but a decrease in available housing for workers.

    Aspen backs up to the Continental divide (closed all winter)! The Roaring Fork Valley is steep and narrow. Low- and middle-income workers must all live and commute “down valley.” But down-valley communities, where one used to be able to find cheap housing, have themselves become too crowded and expensive.

    On top of this the Roaring Fork Valley has moved within sight of being “built out.” Traffic congestion is expanding up and down the valley (there is only one road – Route 82 – to get in or out of town), reaching intolerable levels during rush hours which start earlier and end later. A population of primary and second homeowners increasingly “aging in place” (with large percentages intending to retire in place), taking both their labor and residences off the market, exacerbate existing housing/lodging/worker imbalances.

    The only reason the town “works” now is massive cross-subsidization. The fabulously wealthy subsidize the town budget with high property taxes on their mansions (even though some are in residence only a few weeks a year). They also subsidize the many arts, cultural attractions and charities so ubiquitous to Aspen as well as a range of services for year-round residents, from child care to education, health services, senior services, and police and fire departments.

    Revenues from the rich and ultra-rich also pay for a town government that has a budget of $100 million plus for a town of 6000 permanent residents. In other words, Aspen could not afford itself if it had to rely on itself. Yet it was assumed the system would continue to work indefinitely because of the belief that “there will always be [a need for] an Aspen,” a playground for the ultra wealthy who spent freely and gave generously.

    The burst of the housing bubble, and now the financial and economic crisis, throw that assumption into doubt. Even before the financial meltdown, the usual source of funds – more building to generate more fees, and/or raising taxes on visitors and residents (those both full-time and part-time) – were reaching limits. Now many construction projects have come to a virtual halt; it is no longer certain there will be buyers or a market for the completed structures – developers need to stop bleeding cash immediately. The value of building permits issued in Aspen this year is down 47 percent through Dec. 10.

    Meanwhile the all-important non-profit sector has fallen into a tailspin. Contributions to the arts and other charities are primed to plummet. Endowment funds have lost millions. Sales tax revenue, which is the main tax source, will soon crash due to decreased tourism. Visitor reservations are dramatically down this Holiday season; retail stores are posting “Help Not Wanted” signs.

    As a result, Aspen, a city unused to troubles, now has about all it can handle. Budget cuts threaten to cause havoc. Cuts in services, both governmental and those subsidized directly by the wealthy patrons, seem inevitable. Conflicts among elected officials, business, full- and part-time citizens could get ugly.

    Of course, there is always the possibility that Aspen will weather the storm: after one or two down seasons at most, the number of visitors and dollars collected, spent and donated will resume their inexorable rise. After all, the ultra rich, trendy and connected will always need a playground. The problems listed above are not impervious to solutions; those bridges will be crossed when encountered by lots of brainpower and money.

    In addition, not everyone is alarmed by the economic crisis and housing crash; some Aspen residents are indeed rooting for it, welcoming a lull in the constant construction, development and traffic, and hoping a slowdown will ameliorate such problems as the housing and worker shortages. Fiscal constraints will also bring some sanity back to (what they feel has been) the town government’s extravagance.

    Long, slow decline is certainly possible: less spending, fewer visits, tax receipts, and charitable contributions could unravel the entire structure of cross-subsidization. Could it mean a reversion to the “old Aspen,” the laid-back, counterculture, easy-going, hippy-dippy, live-off-the-land Aspen?

    Maybe so. But perhaps Aspen is facing systemic problems that can not be easily solved. Obviously, there are a great many demands on the area’s land, people, government and businesses. There has never been a consensus in Aspen that growth and development are desirable, even though the town has been dependent upon them. Now that certain limits are within sight of being reached, the already politicized town could become even more polarized.

    The city government has always been composed and supported by year-round local residents, of course, who have always had a love/hate relationship with growth and development: the tourists and wealthy second homeowners bring the city great wherewithal, but they also bring great demands on the area’s carrying capacity and inevitably change the character of the place.

    Of course, these conflicts have always existed, but as the stakes and money involved have grown, they have become more intense. It’s going to be an interesting next few years. See you at the Nell.

    Dr. Roger Selbert is a business futurist and trend guy. He publishes Growth Strategies, a newsletter on economic, social and demographic trends, and is a professional public speaker. Roger is US economic analyst for the Institute for Business Cycle Analysis in Copenhagen, and North American agent for its US Consumer Demand Index.

  • Postindustrial Strength Brain Drain Policy

    In the discussions of the stimulus and infrastructure problem, little attention has yet been paid to addressing brain drain. Yet for many regions – particularly in the old industrial heartland – no issue could be more critical.

    Perhaps the most important investment in regional human capital occurs at local schools. Enterprise looks to the secondary and post-secondary institutions within the area for labor. In this regard, it makes sense to fund better learning with local and state taxes as long as that talent remains within that geography.

    Older industrial age cities and states are particularly dependent on a parochial labor pool. That’s the political legacy of the industrial economy. Workers tended to put down deep roots and this lack of geographic mobility made unions the only means to fight depressed wages.

    But the conventional solution for regional decline has been greater ‘investments’ in education. Yet increasingly high local and state taxes for education no longer make sense. In fact it can be argued that Rust Belt cities such as Pittsburgh have often been victims of their own success. Excellent schools – particularly in the suburban periphery – increased the geographic mobility of the next generation. When tough times hit in the late 70s and early 80s, these young adults were ready to embrace opportunity wherever it may be. When they left for Houston, Phoenix or Tampa, they took all those tax dollars with them.

    Out-migration isn’t a problem when your region is benefiting from some other place’s investment in human capital. But if no one is moving to your city or state, then retention of talent becomes a matter of economic survival. This is difficult to accomplish when your graduates are smart enough to know about greater opportunities that exist all the way across the country. It is also made worse when your local businesses are loath to pay the prevailing national market rate for the labor it needs.

    In this sense then, plugging brain drain can help depress wages and make a place like Charlotte that much more attractive to Rust Belt graduates. Remember, captains of industry made a lot of money exploiting captive labor markets.

    The dependence on local talent also disrupts network migration. Cities that must attract “foreign” workers develop pathways that make it easier for future workers to move there. It also helps connect the local economy to the global one, as has occurred on the west coast, with Asian immigrants opening connections to Pacific Rim economies and in south Florida, where Cuban migration has created a dynamic international business sector.

    Furthermore, getting newcomers helps outsource the costs of cultivating human capital. Low tax regimes bank on in-migration. Poor local schools don’t really matter when the best and brightest from the Rust Belt are moving into your brand spanking new crystal palaces. In this sense, the “legacy economy” is subsidizing Sun Belt boomtowns.

    The Rust Belt needs to learn from the Sun Belt. The game is all about attraction. The geographic mobility of talent within the Rust Belt would be a good place to start. Instead of squeezing the local labor pool, pave a new path to a fellow postindustrial city with a similar tax burden and effectively starve the boomtowns. Your neighboring legacy economy feels the same pain you do. Talent churning between the two locales beats the futility of fighting brain drain.

    Even growth states such as Georgia are overly concerned with who leaves. Sun Belt (i.e. growth) states obsess the out-migration of native graduates as much as Rust Belt (i.e. shrinking) states do. The same policy boondoggle in Ohio exists in Georgia. Across the board, there is a prejudice for homegrown talent.

    In contrast, I think older, now shrinking cities must embrace out-migration and focus more on growing the numbers of newcomers. These people will bring the new ideas and connections regions like ours need. Leave the self-destructive nativism to the Sun Belt.

    Read Jim Russell’s Rust Belt writings at Burgh Diaspora.

  • Joel Kotkin and Mark Schill

  • Go North Young Man

    With his foreign policy team now in place, President-elect Barack Obama certainly will be urged to make his first forays into high profile places like Pakistan, Israel and Palestine, as well as to greet his devoted fan base in Europe.

    But before heading off on the diplomatic grand tour, he might do well to turn his attention first to the country with which we have the closest political, economic and environmental ties: Canada. Although not as momentous or sexy a locale as Paris or Jerusalem, Ottawa could well hold the key to developing a bold new strategy for America in an increasingly incoherent and multi-polar world.

    A focus on Canada and to some extent Mexico as well, would require a reversal of the kind of wide-ranging foreign policy focus that has dominated the country since the 1940s. In that period, the United States has extended – one might increasingly say overextended — its economic and political reach ever further from its continental base.

    In the process, the country has become ever more intertwined with unreliable and often malicious regimes on the Asian continent and subservient to the interests of an often jealous and uncomprehending Europe. As a result, the country has sacrificed its own economic health, becoming ever more dependent on fuel, manufactured goods and even its self-esteem from countries with which we often share distressingly little.

    Instead, the new President should place greater emphasis on the fundamental basis of our uniqueness and economic strength: the enormous continent we share with our Canadian as well as Mexican neighbors. This would represent a return to a version of the politics – so important in our 19th Century emergence – that understood resources, natural and human, constitute the true foundation of national greatness.

    This shift also would help us establish significant psychological distance between the United States and Europe. Although there are segments of the country, notably in the Northeast, who would prefer America become a clone of the Old Continent, our demographic and physical realities are diverging every day from those of a rapidly aging and resource-poor Europe.

    In contrast, Canada shares with America a somewhat more vibrant demography. This is driven largely by immigrants who are rapidly integrating and invigorating both countries. With Australia, the two countries have emerged as the preferred location for immigrants in part because they are where they are – in sharp contrast with that of Europe – most likely to succeed.

    Being a country of immigrant aspiration represents just one aspect of our close cultural ties with Canada. Our northern neighbor ranks among the largest senders of immigrants as well; roughly 840,000 Canadian citizens now have established themselves south of the border. On a familial level millions of Canadians have relations with Americans; in fact, places like Los Angeles, if current and former Canadians were counted, would constitute among the largest cities in that country.

    Canada is also our country’s largest source of visitors – there are parts of Florida where French is the second language – and a major player in our national real estate and financial market. Whole sections of the northern Great Plains depend on consumers coming from over the border. (Full disclosure: Joel Kotkin’s wife is a native of Montreal, Quebec and the Schills live in Grand Forks, an icy spit from the Manitoba border).

    Most critically our economic ties to Canada represent the largest bilateral relationship in the world while Mexico has emerged as our third largest trading partner. And unlike our chronically poor terms of engagement with countries like China and Japan, our trade with Canada and Mexico also includes healthy transactions in basic manufactured goods, technology and farm products.

    At the same time, Canada and United States together share a critical interest in agricultural commodities, a market where they are the undisputed world leaders. In a world that is likely to get too crowded and short of basic resources, a strong North America should be well-positioned in comparison with relatively resource-poor competitors such as Western Europe and East Asia.

    But perhaps the most critical relationship lies in the energy arena. The globally Saudi-centered energy policy of recent years, particularly during the Bush-Cheney era, has fueled our deadliest enemies and also threatens both our environment and long-term economic viability.

    A U.S.-Canada energy consortium — with the eventual involvement of Mexico — provides an out from our fundamental geopolitical dilemma: how to grow our economy while reducing our dependence on imported energy and, over time, carbon-emitting fuels. This could take the form of something like a North American Energy Community, which would help coordinate research, development and environmental resources across the continent.

    This approach would offer a way to shift our economic interests away from unreliable and unfriendly regimes towards countries with whom we have far better personal, political and economic ties. Current estimates indicate we will increase oil imports from 12.6 million barrels a day today to 16.4 million in 2030. More than half of that is expected to come from OPEC suppliers, with much of the rest from Russia and the Central Asia autocracies.

    A continental strategy would halt this dangerous slide. Taken together, the resources of our three countries are both immense and extraordinarily diverse. Overall, North America ranks second only to the Middle East in proven oil reserves. Canada, for example, has the world’s second largest proven crude oil reserves, outpaced only by Saudi Arabia; the United States ranks 11th and Mexico 14th. The three North American states rank in the top fifteen in natural gas production, as well.

    This alliance can work both in the short run on fossil fuels and will, over time, blossom with the shift to renewables. Canada, well known for its surplus of fossil fuels, also possesses promising potential in hydroelectric and wind energy. Wind alone, Canadian researchers believe, could provide 20 percent of that nation’s power. Prince Edward Island, on the country’s east coast, is already conducting a major experiment to shift its primary energy dependence towards wind and biomass.

    Mexico, long an oil exporter, needs new technology both to upgrade its current energy industry and to exploit its potential in renewable fuels. Over time, experts say, Mexican production of fossil fuels will drop, but the nation has an almost totally unexploited potential in solar and sugar-based ethanol fuel, following the Brazilian model. For its part, the United States also has considerable solar, wind, and biofuels, of which we are already the world’s second largest producer.

    This energy alliance would also help spark employment and growth across the continent. Money spent on development and importation of energy from Russia, Saudi Arabia, or Iran offers few benefits for our economy. We conduct pathetically little export trade with these nations; we constitute less than 5 percent of Russia’s imports, less than 14 percent of Saudi Arabia’s, and virtually none of Iran’s. Europe, Japan, and, increasingly, China – not the United States – are the growing and primary beneficiaries of the energy-producers’ wealth.

    The same dollars spent within North America have a very different effect. Canada and Mexico together constitute by far the largest export market for the United States. Over one third of our exports now go to our North American allies, compared to less than 5 percent to OPEC and less than one percent to the Russian Federation.

    Investment in Mexico’s Peninsula de Atasta, an ethanol plant in Iowa, or a hydroelectric plant in Quebec enriches customers for whom the United States is a primary source of both manufactured goods and of services, including tourism. A wealthier Mexico also means more visitors to the parks of Orlando, Anaheim or to Houston’s Galleria. Canadians, for their part, flock first to New York, Seattle, Chicago, Los Angeles or Florida when they have extra change to spend.

    So as he considers his options, President-elect Obama may want to consider this continental strategy as a means to create new wealth here and to strengthen our hand abroad. We know these proposals are radical, and will be subject to all sorts of opposition by well-organized pressure groups.

    But by focusing on our continental economy, the United States can begin facing the world not as another slowly declining European descended power but once again as a youthful, defiantly multi-racial and ascendant one.

    This piece originally appeared at Politico.com

    Joel Kotkin is a presidential fellow at Chapman University and is finishing a book on the American future. He is executive editor of www.newgeography.com. Mark Schill is the site’s managing editor and an associate at the Praxis Strategy Group.

    December 19, 2008

  • Hyde Park, St. Louis: Are We Almost There Yet?

    Among potential titles for this article about the Hyde Park neighborhood of St. Louis, I played with The Archaeology of Stasis. My husband suggested It’s Not Happening Here. But neither seemed right. Both were too depressing to describe a place where people are working hard for change. I wanted a title that suggested a lot of hard work, but hope nonetheless.

    I recently toured the neighborhood on a chilly Sunday morning with a former graduate student of mine, Dan Gaeng. Hyde Park is in north St. Louis, near downtown. Its roots extend to the 1830s and ‘40s, when large numbers of German Americans settled there. Today, it is predominantly African-American. Dan, whose dad grew up in Hyde Park, had written a paper about the neighborhood, and it captured much of what I feel about the city of St. Louis in general. All the ingredients are here for a city that can turn the corner and make urban living a reality for a wide swath of folks – a few solid industries, devoted locals, an ideal location for communication and transportation with the rest of the nation, beautiful old housing stock, at least the bones of a viable public transportation network, ongoing local traditions, and affordable living. Yet St. Louis never seems to get there.

    There are some neighborhoods that have done it, to be sure. And downtown looks a lot better than it did when it served as the post-apocalyptic setting for “Escape from New York.” But there’s still a sense that St. Louis is stalled, moving neither toward recovery nor toward total desolation.

    The negative tinge to my headline candidates no doubt owed something to Kenneth Jackson’s 1985 Crabgrass Frontier. The author traces the construction of interstates, federal housing programs, mortgage lending practices, and white flight to explain the abandonment of urban cores for increasingly distant suburbs. St. Louis is a poster child of the phenomenon. Jackson quotes former St. Louis mayor Raymond Tucker, who explained in frustration, “We just cannot build enough lanes of highways to move all of our people by private automobile, and create enough parking space to store the cars without completely paving over our cities and removing all of the economic, social, and cultural establishments that the people were trying to reach in the first place.”

    Excoriating a 1973 RAND study that suggested that St. Louis could become “one of many large suburban centers of economic and residential life,” Jackson suggests that “such advice is for those who study statistics rather than cities. Too late, municipal leaders will realize that a slavish duplication of suburbia destroys the urban fabric that makes cities interesting.”

    And he paints a grim picture of neighborhoods like Hyde Park, as he notes St. Louis’s declining population. “Many of its old neighborhoods have become dispiriting collections of burned-out buildings, eviscerated homes, and vacant lots. Although the drone of traffic on the nearby interstate highways is constant, there is an eerie remoteness to the pock-marked streets. The air is polluted, the sidewalks are filthy, the juvenile crime rate is horrendous, and the remaining industries are languishing. Grimy warehouses and aging loft factories are landscaped by weed-grown lots adjoining half-used rail yards. Like an elderly couple no longer sure of their purpose in life after their children have moved away, these neighborhoods face an undirected future.”

    Twenty-three years after Jackson’s words, Hyde Park’s perseverance suggests that his portrait, while apt, misses a remarkably resilient local pride. Indeed, one title I considered was On the One Hand, On the Other Hand. It’s not that Hyde Park hasn’t suffered from the very trends that Jackson describes. In the mid-1950s, I-70 split the residential side of the neighborhood from its industrial workplaces. Pedestrian traffic virtually stopped. The decline of industrial employment in the city and white flight followed. The neighborhood appeared to hit bottom in the late 1960s, when youths began stealing from elderly residents.

    Since then, a series of revitalization efforts have made their own mark. The result is a patchwork of hope and despair. Renovated nineteenth-century homes mix with recently constructed townhouses, shuttered and crumbling row houses, and piles of burnt-out bricks. Some owners clearly take pride in their houses and yards (many yards still proudly displayed Obama signs on my post-election tour), while other properties appear barely occupied. The traces of old business names are visible on the bricks. It’s just the kind of local color that proponents of gentrification are fond of preserving, but there are few local businesses in operation now. An artist has purchased a former library, which he hopes to turn into a gallery, but it’s not yet open, and there’s no public art in the neighborhood.

    There is a full grocery store on the northern edge, but it’s a hike from the most vibrant part of Hyde Park, the cluster of homes that surround the still-active Holy Trinity Catholic Church and parish school. The church has bought up some of the area’s property and encouraged resettlement, much of it in Section 8 housing, but three of the most recent homes are shuttered because no one has purchased them. Former locals and parish school graduates do return to church on Sundays, but the neighborhood is now mainly non-Catholic.

    A local developer, who calls his company Blue Shutters (to contrast with the ubiquitous red shutters that signal the city’s purchase of a desolate building), has renovated several houses. He also has plans for the Turnverein, a one-time German exercise hall, which could serve as a community center. Dan mentioned that his parents held their wedding reception there. Unfortunately, the Turnverein had a serious fire in 2006. As the St. Louis blog “Ecology of Absence” noted, the fire received hardly any attention in the St. Louis Post Dispatch. The neighborhood received historic district status in the 1970s, but when I mentioned to my co-workers, students and neighbors that I had toured Hyde Park, none of them knew where it was.

    And maybe that doesn’t matter. I see no way that Hyde Park could become the kind of gentrified neighborhood that lures hipsters and boutiques, and makes city council members salivate. Moreover, the folks who have committed themselves to the slow and steady efforts of revitalization don’t seem to want their home to be such a place. As one of the residents whom Dan interviewed said, “Other people have wondered why I haven’t left, and I say, ‘Why should I? I’m fine here’. The neighbors look out for each other, and I like the house and neighborhood. There is a nice mixture of people, from the poor to the college educated and well-off. That’s important to me. I don’t want to live in just a homogeneous upper-middle-class area.”

    A remarkably diverse selection of institutions and people are involved in Hyde Park’s revitalization: “Ecology of Absence” blogger Michael Allen (also the Assistant Director of the Landmarks Association of St. Louis), Holy Trinity Church, and the Friedens Neighborhood Association, which is training local high school drop-outs in construction trades and providing G.E.D. preparation. Of course, there are also the dedicated folks who patiently turn out for one redevelopment meeting after another to plot the painstaking steps – the creation of an entry monument, for example, or streetscape enhancements – that could turn Hyde Park into a place that feels fully inhabited.

    It’s possible that twenty-three years from now Hyde Park will make me think not about Crabgrass Frontier, but about another book I read with my graduate students: Charles Payne’s I’ve Got the Light of Freedom, a study of the grassroots efforts behind the Civil Rights movement in Mississippi. Activist Ella Baker called the day-to-day efforts behind the movement “spade work.” It’s not glamorous and it doesn’t get a lot of credit, but there’s no real movement without it. There’s a lot of spade work going on in Hyde Park. It just might build a place.

    For more on Hyde Park, see:
    Ecology of Absence Blogspot, Friedens Neighborhood Foundation, Landmarks Association of St.Louis, St.Louis Development Corp.

    Flannery Burke is an assistant professor in the Department of History at St. Louis University. Originally from Santa Fe, New Mexico, she writes about the American West, the environment, Los Angeles, and St. Louis.