New Geography

Blog

  • Public Investment, Decentralization and Other Economic Lessons from the New Deal

    The first lesson to be learned from this earlier era is that a large middle class requires an economy that generates a broad base of jobs paying middle-class wages. The New Dealers were not opposed to “rigging” the labor and financial markets to achieve this result. New Deal progressives believed the economy should exist to serve society, not the other way around, and that the government has a duty to shape the economy to meet middle-class aspirations. A high-wage, middle-class society would, in turn, be good for the economy: living wages would not only ensure adequate demand for the economy but in so doing would spur new investment and productivity growth, creating a virtuous circle of rising living standards.

    The belief of New Deal progressives in an economy that could create good middle-class jobs stemmed in part from their resistance to large social welfare subsidies to individuals, on the grounds that this would encourage an unhealthy dependence on the state. Moreover, even though they favored progressive taxation, New Dealers were skeptical of a society dependent upon the permanent redistribution of income. The principal goal of many New Deal programs was not to relieve the conditions of poverty -although they often did so – but to build physical and human capital that would allow people to escape permanently from poverty.

    Thus New Dealers emphasized government programs that expanded education, spread property ownership, invested in America’s common physical and knowledge capital, and seeded the industries of the future. It was not perfect, in large part because it preceded the civil rights revolution and thus left out millions of African-Americans, but it did build the largest and most secure middle class America has ever known.

    Today we see the consequences of a much different way of thinking about the economy and society. Over the past two decades we have been told that globalization is an immutable force and that we must bend to its demands, embracing the agenda of free trade, financial deregulation and less progressive taxation. The best we can do, we’re told, is to let globalization run its course and compensate the losers, even though no amount of new social welfare measures could compensate for the loss of millions of good-paying manufacturing jobs. Thus, without any real debate, America’s political elites have chosen for us a highly stratified, low-wage society with great costs to our middle-class way of life and to our productive economy.

    The second New Deal principle is about achieving a high-wage economy and at the same time more widely distributing the capital and skills for wealth creation. The principal policy tool the earlier generation used was massive public investment and public building. The public investment programs they pursued not only created many new middle-class jobs but also laid the foundation for a more productive economy, which led to even more middle-class jobs.

    Agencies like the Tennessee Valley Authority in the 1930s and ’40s were followed by even more extensive public investment initiatives in the postwar years. From 1950 to 1970, the government spent more than three percent of GDP on public infrastructure alone. It built everything from highways to schools, power systems to parks.

    Throughout the New Deal era, public investment was America’s way of enacting industrial policy. It was understood that public investment paid for itself many times over. The GI Bill alone generated returns of up to $7 for every dollar invested. And because it generated returns to the economy and society, New Dealers in the postwar period were not afraid to raise taxes or to borrow in order to ensure adequate levels of public investment. And borrow they did, even though the national debt was a much larger percentage of GDP than it is now.

    For the past few decades, however, we have made a very different choice. As concerns over the budget deficit have grown, and as tax-cutting mania has taken hold, we have cut back on public investment. Since 1980 we have devoted less than 2 percent of GDP to public infrastructure and have allowed federal spending on basic research and development to decline as a percentage of GDP as well. As a result, a backlog of public investment needs – clogged roads and ports, collapsing bridges and levees, uneven broadband access, an antiquated air traffic system, an undersized energy infrastructure – has begun to cut into our economic growth and undermine our efficiency.

    A third principle of middle-class America that the New Deal offers us relates to the concentration of power and capital. Earlier progressive reformers distrusted such concentrations. Not only did they threaten democracy, they also warped the economy and distorted consumption and investment. Government therefore must be a strong countervailing force to big business and oligarchic power, and must be organized so that it cannot be captured by one economic group at the expense of another or the general public.

    The New Dealers were particularly concerned about the power of Wall Street and the financial community. They feared a national credit system that was dependent on Wall Street bankers, whose interests were not always aligned with the needs of homeowners, farmers and small and medium-sized producers. They therefore sought to democratize capital by creating myriad credit institutions that would ensure that all regions and sectors of the economy had access to capital. They created a variety of federally subsidized credit programs to enable people to construct homes and start businesses and to allow states and municipalities to build schools and modernize infrastructure. It was here that the New Deal was most creative – combining a strong federal state with the local and regional decentralization of capital and the local and regional control of these programs and institutions.

    As with other first principles of a middle-class America, we have seen a reversal of priorities over the past few decades, as big financial institutions have again asserted their influence over the economy and economic policy. The new power of Wall Street has been evident in its successful push for financial liberalization and deregulation, in the emphasis accorded the deficit and concerns about inflation as opposed to full employment, and until recently in Washington’s preference for a strong dollar, which favors financiers over real producers. This triumph of Wall Street over Main Street has been responsible in part for the hollowing out of the tradable-goods sector and for the asset bubbles and predatory lending that have wreaked havoc on the economy. Indeed, one of the first things the New Deal would have us do is re-regulate the financial system and put the interests of the productive economy over those of Wall Street.

    In all these respects, whether it be high wages, public investment or the decentralization of financial power, the New Deal succeeded because it changed the way the economy worked. And it did so by marrying progressive reforms with Americans’ preference for independence, whether from government subsidy or big-business paternalism. This is the enduring lesson of the New Deal.

    Sherle Schwenninger directs the New America Foundation’s Economic Growth Program and the Global Middle Class Initiative. He is also the former director of the Bernard L. Schwartz Fellows Program.

  • Black Migration out of California

    This recent article in the San Francisco Chronicle discusses how politicians in the city are trying to stem the flight of blacks from the city – who now only make up 6.5 percent of the city’s population (it was 13.4 percent in 1970).

    There are two problems with this article. One is it fails to contextualize the pattern of black migration in America. As this report from William Frey of the Brookings Institute points out, black population growth is shifting to the South and to newer communities in the West with a lower cost of living. If you look at a map of California in Frey’s report, you’ll see 25 percent population growth of blacks in some suburban communities.

    Secondly, the article doesn’t link this occurrence to current economic trends in San Francisco. The city is increasingly becoming a haven for the very wealthy which is pushing out the middle and lower earners – and blacks in the city are more likely to fall into this income bracket.

    Finally, albeit a small reason, Section 8 vouchers are moving some working class blacks to the suburbs.

    If you read the Chronicle article, it sounds like the City is being very antagonistic towards the black community. Perhaps it is in an inadvertent economic way. I think that perhaps the bigger culprit is that the city is not hospitable to the middle class and families any longer. And secondly, college-educated and affluent blacks are choosing to live in cities like Atlanta where there is a higher concentration of black professionals and business and cultural centers.

  • The New Deal at 75: An Inspiration, Not a Blueprint

    Whatever your political perspective, Americans need to admire the New Deal for, if nothing else, its ambitious agenda. In a way unparalleled in the 20th Century, the New Deal left us a legacy of achievement – one that we can still see in big cities like San Francisco and small towns like Wishek, North Dakota.

    The great genius of the New Deal lay not in ideology but in its pragmatism and practicality. People were out of work so it created jobs. The country’s infrastructure, particularly in the rural areas, was primitive, so it took on the task of modernization.

    In some ways, this paralleled what was also being done under the Communists in the Soviet Union as well as under Fascists in Italy and under the National Socialists in Germany. This has led some conservatives, such as “Liberal Fascism” author Jonah Goldberg, to conflate the New Deal legacy with fascism. But this assertion is belied by the fact that we still live under a democratic and liberal political structure, one that by the 1980s had turned to oppose much of that legacy.

    Yet I believe that even Ronald Reagan – himself once an avid New Dealer – would admit that the New Deal did much to expand America’s middle class. It did so not by promoting redistribution and welfarism or by moral cajoling – characteristics Mike Lind identifies with the more elite Progressives – but by practical actions that gave people the tools with which to build their own individual prosperity.

    Economically speaking, it is also true that the New Deal failed to recreate prosperity (at least until the onset of the Second World War). But it cannot be denied that it literally brought light to large parts of the country – particularly the Southeast and the rural Great Plains – into the 20th Century. Among the New Deal’s great accomplishments, as Andy Sywak discusses, are its public works.A partial list of these accomplishments include:

    • 22,428 road projects
    • 7488 educational buildings
    • Over 7000 sewer, water and other public buildings
    • Employed over 3,000,000 workers earning who helped support 10,000,000 dependents
    • Employed 125,000 engineers, social workers, accountants, superintendents, foremen and timekeepers scattered in every state and community

    Ultimately, notes scholar Jason Scott Smith, the New Deal touched intimately the lives of more than fifty million out of a total U.S. population in 1933 of 125 million. Yet its legacy went well beyond the Roosevelt years, extending from Roosevelt and Truman all the way to Eisenhower, Kennedy, Johnson and, even to some extent, Richard Nixon.

    As Sherle Schwenninger points out, The New Deal created the basis for the great, and widely shared, national prosperity of the post-war period. Through infrastructure spending, housing programs, the GI Bill and government-funded scientific research, the New Deal directly and indirectly helped make the United States the premier power on the world scene and by far its strongest economy.

    America remains the preeminent country in the world, but there is a great, widely held belief that this status is slipping as other countries – China, Russia, Brazil, India – enact what amounts to their own New Deals. Our once vibrant middle class is under siege, our infrastructure is aging and even “progressives” seem more interested in promoting avant garde cultural values than in economic growth, upward mobility or maintaining technological excellence. Even in the field of conservation, a core value of the New Deal and progressive traditions, the focus is increasing less about preserving resources and open space for people, and more about how to preserve and insulate nature from the ill-effects of human carbon-based life forms.

    Yet if we can be inspired by the New Deal, we can not simply repeat it. For one thing, our crisis today is less palpable and immediate, making it all but impossible to mobilize resources in the same way. At the same time, the public sector, small at the onset of New Deal, has already swollen to gargantuan size. The power of organized public employees, largely a non-factor in the 1930s and 1940s, threatens any government initiative by siphoning off too many local and federal resources due to their often extravagant demands in everything from salaries and work rules to pensions.

    This can be seen in the morphing of the New Deal legacy in large cities including the greatest of all, New York. Under Mayor Fiorella La Guardia, a maverick Republican of the Theodore Roosevelt stripe, the city built new parks, playgrounds, swimming pools, roads, and sanitation systems with an almost messianic fervor. At one time, New York City was receiving one-seventh of all funds dispersed by the Works Progress Administration (WPA).

    Yet La Guardia’s expanded city government, notes Cooper Union historian Fred Siegel, still operated under an efficiency-oriented progressive administration. La Guardia and his parks commissioner, Robert Moses fired political appointees and dismissed incumbents, leading some public employees to identify him with the Italian dictator Mussolini. Rejecting narrow ideology, La Guardia famously claimed: “There is no Republican or Democratic way to clean streets.”

    La Guardia’s successors, in New York and elsewhere, did not stick to this moral and administrative rigor. The share government workers in New York’s workforce expanded from 10 percent in 1950 to over 17 percent in 1970s but with increasingly little accountability. If a new New Deal means a large expansion of the unionized public workforce, in New York or elsewhere, it will be largely doomed.

    So as we admire the achievements of the New Deal, we also need to keep in mind the shortcomings that grew out of its success. That we need a new powerful commitment to infrastructure and economic growth is undoubted, but in pursuing this we need to make sure it does not serve primarily the public employee lobbies and the well-organized rent-seeking private interests.

    New solutions, such as tapping abundant capital resources from both here and abroad, need to be tried out. And given the overconcentration of power already in Washington, and the spread of technical expertise to states and regions, a greater emphasis on locally based initiatives may work better this time around.

    Yet in the end, American still requires some form of broad initiative to overcome its current doldrums. This requires the same kind of bold, innovative and pragmatic spirit characteristic of the New Deal that three quarters of a century later remains its most useful legacy.

    Joel Kotkin is the Executive Editor of www.newgeography.com.

    Other New Geography New Deal articles:

    The New Deal & the Legacy of Public Works
    New Deal Investments Created Enduring, Livable Communities
    Progressives, New Dealers, and the Politics of Landscape
    Public Investment, Decentralization and Other Economic Lessons from the New Deal
    Emerald City Emergence: Seattle and the New Deal
    Excavating The Buried Civilization of Roosevelt’s New Deall

    Other New Deal sites:

    New Deal Network (sponsored by the Franklin and Eleanor Roosevelt Institute)
    New Deal Cultural Programs
    California’s Living New Deal Project

  • New Deal Investments Created Enduring, Livable Communities

    Growing appeals for more public infrastructure investment make two critical claims: that this would help stimulate the economy in the short run while making our country more productive over the long run. Unlike tax rebates and other short-term stimulus, a major infrastructure investment program can have powerful effects on community life beyond boosting spending at the local Wal-Mart.

    I thought about this recently when I visited my boyhood hometown of Wishek, North Dakota. Wishek is a small, farming town of 1,200 people nestled in the gently rolling hills of the central Dakotas, about 17 miles from the South Dakota border. Its population is made up largely of people who trace their origins to German immigrants from Russia. These people previously were recruited by Catherine the Great to farm the steppes near the Black Sea.

    Seeing a greater opportunity in North America, these Germans started to arrive in 1885 to homestead the Dakotas’ deep sod prairie – a glacial moraine of earth and rock. They were lured by the romantic thrill of developing a “Territorial Empire” that later became the states of North and South Dakota.

    This dream was widely realized by the 1920s but all but dried up and almost blew away during the drought-ridden thirties. That dream would have extinguished if not for the enlightened programs of the New Deal — from soil conservation to loans for farmers to the Works Progress Administration (WPA).

    Growing up in Wishek during the 50s and 60s, you rarely heard about the New Deal. Life was good, pretty much everything you might imagine small town childhood to be in Middle America. The pace of life was easy; everyone knew everyone and almost everything about anyone. The fortunes of the community rose and fell with farm prices, sometimes fluctuating wildly from year to year. Kids roamed freely on foot and in cheaply fueled cars and there were ample opportunities to participate in almost every facet of community life. With a k-12 school population of about 500 to 600, any child or young person who wanted to could play some kind of role in sports, arts and music, or church related activities.

    Unknown to me — and not widely discussed by the 1960s — was how many of the community’s best and most used facilities were constructed by the WPA. During the drought years of the mid-‘30s, the city park was enlarged and developed with a children’s playground, clay-surfaced tennis courts and a light skating rink paid for by WPA. Later a $6,000 bond issue was floated to build a pool that was designed by WPA engineers and is still in use today. Then in 1942 a new auditorium — a truly landmark building for the community — was completed for use by the school district. The auditorium continues to be used today as a civic center for community and family events including Wishek’s premier regional event the annual Sauerkraut Days.

    This investment strategy in community infrastructure was played out across North Dakota. Elwyn B. Robinson, in his classic “History of North Dakota,” recounts the massive investment in North Dakota:

    “In North Dakota the W.P.A. alone, between July 1, 1935 and June 30, 1942, built 20,373 miles of highways and streets, 721 new bridges and railroads, 166 miles of sidewalks, 15,012 culverts, 503 new public buildings, 61 additions to public buildings, 680 outdoor recreation facilities, 809 water wells, 2 irrigation projects, 39 sewage treatment plants and 9 water treatment plants. It reconstructed 1,002 bridges and viaducts, 2,180 public buildings and 1,721 culverts.”

    To be sure, today is not the “dirty” thirties of the Dust Bowl. It is also far different from the serene place of my boyhood in the 50s and 60s. Some of the old infrastructure needs maintenance while other infrastructure needs have changed significantly. A proposed wind farm just south of town, for example, has been delayed because of the lack of electric transmission capacity throughout the region. In addition, like many rural communities the major employment base is now in manufacturing and health services, pointing to the increasing and essential importance of broadband telecommunications, roads and air service that permit link places like Wishek with the national and international economy.

    Yet if we look about us, the legacy of New Deal endures to this day. It provides clear evidence of the impact that infrastructure investment can make on even the smallest of communities. Much of the current discussions about infrastructure investment too often focus on the giant projects and national implications. However, the case for a renewed investment agenda can be made most persuasively by pointing out what such investments have done for local communities — city or small town — in the past. And what they might have failed to become if there had never been a New Deal.

    Delore Zimmerman is CEO of Praxis Strategy Group and Publisher of www.newgeography.com.

  • The New Deal & the Legacy of Public Works

    Almost completely ignored in the press this year has been the 75th anniversary of the New Deal. Social Security, public housing, school lunches, deposit insurance, labor relations standards and banking regulations are among its many enduring legacies. On this anniversary, it is worth looking at the public works programs that constructed roads and buildings that still exist in every county in America.

    In a nation where a quarter of the adult population was unemployed, the immediate goal of the New Deal was to provide temporary relief for Americans who were destitute and put them back to work. The failure of the Hoover Administration to either curtail the Depression or inspire people created a political climate for dramatic action.

    During FDR’s first 100 days – called the “First New Deal” by historians – a truly impressive list of legislation was passed. Prohibition ended, the Tennessee Valley Authority was created eventually bringing electricity and development to an impoverished area of the South, and controls were placed upon industrial practices, Wall Street, labor relations and farm output. The Civilian Conservation Corps, which ended up planting two billion trees across the country, was founded. A historian would be hard pressed to find a more energetic first 100 days of any administration.

    Yet one of its most far-reaching accomplishments was the Federal Emergency Relief and National Industrial Recovery acts which created the bureaucracy to institute public relief by funding large-scale public works. Under the system, states applied for grants from the federal government. Over the next ten years, the government would spend nearly $9 billion dollars though the Civil Works Administration (CWA), Public Works Administration (PWA) and the Works Progress Administration (WPA).

    The depth and social unrest created by the Depression provided motivation for New Deal officials to act quickly and decisively. The official who was the center of the action was Harry Hopkins. A hyper-competent social worker who had created a program to deliver services to mothers with dependent children in New York City and founded the American Association of Social Workers, Hopkins jumped into his role as head of federal relief with tremendous vigor. After a five-minute meeting with Roosevelt on his first day of work in May of 1933, he was dispatched to a cockroach-infested building on New York Avenue where, by the end of the day, he had dispensed with $5.3 million in aid to eight states. In a year’s time, Hopkins had created a jobs program that spent a billion dollars and provided badly needed jobs to over three million people during the cold winter of 1933 (the average wage was $13 a week). He spent money quickly – perhaps too quickly, some maintained – but his focus was to respond to FDR’s demand to quickly create jobs and alleviate misery in the country.

    But Hopkins was not a welfare statist. His career as a social worker had taught him that individuals did not want to be “on the dole,” living off the largesse of the state. By finding work for unemployed breadwinners, Hopkins believed he could keep families strong and enable them to retain their pride despite the hard times.

    This psychological aspect should not be underestimated. The Depression was more than a huge decline in GDP, vast unemployment and lost industrial output – it was a great identity crisis for a nation that placed great value on self-sufficiency and self-reliance. Look at New Deal art (another achievement of the New Deal are all the beautiful murals still in existence created by government funded artists) and you will see a glorification of labor. Frescos from San Francisco to New York depict colorful scenes of men hard at work.

    Today bureaucrats stress cost-effectiveness ratios, but New Deal reports were most concerned with how many jobs a project provided. Conservative critiques of the New Deal for a mixed record of achieving economic growth often miss this critical point. The official report of WPA projects in San Francisco, for example, lists as its main achievement how “the program contributed to the continuance of the normal standards of living of the working man’s family in San Francisco and maintenance of the courage and morale of the ordinary citizens through a most distressing period.” Expenses for projects are listed not just in dollar amounts spent but also in the number of “man hours” provided to workers.

    When Roosevelt ran for re-election the first time in 1936 (“Four Years Ago and Now” was his campaign slogan), he could claim six million jobs had been created in the last three years. He could point to a doubling of industrial output and the creation of a Farm Credit Administration that on an average day saved 300 farms from foreclosure. Still, eight million people were still out of work in 1936 and the public works programs, historically audacious they were, did not solve many of the nations entrenched economic and social problems. Roosevelt himself did not want his public works programs to compete with private industry or to create dependency on the state.

    Yet, looking back at the WPA and its companion public works agencies, the list of lasting contributions to the nation’s infrastructure are indeed impressive: 78,000 bridges, 650,000 miles of roads, 700 miles of airport runways, 13,000 playgrounds, hundreds of airports built and 125,000 military and civilian buildings were constructed. The roads and public works constructed by the WPA and PWA ended up being lasting infrastructure investments.

    However, perhaps the New Deal’s most enduring achievement was creating a sense of unity at a time of unparalleled economic crisis. Whereas the nation had previously elevated Horatio Alger -style self-reliance, the New Deal tapped into the creative industrial potential both of common unskilled laborers and thousands of skilled and creative workers. It created a sense of pride among millions who for the rest of their lives could point to public buildings they helped design and build, as well as the roads they laid out and paved.

    The 1930s produced the Hoover and Grand Coulee dams, the Golden Gate and Bay bridges, La Guardia Airport and the San Antonio River Walk. Besides some luxury high-rises, high-tech sports stadiums with retractable roofs and edgy art museums, what great things have we achieved lately?

    Andy Sywak is the articles editor for Newgeography.com.

  • Progressives, New Dealers, and the Politics of Landscape

    One of the greatest ironies of our time is the fact that today’s leading progressives tend to despise the very decentralized landscape that an earlier generation of New Deal liberals created.

    Franklin Roosevelt and his successors from Harry Truman to John F. Kennedy and Lyndon Johnson sought to shift industry and population from the crowded industrial centers of the Northeast and Midwest. They did this through rural electrification based on hydropower projects, factories supplying the military and federal aid to citizens seeking to buy single-family homes in low-density suburbs.

    This is precisely the environment – which brought so much opportunity and improved living conditions to so many – that today’s progressives so often despise. Since the 1960s, environmentalists, for example, have waged a campaign against the great dams that symbolized New Deal economic development policies. Artificial lakes that generate electricity for millions of suburban homeowners and businesses, and have brought an end to devastating, cyclical floods, are condemned by progressives for having wiped out local fauna and flora. And it goes without saying that the middle-class swimmers, picnickers and motor-boaters that enjoy government-created lakes on weekends are… well, vulgar.

    Similarly, the defense plants that the Roosevelt, Truman and Kennedy-Johnson administrations scattered throughout the country are often lambasted as emblems of the fascistic “military-industrial complex,” part of a wicked “Gun Belt.” In fact, industry is increasingly seen as undesirable by today’s Arcadian progressives, who appear to believe that it would have been better to leave the farmers of rural America as quaint specimens of authentic folk life.

    But nothing riles the progressives of today than the low-density, single-family home suburbs made possible by New Deal liberal homeownership policies. Since the 1950s, intellectuals on the left have been bemoaning the alleged cultural sterility and conformity of the suburbs. Now anti-sprawl campaigners allege that the suburbs are also destroying the planet.

    So the question is: How did the American left, in a short period of time, come to repudiate the New Deal and the American landscape it created? The answer is simple: today’s center-left, which calls itself progressive rather than liberal, is not the heir of New Deal liberalism. It is the heir instead of early twentieth century elite Progressives, who were shoved aside and marginalized during the heyday of New Deal liberalism.

    The original Progressives were overwhelmingly professionals and patricians of old Anglo-American stock in the Northeast and Midwest, many of them the children of Protestant clergymen, teachers or professors. They despised the nouveau riche of the Gilded Age, but also tended to view European immigrants and white and black Southerners as benighted primitives.

    Their vision of the ideal society, influenced by the Hegelian Idealist culture of Bismarckian Germany, was one in which a university-trained elite ran everything with minimal interference by ignorant voters and crass politicians. As heirs of the moralistic Northern Protestant Whig and Republican traditions, these Progressives also had a strong interest in the social engineering of private behavior, from prohibition to eugenic sterilization.

    From Reconstruction until the Depression, Progressive moralism and elitism alienated European immigrants and rural Southerners and Westerners alike. This benefited the industrial capitalists of the dominant Republican party. Franklin Roosevelt created a powerful, but fundamentally unstable, Democratic majority by adding many former Republican Progressives to the old Democratic coalition of Northern white “ethnics” and white Southerners.

    Yet in the process Roosevelt helped undermine many of the signature initiatives of the progressives, starting with the repeal of Prohibition, a policy loathed by German and Irish Catholic voters. It signaled a repudiation of the Whig-Republican-Progressive ambition to use the federal government for moral reform and social engineering. (FDR’s tactical appeasement of Southern segregation had a similar tactical logic).

    Another goal of Progressives, economic planning, died with the collapse of the National Recovery Administration (NRA) in the first Roosevelt term. Jettisoning the Progressive dream of a planned economy run by technocrats, the Roosevelt administration instead focused pragmatically on state-capitalist public infrastructure projects like the Tennessee Valley Association (TVA) and the Lower Colorado River Association (LCRA).

    Plans for an all-powerful executive civil service subordinate to the White House – a progressive reform that FDR unwisely favored – were rejected by a Congress jealous of its prerogatives and suspicious of executive power. Finally, nanny-state supervision of the poor, another Progressive theme, found little sympathy among New Deal Democrats, who preferred universal social insurance to means-tested public assistance, and preferred employing the able-bodied poor in public works to what FDR called “the narcotic” of the “dole.”

    The New Deal ultimately left little of the old Progressive project but created what could be considered a Golden Age that lasted until the 1970s for the white lower middle class majority. Progressive intellectuals and activists, however, sensed that they had been marginalized. Over-represented in the prestige press and the universities, they increasingly denounced what they saw as the vulgarity of the New Deal’s constituency.

    The assault on the suburbs was one of the most powerful expressions of this discontent. It was led by two figures. One was Jane Jacobs, the romantic chronicler of dense urban life, and its villain in New York’s highway-building Robert Moses. A rival school, headed by Jacobs’ enemy Lewis Mumford, sang the praises of planned “organic” villages – “highwayless towns” connected by “townless highways.” The Mumfordian strain of Progressive planning is represented today by the New Urbanism, with its hyper-regulated low-rise pedestrian communities.

    The resurgent progressives also clung to their vision of a society in which an enlightened, nonpartisan elite governs the ignorant masses from above. The Civil Rights Revolution, and the era of judicial activism that followed, permitted progressives to transfer power from the elected political class to the federal judiciary. By the 1970s and 1980s, federal judges were regulating practically all aspects of American life. Social engineering schemes like busing for racial balance and race-based affirmative action, which “color-blind” New Deal liberal opponents of segregation like Hubert Humphrey and Lyndon Johnson opposed, now became critical pillars of progressive ideology.

    The New Dealers had been ardent conservationists, but their conservationism focused not only on nature but also the well-being of people. New Deal soil conservation and agricultural productivity policies allowed the amount of land in cultivation to decline, freeing up vast tracts of land for wilderness or habitation. Farmers, middle class suburbanites and nature all gained.

    This approach is repudiated by most contemporary progressives, who know nothing about farms except that they are cruel to livestock. By the 1970s many progressives abandoned liberal conservationism for radical environmentalism, which seeks to protect nature by separating it from humanity and industry. Radical environmentalism tends to shade into misanthropy, as in the proposal by two New Jersey environmentalists to turn much of the Great Plains into a human-free “Buffalo Commons.” (Curiously, nobody seems to have proposed evacuating New Jersey in order to create a “Migratory Bird Park.”) The radical Green goal of “rewilding” North America by creating “wildlife corridors” from which humans are banned repudiates the New Deal liberal vision of allowing working-class Americans to enjoy the scenery of national parks.

    So in every respect except racism and opposition to immigration, today’s progressives are genuine heirs not of the New Deal liberals but of the capital-P Progressive economic planners and social engineers of the early twentieth century. Even their social base is the same as in 1908 – college-educated professionals, particularly those in the nonprofit sector and education, like public school teachers and academics.

    This class – enlarged ironically by New Deal liberal programs like the G.I. Bill and student loans – has been increased in number by upwardly-mobile Americans to whom mass university education imparts a blend of the worldviews of old-fashioned Northeastern progressives and the old Bohemian left-intelligentsia. This enlarged college-educated professional class has allied itself with African-Americans and Latinos in the identity centered post-McGovern Democratic party.

    With perfect symbolism, the two bases of the alliance of white progressives and nonwhite Democrats – college campuses and inner cities, allied against the middle-class and working-class suburbs – correspond to the alternate urban utopias of Lewis Mumford and Jane Jacobs respectively, if we consider the college campus to be a Mumfordian paradise.

    With good reason, then, today’s progressives despise the suburban, middle-class America created by yesterday’s New Deal liberals. Today’s progressives may invoke the New Deal, but they are the heirs not of mid-century liberals like Franklin Roosevelt and Lyndon Johnson but rather of the Progressive social engineers who believed that enlightened elites should alter both the built environment and human behavior to meet their social goals. Some things never change.

    Michael Lind is the Whitehead Senior Fellow at the New America Foundation. He is the author, with Ted Halstead, of “The Radical Center: The Future of American Politics” (Doubleday, 2001). He is also the author of “Made in Texas: George W. Bush and the Southern Takeover of American Politics” (New America Books/Basic, 2003) and “What Lincoln Believed” (Doubleday, 2005). Mr. Lind has been an editor or staff writer for The New Yorker, Harper’s Magazine, and The New Republic. From 1991 to 1994, he was executive editor of The National Interest.

  • The Great Exception: San Francisco’s SoMa Neighborhood

    In recent months, one has not been able to open a newspaper without being reminded of the havoc that is being wreaked on the U.S. economy. The subprime mortgage debacle coupled with skyrocketing energy prices have caused many middle class Americans to lose confidence in taking out home loans and putting a screeching halt to consumer spending.

    But one place that seems somewhat impervious to the chaos: San Francisco. Part of this can be attributed to the continuing popularity of the city as a tourist destination for foreigners. Also keeping the local economy afloat is the investment in luxury real estate from those with disposable wealth purchasing second homes in this geographically desirable locale. Unfortunately, this does not spell good news for the city in terms of middle class aspiration and sustainable socio-economic diversity.

    Nowhere is this discordance with national realities than in the South of Market district. Two decades ago this was largely a hardscrabble district of industrial warehouses and factories. Its transformation to becoming a high income haven began with the dot.com boom of the late 1990s. Even when that boom went bust in the early 2000s — triggering an exodus of some 25,000 people between 2000 and 2003 — the dot-com fortune seekers had left their mark on the transformation of the district, as well as the nearby, largely Latino Mission district.

    Several factors drove this transformation, including the restrictive economics of starting a business in older, more upscale neighborhoods in the northern portion of the city, proximity to freeway access to the peninsula suburbs and Silicon Valley, and abundance of warehouse space contributing to an ‘edgy’ cityscape, SoMa and the Mission District took the crown as the most hip neighborhoods to live and start a business during the late 90’s.

    The character of the two districts, however, are quite distinct. The Mission District continues to be a mecca attracting hipsters and ‘creative’ types, while SoMa is now often derided as ‘sterile’ and rife with ‘yuppies’. One reason is that much of the residential development there is quite new, creating a distinct lack of character.

    Even with the abundance of recently built condos and converted lofts, only during Giants home baseball games at AT&T Park does SoMa feel like the vibrant neighborhood that is shamelessly touted by real estate agents. The elevated freeway, which feeds into the Bay Bridge as one drives east towards Oakland, acts not only as a physical but a psychological barrier between South Beach and the rest of the city.

    Yet not all those who live in San Francisco find the particular conditions of the location to be such a bad thing. Tai Nicolopoulos, an acquaintance who is a resident of the area and works at a technology company in a peninsula suburb, finds the area to be convenient for her commute on Caltrain-the commuter rail line that connects San Francisco with Silicon Valley. She is willing to admit, though, that when it comes to variety in terms of restaurants and entertainment options, she has to leave the area and head out to other neighborhoods.

    It’s not just the architecture and street life that is lacking. So too is the prescence of children. In SoMa and the adjacent Mission Bay neighborhood you hardly see the little tykes. Much hype surrounds the the Arterra, for example, a brand-new 16-story, 269 unit condominium building in Mission Bay designed to be “San Francisco’s first LEED-certified, green high-rise.” The building, called and developed by Intracorp Companies on a former brownfield site, has already sold 60 percent of its units. Despite this success, according to the sales agent, not even one family with young children has purchased a unit. The townhouse units, which are marketed more towards families with children, are having a harder time being sold than tower units. This is not surprising considering that there is a lack of amenities for children in the neighborhood.

    Yet in many ways, what is happening in SoMa and Mission Bay represents the future of San Francisco. Some of this has to do with politics. Since the 1960s, San Francisco has had a reputation for being a city where vocal citizens who take a ‘Not-In-My-Backyard’ attitude towards any new development are prominent. In the storied well-established neighborhoods of the city — Nob Hill, Russian Hill and North Beach — getting a building permit for even just a home remodel can be an arduous task.

    But for the former warehouse and industrial areas like SoMa, the story is completely different. Here the San Francisco Planning Department can press densification without significant opposition. In fact, the new pro-development attitude is visible in the handful of new high-rise buildings that dot the skyline. One of the most visually prominent new buildings is the 45-story One Rincon Hill condo tower just north of the western approach of the Bay Bridge. Dubbed the ‘Ionic Breeze’ for its resemblance to an object from a Sharper Image catalog, the One Rincon Hill tower foreshadows things to come.

    In May of this year, the city of San Francisco presented a new zoning plan for the Transbay Terminal area in SoMa. This plan allows for significant height increases for new buildings built in this zone, crowned by the proposed 1200’ tall Transbay Tower at 1st and Mission Streets. Other areas of SoMa are currently being studied by the city block by block to see what impact rezoning would have on the resulting skyline. To appease the vocal citizens who are concerned about losing their view of the topographic landscape San Francisco is famous for, the city is basing the rezoning effort around a conceptual height scheme that will make the skyline appear to “mimic” the rolling hills with “peaks and valleys” – the Transamerica Building and proposed Transbay Terminal tower being the “peaks.” The jury is still out on how this overly didactic scheme will fly with developers and NIMBYs alike.

    Conveniently, the current zeitgeist has a green tint provided by the density movement, something that has blunted NIMBY opposition to the city’s ongoing Manhattanization. And to be sure, dense housing makes sense when there is a demand for it like there is in San Francisco.

    But the question remains: what kind of city are we building? Current trends suggest the new residents of these largely “luxury units will be independently wealthy individuals buying second homes and Silicon Valley weekend warriors whose careers are based on the Peninsula but who party on in San Francisco in their often meager space time.

    Unlikely to settle there will be the old timers who live in rent controlled apartments in North Beach or Russian and Chinese immigrant families who call the Richmond and Sunset districts home. The developments in SoMa may well show that there is a future for a high end urban core, but the kind of diversity that long made cities such as joy may increasingly be harder to find.

    Adam Nathaniel Mayer is a native of the San Francisco Bay Area. Raised in the town of Los Gatos, on the edge of Silicon Valley, Adam developed a keen interest in the importance of place within the framework of a highly globalized economy. He currently lives in San Francisco where he works in the architecture profession.

  • New York’s Next Fiscal Crisis

    Mayor Bloomberg needs to prepare the city for the crash of the Wall Street gravy train.

    New York City, dependent on Wall Street for a quarter-century, has gotten used to harsh cyclical economic downturns, including the lending contraction in the early nineties and the bursting technology bubble in 2000. But today’s turmoil may be not a cyclical downturn for Wall Street but instead the beginning of an era of sharply lower profits as it rethinks its entire business model. If so, it will produce the biggest economic adjustment and fiscal challenge that New York has confronted in more than three decades. If the city’s leaders don’t recognize this challenge and move quickly to meet it, New York could soon face an acute fiscal crisis rivaling its near-bankruptcy in the mid-seventies.

    Such a fate—almost unthinkable to a city that has grown complacent about its world-class standing—could set Gotham back in the colossal strides that it has made over the past two decades in restoring its citizens’ quality of life. As Mayor Michael Bloomberg said in May, we must “pray that Wall Street does well.” But we’d better have a plan if it doesn’t.

    Wall Street bankrolled New York’s long recovery from the seventies because New York, through its long economic, fiscal, and social deterioration, managed to keep its position as the nation’s financial capital just as finance was about to take off. In the early eighties, the nation’s financial industry—particularly Wall Street—was feeling its way toward a sweet spot where it would stay for two decades. As Federal Reserve chief Paul Volcker brought inflation under control, creating a stable environment for financial innovation and a stable currency for the world’s savings, baby boomers and international investors flocked to U.S. markets. The Dow Jones Industrial Average tripled between 1982 and 1990, despite the ’87 crash, while the assets of securities brokers and dealers more than doubled as a share of America’s financial assets. The financial industry also saw a huge opportunity in Americans’ increasing love of debt, creatively packaging it into everything from mortgage-backed securities to junk bonds and then selling it to investors. Between the early 1980s and the early 1990s, the financial sector’s profits as a percentage of the nation’s income more than doubled. The sector’s pretax income as a percentage of all national income started a similar march upward. Profits at securities firms, while choppy, easily doubled between the early eighties and the end of the decade (all numbers are inflation-adjusted unless indicated otherwise).
    Graph by Alberto Mena.

    New York reaped massive rewards from Wall Street’s good fortune. The city’s financial-industry employment grew by 14 percent in the eighties—more than triple the job growth in its other private-sector industries. Jobs in the securities industry in particular, which had decreased in the seventies, grew by more than a third. Since these positions were high-paying, they had an outsize impact: by the late eighties, according to the

    Fed, financial services contributed nearly 23 percent of New Yorkers’ wages and salaries, up more than 60 percent from the previous decade. And financiers’ heavy spending supported other jobs, from restaurant workers and interior decorators to teachers and nurses.

    For evidence of how Wall Street started to lure newcomers to New York, look to Hollywood. Movies chronicling Gotham’s grim decline, like Taxi Driver (1976) and Escape from New York (1981), gave way to films portraying the heady excitement of making millions in the city, like Wall Street (1987) and Working Girl (1988). While much of the city remained grimy and dangerous, the excitement outweighed those factors for young, child-free baby boomers who paid high taxes without requiring many city services. The result: after hemorrhaging nearly 10 percent of its population between 1970 and 1980, New York gained nearly 4 percent back between 1980 and 1990. The city’s tax take in 1981 had been slightly lower than its take a decade before; but by 1991, it was raking in a third more than in 1981.

    This money allowed New York to reverse some of its bone-scraping seventies-era budget cuts and to invest in infrastructure without making the politically difficult choice of cutting deeply into social services. In the seventies, the city had laid off nearly 3,000 police officers and 1,500 sanitation workers; in 1985, Mayor Ed Koch hired 5,300 cops and almost 1,000 sanitation workers. In the 1990s, it was largely Wall Street’s breakaway success that gave Mayor Rudy Giuliani the financial resources to focus on making New York City safe again.

    If high finance found its sweet spot in the eighties, it reached dizzying sugar highs starting in the late nineties and continuing, after recovering from the tech bust and 9/11, until last year. The nation was awash in the world’s money, encouraging record lending and speculation as well as the creation of more financial products, which yielded banks massive profits. By 2006, the financial industry’s corporate profits as a percentage of the nation’s income had doubled once again.

    It seemed that nothing could go wrong for Wall Street once it had bounced back from the tech bubble’s burst. With the dollar serving as the expanding global economy’s reserve currency, banks had oodles of money to lend. Cheap Asian imports were keeping prices and inflation expectations low, allowing central bankers to justify low interest rates. Beginning in the nineties, traditional consumer banks—previously tightly regulated to protect government guarantees for their depositors—began taking investment risks that once had been confined to Wall Street. As time went on, investment banks became more dependent on fees from debt backed by home mortgages and other consumer products, further blurring traditional lines between investment and consumer banking.

    The financial world took advantage of the easy money and better technology. It booked high fees by designing ever more complicated “structured finance” products, backed by riskier home mortgages as well as corporate loans. Wall Street sold these products to international investors, who couldn’t get enough of American debt, by making a seductive pitch: the products were structured so intricately that even risky mortgages were as safe as government bonds, and they paid better interest rates. Further, if an investor ever had to sell a mortgage-backed security after he had purchased it from a bank, it was a cinch, since Wall Street had “securitized” individual loans—that is, taken thousands of them at a time, sliced them up, and turned them into easily tradable bonds of different risk levels.

    In addition to lending, Wall Street was borrowing at record levels so that it could take bigger and bigger risks with its shareholders’ money, making up for lower profit margins on businesses like equity underwriting and merger advisories. Wall Street’s borrowing as a multiple of its shareholders’ equity was 60 percent above its long-term average by the end of last year (with sharp increases over the past few years). Firms were taking even more risks than that figure indicates, setting up arcane, off-the-books “investment vehicles” with shareholders still vulnerable if something went wrong.

    As banks and financiers got unimaginably rich, so did the city. The finance industry’s contribution to New Yorkers’ wages and salaries topped out at over 35 percent two years ago. Last year, the city took in 41 percent more in taxes than it did in 2000, capping off an era of unprecedented revenue growth. While the city’s stratospheric property market—itself a function of Wall Street bonuses and easy money—drove much of that increase through property-related taxes, corporate tax revenues rose by 52 percent, personal income tax revenues by nearly 20 percent, and banking tax revenues by nearly 200 percent.
    Graph by Alberto Mena.

    But today, the financial industry may be entering a wilderness period of lower profits, employment, and bonuses. “Whether it’s financials as a share of the stock market or financials as a share of GDP, we’ve peaked,” ISI Group analyst Tom Gallagher told the Wall Street Journal in April. One measure of how this downturn differs from those in the recent past: some Wall Street firms, after their disastrous miscalculations, are operating today only because the Fed, as Bear Stearns melted down in March, decided to start lending to investment banks, which it doesn’t normally regulate or protect.

    A new alignment of global demographics, inflation expectations, and interest rates may spell long-term trouble for the city’s premier industry. A decade ago, cheap Asian goods kept prices and inflation expectations down; today, Asia’s growth is pushing them up. Ballooning energy prices and too-low interest rates threaten to yield sustained inflation. America now faces intense competition—particularly from the euro—for the world’s savings and investment, meaning that it can’t depend on attracting as large a portion of the world’s nest egg to keep interest rates down. “It is not credible that the world will revert to the same level of capital flow to the U.S. after the credit crunch is over,” Jerome Booth, research head of U.K.-based Ashmore Investment Management, noted recently. The Fed can keep official rates low only at the risk of inflation and more capital flight. The end of cheap money means that the market for future debt may shrink, squeezed by tougher borrowing terms, cutting off a crucial profit line for banks.

    Regulators, too, will be harder on the banks. Because investment banks now benefit from taxpayer-guaranteed debt, taxpayers must be protected. The feds probably won’t let firms borrow from private lenders at the levels that they have over the past decade, and it’s unlikely that they’ll let banks rely so intensely on short-term debt—which is cheaper, but riskier, than long-term debt. (Short-term lenders can flee quickly, as the Bear Stearns crash showed, because they have the option of yanking their money out of investments, often overnight, while long-term lenders are stuck with the bets that they’ve made.) Less borrowing means lower profits, and not just temporarily. Regulation might also curtail Wall Street’s lucrative business of complex derivatives, another huge area of risk. Plus, international stock listings continue to bypass New York for Asia and Europe because of the six-year-old Sarbanes-Oxley law, which imposes an unnecessary regulatory burden on companies publicly traded in the U.S., and also because the world’s growth has moved east. Such losses could be ignored only when debt and derivatives were making up for it.

    The skepticism of Wall Street’s own investors and clients, though, is the real deal-breaker. The most startling news out of the current crisis is that Merrill Lynch, UBS, and others didn’t know that they had taken certain risks for shareholders, lenders, and clients until they were already reporting tens of billions in losses. Clients and investors shouldn’t mind losses when they understand the risks that they’re taking. They do mind if, after the firm that they’re investing in or doing business with has insisted that its careful models and safeguards protect them, it turns out that its only protection from bankruptcy is Uncle Sam.

    International investors will not again blindly trust Wall Street’s ability to assess and allocate risk. “Market participants now seem to be questioning the financial architecture itself,” Fed governor Kevin Warsh said recently. Don’t forget the stock market’s performance, either: it hasn’t been impressive over the past eight years.

    New York City, so dependent on the financial industry’s continued growth, should shudder.

    If Mayor Bloomberg and his successor view the current downturn as another short blip, rather than a long readjustment of the financial industry’s share of the economy, and they turn out to be wrong, the decisions that they make could prove ruinous. Over the past two and a half decades, whenever the financial industry underwent one of its periodic downturns, New York stuck to the same playbook: jack up taxes to make up for lower tax revenues, cut spending a bit, and wait for the financial industry to come roaring back. During the early nineties’ credit crunch, Mayor David Dinkins slapped two temporary surcharges on the income tax; one still persists. In 2002 and 2003, after the tech bust and 9/11, Bloomberg temporarily hiked income and sales taxes and permanently hiked the property tax.

    Those tax increases were never wise because they kept less profitable industries and their lower-paid employees out, making New York ever more dependent on finance. Even the financial industry didn’t ignore the tax hikes; partly in response, it sent back-office, five-figure-a-year jobs to cheaper cities, and as a result, New York today has less than one-fourth of the nation’s securities-industry jobs, down from one-third two decades ago. Still, the industry was growing so fast that it and its workers could withstand the higher costs posed by the tax increases.

    But what was once merely unwise could be calamitous today. Consider the last time that New York tried raising taxes when its premier industry was about to shrink—the mid-sixties, when the city’s leaders arrogantly believed that its record population of 7.9 million people, in the middle of a record economic boom, wouldn’t mind paying for a breathtaking array of Great Society social programs, as well as fattened public-employee benefits. In 1965, the New York Times had reminded city leaders that “New York City’s economy is prospering,” and its editorialists decreed a year later that “strong medicine, specifically higher taxes, is the remedy for restoring New York’s financial health.”

    Mayor John Lindsay, with state support, enacted the city’s first personal income taxes, as well as new business taxes, in 1966. New York went on to lose half of its 1 million manufacturing jobs between 1965 and 1975—a trauma as great as Wall Street’s troubles today, because in 1960, manufacturing had accounted for more than a quarter of New York’s jobs. At the same time, the city was also losing its collection of corporate headquarters and their legions of well-paid employees. By the end of the seventies, half of its 140 Fortune 500 companies had fled the city.

    New York didn’t anticipate this change or understand its significance as it was happening. Well into the early seventies, the city thought that it could keep taxing and spending because the future was bound to mirror the “Soaring Sixties.” City officials argued that fleeing companies were evidence of New York’s success because some companies just couldn’t afford to be here any longer. Worse, the city’s leaders didn’t understand how quickly urban quality of life could deteriorate: as they focused on social spending rather than vital public services like policing, murders shot up from 645 in 1965 to 1,146 just five years later. Nor did they realize how quickly middle-class residents would flee, taking their tax dollars with them.

    For a while, the city and its lenders found a way around these miscalculations. New York stepped up its borrowing against future tax revenue in the late sixties and early seventies, paying the banks back when the following year’s tax receipts rolled in. The foolishness of such a plan was always obvious: three years before the city skirted bankruptcy, the Times reported, Albany skeptics warned that large-scale temporary borrowing was folly. But even as economic and fiscal conditions worsened, the city kept spending and spending. In 1970, city leaders were heartened by the judgment of bond-rating agency Dun & Bradstreet, which noted New York’s “extraordinary economic strength . . . and long-range credit stability.” (Then, as now, ratings agencies weren’t good at predicting acute crises.) In 1972, as what had once seemed like a short downturn stretched on, Times editorialists encouraged complacency, noting that “after all the years of . . . warnings of imminent municipal bankruptcy, it is reassuring to find investors . . . bullish about the outlook for New York City’s long-term financial soundness.”

    By late 1974, however, as rising spending outpaced tax receipts, a crisis was inevitable. It came the following spring, when New York wrestled with a budget deficit that equaled 14 percent of its expected spending and creditors cut the city off. Forced to throw itself at the mercy of the state and federal governments for emergency funding, Gotham gutted trash pickup and policing, murders climbed to 1,500 annually, and more residents left.

    Millennial New York likes to think of itself as vastly superior to the troubled city of the 1970s. But once again, on the brink of what may be a major economic upheaval—this time, involving the financial sector rather than manufacturing—it is reacting with disturbing complacency. And yet again, the mayor has allowed the budget to swell dangerously during the good times, which could push leaders to make the same mistakes as were made in the sixties and seventies: raising taxes at precisely the wrong time and slashing vital services under pressure to keep up social and public-employee spending.

    During the past decade, New York used the cash that Wall Street was showering on the city not to ease its long-term problems but to make them worse. In 1974, under Lindsay, the city devoted one-quarter of its budget to social spending: welfare, health services, and charities. Today, the city continues to spend one-quarter of its budget on social services (not including the public schools’ vast social-services component). Nor has New York reformed the pensions and size of its still-huge public workforce, reduced debt costs, or cut Medicaid costs fueled by Albany’s powerful medical lobby, which helps ensure that New York’s per-capita Medicaid spending—rife with waste and fraud—is the highest in the nation. Even after adjusting for inflation and considerable population recovery, the city’s tax-funded budget for 2008 is 22 percent higher than it was at its Lindsay-era peak. While spending rose just 9 percent or so during the Giuliani era, it has risen three times as fast since—the highest rate since Lindsay left office.

    Echoing a time when people said that New York was ungovernable, Mayor Bloomberg often calls these costs “uncontrollable.” But there was no better time to start controlling them than during the past half-decade, an era of unparalleled prosperity and public safety when Bloomberg had an opportunity available to no other modern mayor. If he had successfully bargained with Albany and union employees to require new workers to contribute more to their pensions and health benefits, we would have seen the results by now. Likewise, if he had worked with Albany to rein in Medicaid spending—now nearly $6 billion a year—the city could have spent some of that money to build schools and fix roads, reducing debt costs. Instead, we’ve got a politically powerful public workforce that commands benefits belonging to another era and that remains vulnerable to corruption despite this generosity, as recent construction investigations show.

    The mayor has also sharply increased spending in one area that was easily controllable: the city’s public schools budget, up by more than one-third since 2001 even though enrollment is down 4 percent. Much of that spending funds plusher teachers’ salaries and the higher pensions that follow, plus borrowing costs for school construction and rehab, making it harder to cut than it was to increase. Today, the education budget is nearly $21 billion: one-third of the entire budget, and more than police, fire, and sanitation combined.
    Graph by Alberto Mena.

    Bloomberg’s failure to control costs during the boom means that big trouble looms. The city projects that spending over the next three years will increase by more than 20 percent, while revenues will increase by just 13 percent (neither figure is adjusted for inflation). If that happens, a $5 billion–plus deficit—more than 11 percent of tax-funded spending—will result in two years’ time. Moreover, that’s the best-case scenario, based on the city comptroller’s prediction of low growth this year and next and a quick, though weak, recovery after that. But the mayor expects a 7.5 percent economic contraction this year, followed by a smaller contraction. If that happens, revenues might not rise as much as 13 percent; in fact, they might shrink, as they often did in the seventies (and again in 1990 and 2002).

    This risk is especially acute because our progressive tax structure and the growth in wealth of our richest citizens over the past two decades make New York highly dependent on the rich, whose income is volatile. Two years ago, the top 1 percent of taxpayers paid nearly 48 percent of the city’s personal income taxes even after adjusting for the temporarily higher tax rate, up from 46 percent in 2000, 41 percent a decade ago, and 34 percent two decades ago, according to economist Michael Jacobs at the city’s independent budget office. A few bad years for the city’s wealthiest translate into a few terrible years for their home base.

    Cutting a $5 billion deficit—let alone an even larger one—is a formidable task even when done slowly. Cutting such a deficit in a hurry two years from now, under an inexperienced mayor, will endanger the city’s vitality. It’s not too late for Bloomberg to prepare the budget for a painful economic adjustment, and not just by cutting around the edges of the “controllable” budget, as he’s prudently done this year and last.

    The first principle is to do no harm on the tax side. Bloomberg will allow a temporary property-tax cut to expire, and he has told the Times: “If all else fails, we’re not going to walk away from providing services, and only then would I think about a tax increase, and my hope is that we’ll avoid it.” He’ll have to: while the city has proved that it can squeeze higher taxes out of a phenomenal growth industry, that trick won’t work on an industry that’s stagnant or in decline. New York’s sky-high income taxes for businesses and residents already put the city at a huge disadvantage, since they keep away lower-paying jobs from media, technology, and other industries that otherwise might be attracted by lower housing costs and commercial rents in the coming years. The city can’t afford to make this disadvantage any worse.

    Second, the mayor must carefully manage his budget cuts. This year, he proposed largely across-the-board cuts of about 6 percent in projected spending, covering everything from police and sanitation to homeless services and education. He also enacted a 20 percent slash to the long-term capital budget, which funds physical infrastructure. But this strategy won’t work for long. Vital services can’t withstand deep cuts. The mayor must not alienate the middle class, whose tax revenues he needs, and that means protecting the police department, cleaning streets, and keeping libraries open. (His May delay in hiring 1,000 new police officers for more than a year, even as New Yorkers are becoming wary of crime again, is worrisome.) Further, failing to fix decaying infrastructure isn’t a way to save money. It’s no different from borrowing to pay for other expenses, since waiting will worsen deterioration and mean more expenses later.

    So as Bloomberg readies his final budget over the next year, he’ll have to choose the deepest cuts to projected spending carefully, even though it requires fighting the city council, which nixed half his proposed cuts this year and especially protected education. Rising education spending under both Bloomberg and Giuliani hasn’t improved scores on national tests, after all. And within the capital budget, the city should reduce its spending on economic-development and affordable-housing subsidies in order to fund things like roads and transit adequately. Furthermore, New York pols should stop regarding the operating and capital budgets as unrelated. Ten percent of Medicaid’s $6 billion annual take would go a long way toward upgrading the city’s roads and subways. Last, tens of millions of dollars in politically connected earmarks by both the mayor and the council are unsavory in good times and unconscionable in bad.

    But ultimately, the mayor can’t fix the city’s budget without addressing its “uncontrollable” half, whose growth will be responsible for three-fourths of the deficit in three years’ time. Bloomberg—and his successor—can use fiscal stress to advantage in bargaining for changes in city contracts. In the past, in fact, the city’s biggest bargaining gains have come during fiscal turmoil. As Charles Brecher and Raymond D. Horton noted in their 1993 book, Power Failure: New York City Politics and Policy Since 1960, the city won sanitation productivity gains in 1981, while it was suffering the fallout from the fiscal crisis of the 1970s, and a less costly pension tier two years later. While police officers won a raise this year that was necessary to attract recruits, the mayor must not let the city’s other unions bring home similar gains through contract renegotiation.

    The city’s contract with more than 100,000 non-uniformed workers expired this spring, presenting an opportunity. New York should negotiate to get this union, DC-37, to allow new employees to accept a pension plan in which the city contributes to workers’ private accounts, rather than guarantees a pension for life. The independent budget office estimates sizable budget savings here—nearly $100 million annually—within half a decade. Requiring health-insurance-premium payments of 10 percent from these workers and retirees would save half a billion dollars more; extending the workweek from 35 and 37 hours to 40 (imagine!) would net another half-billion, savings that the next administration will dearly need if Wall Street doesn’t roar back. The mayor (and his potential successors) must impress upon unions that their members won’t get a better deal if they wait.

    But why the urgency? After all, New York has huge advantages today. Half a century ago, suburban growth was driven by cheap fuel, fast commutes, and low crime. Today, suburbs are choked off by congestion, $5-a-gallon gas, and bad public schools. The city’s governance approach is also different. If crime starts to rise, we know what to do: aggressively police neighborhoods and prosecute and sentence defendants appropriately. And the city’s new citizens—many of whom have invested their lives’ savings in their homes—should help politicians keep some focus, counterbalancing to some extent the organized pressure to sacrifice all else for education spending. The city’s budget has safety latches, too. New York’s fiscal near-death in the seventies spurred the state to impose extraordinary oversight and brought about local changes. The city can’t borrow much today for operating spending. It must balance its budget annually and project four years’ worth of expected spending and revenues, submitting the results to a state board.

    Yet these advantages aren’t limitless, as recent high-profile shootings in Harlem and Far Rockaway indicate. If a mayor lets crime spiral out of control over a crucial one- or two-year period, it will be harder to control later. The middle class won’t be patient for long if its voice isn’t heard, and the city’s “global” upper class is much more transient than it was 40 years ago. Plus, with one-third of the population leaving every decade, New York must continually attract new residents. As for city finances: no amount of regulation can guard against complacency. The city couldn’t have balanced its budget this year and reduced next year’s deficit if not for the huge surplus that Wall Street provided last year, before it ran out of steam. The city doesn’t have to default on its bonds to get into trouble, as it nearly did three decades ago, moreover. Sacrificing quality of life so that it can pay those bonds would do as much damage. Finally, if the city does need help, it can’t look to New York State to bail it out, as it did 33 years ago: this time around, Albany might be in equally dire straits.

    Even if we do all the hard work of fixing the budget and in two years’ time, Wall Street is defiantly humming along, once more channeling record tax revenues into the city’s coffers, the steps that we take today won’t have been wasted. By acting now, Bloomberg will enable his successor to consider income tax cuts and infrastructure investment. Just as we prepare for a terrorist attack that we hope will never come, we have to prepare for a fiscal and economic crisis that we hope will never come. The risk is real.

    Nicole Gelinas, a City Journal contributing editor and the Searle Freedom Trust Fellow at the Manhattan Institute, is a Chartered Financial Analyst. This article appeared in the Summer 2008 City Journal.

  • Thoughts on the Future of Seattle: A Vision of 2040 for Pugetopolis

    I have been attacked as a defender of ‘sprawl’ although I consider myself a man of the left, with a political-economy philosophy that is ‘social democratic – far to the left of the contemporary Democratic party. I view global warming as very serious, but consider continuing global warfare over resources, land and religion, and increasing national and global economic and political inequality as even more critical.

    As a realist/naturalist/skeptic, rather than idealist, I believe a scientist’s goal is to understand and explain the rich variety of actual needs, motivations and behavior of individuals, groups and institutions. I chose geography instead of planning, because I am uncomfortable with a normative approach of telling people how they ought to behave (in the absence of adequate theory and evidence).

    In my long career in planning I have become skeptical about many things that are widely considered “progressive.” This includes disbelief in two icons of a normative New Urbanist planning: urban growth boundaries and rail transit. In my original testimony to the Growth Strategies Commission 20 years ago, I warned that use of a crude geographic tool (growth boundaries) would lead to land and housing price inflation, leapfrog development and would benefit the rich at the expense of the poor. Sadly, this proved to be the case. Rather than use zoning to create open space, I believe fairness dictates it be acquired through public purchase for public use.

    On rail, my skepticism grew out of considerations of class fairness, since it squanders limited public resources for limited results, and again benefits the rich at the expense of the poor. The real transit problem is not capacity but accessibility to people and jobs. I like trains and have been on dozens of rail or subway systems around the world, many successful, others relative failures. Unfortunately, the geography of Seattle militates against rail’s success here.

    Before we try to guess what greater Seattle might or could (not “should” or “will”) look like in 2040, we must be clear about the nature of the geographic setting, and needs and preferences of its people. For example, there are distinct populations who prefer denser urban living (structures and neighborhoods), and those who prefer less dense living (single-family homes and neighborhoods). Some economic activities require dense agglomerative settings; others need greater horizontal space or external connections.

    In the immediate Seattle region currently about 40 percent of people and jobs are at the denser more agglomerative and 60 percent at the less dense, more dispersed end. Unfortunately for New Urbanist idealism, far more than half of people do not live within walking or biking distance to work or school. By 2040 the share of people preferring or accepting denser urban living in the close in areas could rise to 50 percent (for demographic and land cost reasons) but that will still leave 50 percent or 2.5 of 5 million people preferring a lower density environment. Planners should have learned that many people need private space (yards) as well as public (parks and playgrounds). And it is truly difficult to envision a higher share of more agglomerative jobs; costs of transportation will likely bring residences and workplaces closer to the peripheral communities.

    Another inescapable reality is that trucks will remain the dominant mode for goods transport and that the car, personal transport, will still, yes, be the dominant mode of person movement. Transit (and walking and bicycling) could rise to 25 percent and carpooling could become a lot higher, but cars, far more efficient and greener, will still be the rule. It is absurd to imagine otherwise – this is precisely the kind of innovation that at which American technology excels.

    Most political leaders and senior planners know these “realities” perfectly well but seem to have trouble reining in the their often overly idealistic staff. Yet an intelligent view of what will be in 2040 rests on facts and people’s demonstrated preferences, not on New Urbanist theorizing.

    So what does 2040 look like? The population will likely grow but the forecast of a 50 percent increase is far from sure. The odds are better than even that growth will be moderately less, because of demography (aging population, lowering fertility of past immigrants), and the high cost of Seattle for residence and for business. Instead we likely will see growth spill over to less costly and restrictive cities like Spokane, Bellingham, Yakima and the Tri-Cities.

    We don’t know the likely degree of housing affordability and of the relative severity of constraints on the land supply. Again based on history and demography/education, I’d say the odds are in favor of continuing constraints, over-regulation and housing unaffordability.

    Personal transport will still prevail in 2040, but much of transport technology and policy is uncertain. There will probably be new trains, because people seem to want them, although their contribution to mobility will be modest.

    Smaller communities around Seattle would be well-advised not to allow themselves to be pulled too closely into a downtown-centric transit network since, as Nobel economist Paul Samuelson showed in 1956, this almost guarantees that the outlying centers will lose high level functions and income to the central node. Tacoma, Everett and Bellevue would each be better off developing themselves than subordinating their destiny to downtown Seattle. Bellevue’s success as a competitive edge city is because of the barrier effect of Lake Washington!

    So given these considerations, what will Seattle and its region look like in 2040? Look around you because the future city will look and feel amazingly like the present city, just as the city today is much like the city of 1975. It will be somewhat denser, especially in the core region but overall the urban footprint will grow only slightly and begrudgingly. Instead, most substantial growth in Pugetopolis will occur in satellite towns and adjacent counties and beyond, which is not necessarily a bad thing but may offend many planners.

    In this new configuration, the central city of Seattle will do fine – due to its popularity, site and situation benefits (and the high land prices). There will be continued gentrification, dominated by the childless affluent, and displacement of the less well off to some of the older, less amenity rich suburbs. Inequality will remain high and segregation by class will probably increase. Transportation congestion and substantial long distance commuting will not have lessened, despite trains or the implementation of demand management, because of likely over-investment in large glamour projects, and the continued separation of residences and jobs.

    Experience suggests to me that the future Pugetopolis will continue to be the uneasy compromise between the idealist visionaries of the golden city and the dictates of the human condition and the economy. This is not a pessimistic forecast, rather a realistic one. The metropolis of 2040 may well be a somewhat better place than it is now, but just not very!

    Richard Morrill came to Seattle 53 years ago for graduate school, and after stints in Illinois and Sweden, returned to the University of Washington Geography department in 1961, where he has taught for 44 years.

  • Chicago Students’ Greatest Fear: Getting Shot

    With 36 Chicago Public School children murdered in the last 12 months, the Chicago Sun-Times reports that getting shot has become the number one fear of children in the city’s violent neighborhoods.

    The fear seems most pervasive among fifth to eighth graders.