New Geography

Tag: Financial Crisis

  • The Pleasure of Their Company

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

  • Stimulus Plan Caters to the Privileged Public Sector

    Call it the Paulson Principle, Part Deux.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    This article originally appeared at Forbes.

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

  • This Perp Walk Needs Handcuffs

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

  • Public Pension Troubles Loom for State and Local Governments

    We have watched with trepidation as the stock market declines and along with it the value of our retirement accounts. Yet with our personal accounts, it’s our own problem. When it comes to public pensions, it’s the taxpayer’s problem. Underfunded pensions could cut two ways, leading to much higher taxes and/or cuts in government spending.

    This is a particularly big issue here in my home state of Illinois. The Chicago Sun-Times just reported the Land of Obama has earned the dubious honor of having the most underfunded public pension plan in America.

    According to Professor Jeremy Siegel, the above-average returns of the stock market in the recent past have attracted the attention of public pension fund managers.

    The prospect of bigger returns has led managers to pour billions in public pensions into stock. Finance Professors Deborah Lucas and Stephen Zeldes report that the share of state and local (S&L) plan assets held in equities has greatly increased over time from an average of about 40 percent in the late 1980s to about 70 percent in 2007.

    In the current market environment, this exposure led to a loss of an estimated $1 trillion dollars over the past year. Are stocks likely to average annual returns of 10% for the next 20 years? Not likely, and that’s a big problem for both public pension funds, and for the poor taxpayer.

    Equity investing will see many challenges in the coming years. Here are some issues to consider. The reaction to Enron’s bankruptcy was much tighter regulation on corporate accounting. This led to the infamous Sarbanes-Oxley law which has made it far less desirable to run public investment funds and slowed the development of new IPOs. The result, as Joe Weisenthal reported in February of 2007, was a spectacular rise in private equity funds, such as the infamous hedge funds, which contributed mightily to the recent financial meltdown.

    Successful IPOs eventually join the major indexes which help the long run drive equity returns. Fewer IPOs mean less opportunity for investing in listed equities. This will make it harder for pension funds to enjoy higher returns.

    And then there are some demographic concerns. In 2008 the first cohort of baby boomers retired. Many more will follow. This will put increasing strains on all equity investors. Eventually, pension fund managers will have to be net sellers of equities to raise cash for the retiring boomers. No one can say with certitude when this trend will hit critical mass, but when pension funds become net sellers stocks are almost certain to go down.

    The giant bull market of 1982-2000 was driven not only by favorable demographics but also lower marginal income tax rates, cuts in capital gains taxes, and lower inflation. All three conditions could very likely be much higher in the next 20 years. President Obama has openly talked about higher capital gains taxes and the rich being obligated to fund expanded government programs. Recent increases in the money supply by the Federal Reserve Board point to potentially much higher rates of inflation and interest rates. Equities will perform poorly in such an environment.

    American equity investors are in a new era with the federal government making direct investments in private companies. What are the likely results of the federal government controlling an industry? Not good. The TARP program quickly expanded to taxpayers funding car companies that under normal market conditions would have been forced into bankruptcy. What other industries does the federal government have in mind for taking over? Is the medical industry next? Drug companies? Until recently these scenarios were unimaginable.

    All this uncertainty, at very least, is quite bad for equity investing.

    The TARP program is likely to have profound long-term affects on capital markets. With the government having a big stake in major banks, future business loans could potentially be influenced by politicians who regulate the banks. This will lead to a massive misallocation of resources. Will the federal government encourage more homeownership when the housing market has a huge supply? Only time will tell. Will a bank branch be allowed to close in a powerful Congressman’s district?

    As equities lose their attractiveness, public pensions may have to look to corporate bonds and real estate to get investment returns. Are these investments likely to produce historical rates of return that equities have? It’s very unlikely. Governments may be forced to conduct fire sales of their properties just to raise cash to meet their pension obligations.

    Something will have to change. Without a restored boom in stock prices, public pension funds will have a very hard time meeting their obligations. Either governments will have to increase taxes – perhaps dramatically – or force public employees to endure the same risks and potentially anemic returns the rest of us may be up against. Given the size of these funds, and the enormous political power of government workers, this may create one of the major political conflicts of the coming decade.

    Steve Bartin is a resident of Cook County and native who blogs regularly about urban affairs at http://nalert.blogspot.com. He works in Internet sales.

  • Reviving the City of Aspiration: A Study of the Challenges Facing New York City’s Middle Class

    For much of its history, New York City has thrived as a place that both sustained a large middle class and elevated countless people from poorer backgrounds into the ranks of the middle class. The city was never cheap and parts of Manhattan always remained out of reach, but working people of modest means—from forklift operators and bus drivers to paralegals and museum guides—could enjoy realistic hopes of home ownership and a measure of economic security as they raised their families across the other four boroughs. At the same time, New York long has been the city for strivers—not just the kind associated with the highest echelons of Wall Street, but new immigrants, individuals with little education but big dreams, and aspiring professionals in fields from journalism and law to art and advertising.

    In recent years, however, major changes have greatly diminished the city’s ability to both retain and create a sizable middle class. Even as the inflow of new arrivals to New York has surged to levels not seen since the 1920s, the cost of living has spiraled beyond the reach of many middle class individuals and, particularly, families. Increasingly, only those at the upper end of the middle class, who are affluent enough to afford not only the sharply higher housing prices in every corner of the city but also the steep costs of child care and private schools, can afford to stay—and even among this group, many feel stretched to the limits of their resources. Equally disturbing, even in good times, the city’s economy seems less and less capable of producing jobs that pay enough to support a middle class lifestyle in New York’s high-cost environment.

    The current economic crisis, which has arrested and even somewhat reversed the skyrocketing price of housing, might offer short-term opportunities to some in the market for homes. But the mortgage meltdown and its aftermath will not change the underlying dynamic: over the past three decades, a wide gap has opened between the means of most New Yorkers and the costs of living in the city. We have seen this dynamic play out even during the last 15 years, as the local economy thrived and crime rates plummeted. Despite these advances, large numbers of middle class New Yorkers have been leaving the city for other locales, while many more of those who have stayed seem permanently stuck among the ranks of the working poor, with little apparent hope of upward mobility. This is a serious challenge for New York in both good times and bad. A recent survey found the city to be the worst urban area in the nation for the average citizen to build wealth. For the first time in its storied history, the Big Apple is in jeopardy of permanently losing its status as the great American city of aspiration.

    This report takes an in-depth look at the challenges facing New York City’s middle class. More than a year in the works, the report draws upon an extensive economic and demographic analysis, a historical review, focus groups conducted in every borough and over 100 individual interviews with academics, economists and a wide range of individuals on the ground in the five boroughs. These include homeowners, labor leaders, small business owners, real estate brokers, housing developers, immigrant advocates, and officials from nearly two dozen community boards.

    Throughout the course of our research, the vast majority of New Yorkers—for the most part fierce defenders of the city—were alarmingly pessimistic about the current and future prospects of the local middle class. “What middle class?” was the quip we heard repeatedly after telling people about our study.

    But for all the valid concerns of those we spoke with, our conclusion is that a strong middle class remains in New York, and that there are considerable grounds for optimism about its future. In 2007, the city recorded the second highest total of building permits issued since it started keeping track in 1965, with Brooklyn and Queens hitting records—a clear sign that large numbers of people want to live in these long-time middle class havens. Home ownership rates in the city reached their highest levels ever in 2007, another testament to the city’s desirability—even if a not insignificant share of the recent housing purchases were driven by unfair and deceptive predatory lending practices. And in many communities, there have been long waiting lists for day care centers and private schools. While the economic crisis is already leading to sharp spikes in foreclosures, a precipitous decline in housing sales and, most troubling, a massive number of layoffs, it should not reverse the sense of many middle class families that New York now offers a safe environment to raise their kids—a key factor in the decision to stay in the city rather than decamp for the suburbs.

    “The perception of New York among young people is so phenomenal,” says Alan Bell, a partner with the Hudson Companies, a real estate development company that has built housing from the East Village to the Rockaways. “It used to be that automatically you’d get married and had kids and you were out to Montclair, New Jersey or Westchester. Now they want to stay. The question is how they stay since it’s so expensive.”

    Set against this picture of progress, however, are some alarming trends. Most of the people interviewed for this report told us of middle class friends, relatives or colleagues who had recently given up on the city. “I work with a lot of people who moved to Philadelphia and commute each day,” says Chris Daly, a media director at Macy’s who now lives with his wife and three kids in Tottenville, Staten Island but plans to move to New Jersey. “It’s the cost of living. You’re going to see more people moving to Philadelphia, the Poconos and commuting.”

    Unless we find ways to reverse some of the trends detailed in this report, the New York of the 21st century will continue to develop into a city that is made up increasingly of the rich, the poor, immigrant newcomers and a largely nomadic population of younger people who exit once they enter their 30s and begin establishing families. Although such a population might sustain the current “luxury city”—as Mayor Michael Bloomberg famously described New York—it betrays the city’s aspirational heritage. Further, a New York largely denuded of its middle class will find it nearly impossible to sustain a diversified economy, the importance of which is clearer than ever in light of the current finance-led recession.

    As a final consideration, a large and thriving middle class has always provided the ballast that a great city requires. Throughout modern history, such cities at their height—for example, Venice in the 15th century and Amsterdam in the 17th—have nurtured a large and growing middle class. But no city has had a greater history as a middle class incubator than New York. As the legendary urbanist and long time New York resident Jane Jacobs once noted: “A metropolitan economy, if working well, is constantly transforming many poor people into middle class people, many illiterates into skilled people, many greenhorns into competent citizens… Cities don’t lure the middle class. They create it.”

    Although some may suggest that this is a role New York can no longer play, we believe it is one that the city needs to address if it is to remain a truly great city.

    Released by Center for an Urban Future, this report was written by Jonathan Bowles, Joel Kotkin and David Giles. It was edited by David Jason Fischer and Tara Colton, and designed by Damian Voerg. Mark Schill, an associate with Praxis Strategy Group, provided demographic and economic data analysis for this project. Additional research by Zina Klapper of www.newgeography.com as well as Roy Abir, Ben Blackwood, Nancy Campbell, Pam Corbett, Anne Gleason, Katherine Hand, Kyle Hatzes, May Hui, Farah Rahaman, Qianqi Shen, Linda Torricelli and Miguel Yanez-Barnuevo.

  • Obama: Only Implement Green Policies that Make Sense in a Time of Crisis

    With the exception of African-Americans, the group perhaps most energized by the Barack Obama presidency has been the environmentalists. Yet if most Americans can celebrate along with their black fellow citizens the tremendous achievement of Obama’s accession, the rise of green power may have consequences less widely appreciated.

    The new power of the green lobby — including a growing number of investment and venture capital firms — introduces something new to national politics, although already familiar in places such as California and Oregon. Even if you welcome the departure of the Bush team, with its slavish fealty to Big Oil and the Saudis, the new power waged by environmental ideologues could impede the president’s primary goal of restarting our battered economy.

    This danger grows out of the environmental agenda widening beyond such things as conservation and preserving public health into a far more obtrusive program that could affect every aspect of economic life. As Teddy Roosevelt, our first great environmentalist president, once remarked, “Every reform movement has a lunatic fringe.”

    Today, the “green” fringe sometimes seems to have become the mainstream, as well. While conservationists such as Roosevelt battled to preserve wilderness and clean up the environment, they also cared deeply about boosting productivity as well as living standards for the middle and working classes.

    In contrast, the modern environmental movement often seems to take on a different cast, adopting a largely misanthropic view of humans as a “cancer” that needs to be contained. Our “addiction” to economic growth, noted Friends of the Earth founder David Brower, “will destroy us.” Other activists regard population growth as an unalloyed evil, gobbling up resources and increasing planet-heating greenhouse gases.

    For such people, the crusade against global warming trumps such things as saving the nation’s industrial heartland, which is largely fueled by coal, oil and natural gas, even if it means the inevitable transfer of additional goods making it to far dirtier places such as India and China. Of course, the current concern over global warming could still prove to be as exaggerated as vintage 1970s predictions of impending global starvation or imminent resource depletion.

    Certainly experience suggests we should not be afraid to question policies advocated by the true believers — particularly amid what threatens to be the worst economic downturn in generations. Actions taken now in the name of climate change could have powerful long-term economic implications.

    We don’t have to imagine this in the abstract; just look at the economies of two of the greenest states — Oregon and California — whose land use, energy and other environmental policies have helped contribute to higher housing and business costs as well as an exodus of entrepreneurs.

    Bill Watkins, head of the forecasting project at the University of California, Santa Barbara, notes that these two environmentally oriented states now have among the nation’s highest unemployment rates, pushing toward 10 percent — ahead of only the Rust Belt disaster areas farther east. In some places, such as central Oregon, it could hit close to 15 percent next year.

    Many green activists, along with “smart growth” advocates and new urbanists, laud Oregon’s long-standing strict land use controls as a national role model. Recently imposed land use legislation in California, concocted largely to meet the state’s restrictions on greenhouse gas, has been greeted by them with almost universal hosannas.

    Of course, there is nothing wrong at all with trying to curb excessive sprawl or energy use. Promoting a dense urban lifestyle is also commendable, but it is an option that appeals to no more than 10 percent to 20 percent of the population. This is even truer of middle-class people with children, few of whom can hope to live the urban lifestyles of the Kennedys, Gores and other elites — much less also afford one or two country homes to boot.

    Tough land use policies are not only hard on middle-class aspirations, but they appear to have played a role in inflating the extreme bubble that affected the California and Oregon real estate markets. Limiting options for where people and business can locate, notes UCSB’s Watkins, tends to drive up the prices of desirable real estate beyond what it would otherwise cost.

    Perhaps worst of all, it is not at all certain that a forced march back to the cities would necessarily produce a better, more energy-efficient country. Sprawling and multipolar, with jobs scattered largely on the periphery, most American cities do not lend themselves easily to traditional mass transit; in many cases, this proves no more energy efficient than driving a low-mileage car, using flexible jitney services or, especially, working at home. Big cities also have a potential for generating a “heat island” effect that can result in higher temperatures.

    Energy policy represents another field where hewing too close to the green party line could prove problematic. Obama already has endorsed California’s approach as exemplary. And indeed, some things — like imposing tougher mileage standards, stronger conservation measures and more research into cleaner forms of energy — could indeed bring about both short-term and long-term economic benefits.

    However, there are also downsides to adopting a California-style single-minded focus on renewable fuels such as solar and wind. Right now, these sources account for far less than 1 percent of our nation’s energy production. Even if doubled or tripled in the next few years, they seem unlikely to reduce our future dependence on foreign oil or boost our overall energy supplies in the short, or even medium, term.

    Looking at the experience of these two states, bold claims about vast numbers of green jobs created by legislative fiat seem more about offloading costs to consumers, business and taxpayers than anything else, particularly at today’s current low energy prices. In contrast, new environmentally friendly investments in natural gas, hydro, biomass and nuclear are more likely to find private financing and may work sooner both to reduce dependence on foreign fuels and to keep energy prices down.

    The Obama administration certainly should listen to the arguments of environmentalists. But given the clear priority among voters to deal first with the economy, the president should implement only those green policies that make sense at this time of crisis. A sharp break from the Bush approach is certainly welcome, but not in ways that promise more pain to ordinary Americans and our faltering economy.

    This article originally appeared at Politico.

    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.

  • Housing Prices Will Continue to Fall, Especially in California

    The latest house price data indicates no respite in the continuing price declines, especially where the declines have been the most severe. But no place has seen the devastation that has occurred in California. As median house prices climbed to an unheard-of level – 10 or more times median household incomes – a sense of euphoria developed among many purchasers, analysts and business reporters who deluded themselves into believing that metaphysics or some such cause would propel prices into a more remote orbit.

    Yet gravity still held. A long-term supply of owned housing for a large population cannot be sustained at prices people cannot afford. Since World War II, median house prices in the United States have tended to be 3.0 times or less median household incomes. This fact should have been kept in mind before – and now as well.

    By abandoning this standard, California’s coastal markets skidded towards disaster. Just over the past year, house prices in the Los Angeles, San Francisco, San Diego and San Jose metropolitan areas have declined at more than three times the greatest national annual loss rate during the Great Depression as reported by economist Robert Schiller.

    But the re-entry into earthly prices is just beginning. In the four coastal markets, the Median Multiple has plummeted since our third quarter 2008 data just reported in our 5th Annual Demographia International Housing Affordability Survey. The most recent data from the California Association of Realtors would suggest that the Median Multiple has fallen from 8.0 to 6.7 in San Francisco, in just three months. In San Jose, the drop has been from 7.4 to 6.3. Los Angeles has fallen from 7.2 to 6.2 and San Diego has slipped from 5.9 to 5.2.

    Yet history suggests that there is a good distance yet to go. California’s prices will have to fall much further, particularly along the coast. Due largely to restrictive land use policies, California house prices had risen to well above the national Median Multiple by the early 1990s, an association identified by Dartmouth’s William Fischel. During the last trough, after the early 1990s bubble and before the 2000s bubble, the Median Multiple in the four coastal California markets fell to between 4.0 and 4.5. It would not be surprising for those levels to be seen again before there is price stability.

    Using this standard, I expect median house prices could fall another $150,000 to $200,000 in the San Francisco and San Jose metropolitan areas. The Los Angeles area could see another $100,000 to $125,000 drop, while the San Diego area could be in store for a further decline of $50,000 to $75,000.

    Is there anything that can stop this? Yes there is – the government. This is the same force that caused much of the problem at the onset. Now with the passage of Senate Bill 375 and an over-zealous state Attorney General more intent on engaging in a misconceived anti-greenhouse gas jihad, it may become all but impossible to build the single-family homes that, according to a Public Policy Institute of California survey, are preferred by more than 80% of California. Instead we may see ever more dense housing adjacent to new transit stops – exactly the kind of housing that has flooded the market in recent years. Many of these units, once meant for sale, have been turned into rentals. Many others lay empty.

    In the short run, however, even Jerry Brown’s lunacy will have limited impact. The continuing recession will continue to reduce prices even though the supply remains steady. The surplus of dense condominium units will expand the swelling inventory of rentals, as prices continue to drop towards a 4.0 to 4.5 Median Multiple or below.

    The one place which may benefit from this will be some of the less glamorous inland markets, that are suddenly becoming far more affordable. Sacramento earns the honor of being the first major metropolitan area to reach a Median Multiple of 3.0, as a result of continuing declines. Riverside-San Bernardino is close behind, and should be in this territory within the next year.

    But many other overpriced markets have yet to experience this kind of pain. Prime candidates for big reductions include New York, Miami, Portland (Oregon), Boston and Seattle. These areas may not have suffered the extreme disequilibrium seen in California, but their prices have soared. As the economies of these regions – New York and Portland in particular – begin to unravel, prices will certainly fall, perhaps precipitously.

    This may not make Manhattan or Portland’s Pearl District affordable for the middle class but could drive prices to reasonable levels in the outer boroughs, Long Island or the Portland suburbs. This may be a disaster for the speculators, architects, developers and some local governments, but for many middle class families it may seem like the dawning of a new age of reason.

    HOUSING AFFORDABILITY RATINGS UNITED STATES METROPOLITAN MARKETS OVER 1,000,000
    Rank Metropolitan Area Median Multiple
    AFFORDABLE  
    1 Indianapolis 2.2
    2 Cleveland 2.3
    2 Detroit 2.3
    4 Rochester 2.4
    5 Buffalo 2.5
    5 Cincinnati 2.5
    7 Atlanta 2.6
    7 Pittsburgh 2.6
    7 St. Louis 2.6
    10 Columbus 2.7
    10 Dallas-Fort Worth 2.7
    10 Kansas City 2.7
    10 Mem[hios 2.7
    14 Oklahoma City 2.8
    15 Houston 2.9
    15 Louisville 2.9
    15 Nashville 2.9
    MODERATELY UNAFFORDABLE  
    18 Minneapolis-St. Paul 3.1
    18 New Orleans 3.1
    20 Birmingham 3.2
    20 San Antonio 3.2
    22 Austin 3.3
    22 Jacksonville 3.3
    24 Phoenix 3.4
    25 Sacramento 3.5
    26 Tampa-St. Petersburg 3.6
    27 Denver 3.7
    27 Hartford 3.7
    27 Las Vegas 3.7
    27 Raleigh 3.7
    27 Richmond 3.7
    32 Salt Lake City 3.8
    33 Charlotte 3.9
    33 Riverside-San Bernardino 3.9
    33 Washington (DC) 3.9
    36 Milwaukee 4.0
    36 Philadelphia 4.0
    SERIOUSLY UNAFFORDABLE  
    38 Chicago 4.1
    38 Orlando 4.1
    40 Baltimore 4.2
    41 Virginia Beach-Norfolk 4.3
    42 Providence 4.4
    43 Portland (OR) 4.9
    SEVERELY UNAFFORDABLE  
    44 Seattle 5.2
    45 Boston 5.3
    46 Miami-West Palm Beach 5.6
    47 San Diego 5.9
    48 New York 7.0
    49 Los Angeles 7.2
    50 San Jose 7.4
    51 San Francisco 8.0
    2008: 3rd Quarter  
    Median Multiple: Median House Price divided by Median Household Income
    Source: http://www.demographia.com/dhi.pdf

    Note: The Demographia International Housing Affordability Survey is a joint effort of Wendell Cox of Demographia (United States) and Hugh Pavletich of Performance Urban Planning (New Zealand).

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

  • Florida’s Tourism Addiction

    Remember those innocent days last summer, when the biggest worry was high gas prices? Florida already felt the pinch as tourism dropped dramatically. Then, as the financial markets collapsed last fall, Florida’s leaders woke up and began talking about diversification. Like deer caught in the crosshairs of a rifle scope, economic boosters darted around looking for new safe places in the knowledge economy, ways to revitalize agriculture, and even exploring private space development to supplement the stuttering NASA program.

    But now, having passed through the last quarter, this talk is once more put aside for reliance on tourism again. It appears that the line for Disney’s Space Mountain could be an inverse indicator of the state’s appetite for healthy diversification. As wait time for the ride shortened in October, space programs, research laboratories, and business incubators fell back in the minds of public officials. Today, with lower gas prices, those who still have jobs are coming back to the theme parks, and the relief that state officials feel is audible: no more silly talk about diversification!

    Once upon a time, before all the turmoil, NASA had a space program. From afar, one may infer there is an exciting base of science and technology centered around the Kennedy Space Center, with engineering plants and satellite factories and science laboratories. A visit to this area reveals nothing of the sort: sleepy Cocoa, a beach town seemingly lost in time, housing a few small offices scattered around the town labeled Grumman, Boeing, or Lockheed Martin. NASA’s space program in Florida, as it turns out, produces spectacular launches but not much else; the winds of politics on Capitol Hill blow so hot or cold that little sustained investment is possible into this local economy. In 2008, NASA quietly eliminated 4,000 jobs in Central Florida, as the space shuttle program is phased out and replaced with a more efficient vehicle.

    Meanwhile, tourism grew and no one noticed.

    Once upon a time, before all the freezes, Central Florida had agriculture specializing in citrus. Remember Anita Bryant and the famous Florida Orange? Groves actually extended into southern Georgia a century ago, but citrus farming retreated further and further south as farmers sought less risk from the weather. By the early 1990s, more freezes caused Central Florida farmers to throw in the towel, carrying out with them orange juice processing plants, bottle manufacturers, and shipping and trucking centers. Replacement crops were neither entertained nor encouraged by the State, and the farmers sold their land to developers, who quickly rezoned the land for single family subdivisions. Population grew, and no one noticed.

    Once upon a time, East Coast businesses were moving their corporate headquarters to Florida. If anybody remembers John Naisbitt’s 1980 book Megatrends, Orlando was named one of the top ten cities of the future. AAA, the automobile travel association, moved its corporate headquarters to Central Florida, joining Tupperware and several others. It appeared that low taxes and great weather inevitably would lure more companies. It escaped most people’s notice that the other corporations moving here, such as Harcourt Brace Jovanovich (now Harcourt), weren’t moving their leadership, but only back offices and computer hardware to Florida, taking state business incentives and returning the favor with service workers, not executives. As these service workers are downsized due to outsourcing and automation, Florida’s economy has been dramatically affected. Meanwhile the corporate headquarters in New York were protected. The top executives may have maintained condos in Florida, but never took the place seriously for business.

    But still tourism was growing, and no one noticed.

    Once upon a time, Florida was known as the state of low taxes. No income tax for us, thank you very much, despite a few weak attempts by the legislature. Rather, Florida depends on sales taxes and property taxes to balance its budget, and growth seemed to guarantee that these would rise. But even as low as taxes were, business leaders two years ago pressured the new Governor and legislature to propose a tax cut referendum, and like sheep, the citizens voted yes. Heck, who would not want their taxes cut? Shortly after property taxes were voted lower, the bottom fell out of Florida’s housing market, producing the perfect storm of lower taxes on properties dropping in value. Then, the wise leaders chose to cut necessities like education, rather than luxuries like the purchase of U.S. Sugar’s abandoned properties.

    But tourism was growing, and no one seemed to care.

    The litany of missed opportunities is longer than the space to list them. To anyone running a business, diversification of sources of income would seem natural to promote the long-term health of your business. But Florida consistently has shown disdain for this sort of behavior, because tourism continues to provide a steady stream of revenue. It is true that historically tourism has risen at the same rate as population growth and there is no reason to doubt that tourism will rebound. So once again, Florida’s reliance on tourism may seem its key to economic survival.

    In Central Florida, the economy is tourism, with worldwide visitorship, and compared to its next closest competitor, Las Vegas, Central Florida has come through smelling like a rose. Hotels within Disney’s property quietly finished 2008 on budget, and other hotels surrounding the theme parks suffered only modest losses. New hotel starts are halted, and owners with cash are not seeking expansion, renovation, nor repositioning while occupancy is down.

    Meanwhile, digital media and medical research remain the two most viable diversification channels for Central Florida. Partnerships between the private sector and the University of Central Florida to create a digital media development center will bear fruit in the coming years, both on campus and in downtown Orlando. Growth in medical research is already happening with the arrival of the Nemours Center for Pediatric Research. Both of these are happening because of internal decisions, windows of opportunity, and with mostly private, not government, help. On the downside, space investment dwindles, agriculture divestiture continues, and the State sits idly by, dreaming dreams of legalized gaming so as to put even more eggs into tourism’s basket.

    These are excellent times for diversifying the state’s economy. Tourism breeds not just an epehemeral city, but an ephemeral state – and the risk of this position is felt every day as jobs get scarcer and scarcer. Florida’s business leaders need to take responsibility for the future of the state, stop their addiction to tourism, and seek higher and safer ground. Only with a diversified economy will the State of Florida have long-term prospects for a prosperous future.

    So come on back, everyone, and get in line for rides at Disney! Those of us living and working in Central Florida thank you for coming. And, while you are here, pat yourselves on the back for helping Florida postpone its inevitable reckoning with economic reality.

    Richard Reep is an Architect and artist living in Winter Park, Florida. His practice has centered around hospitality-driven mixed use, and has contributed in various capacities to urban mixed-use projects, both nationally and internationally, for the last 25 years.

  • Obama’s Other History

    The coverage of President Barack Obama’s first days in office has been intense, to say the least. Yet it has still managed to overlook an historical comparison that is worthy of our consideration.

    Obama took office just a few months after a stock market crash that left no doubt about the rugged shape of our economy. The ensuing decline has been swift and scary, leading some to talk about a possible fall into an outright depression.

    Now consider Herbert Hoover, the president who took office just a few months before a stock market crash that signaled the Great Depression in 1929. Hoover remains a figure of historical disfavor to this day because of what he did — and particularly what he didn’t do — after the crash. He served nearly four years in the Oval Office as the Great Depression raged, continuing to view government’s role in the economy as largely limited. He offered no enormous economic stimulus plans or social programs. Clusters of tent cities occupied by the dispossessed of our land became known as “Hoovervilles.”

    Then came Franklin Roosevelt, who immediately put enormous economic stimulus plans into action and launched a whole host of social programs.

    Timing can be everything — in politics, economic matters, and life in general.

    Our timing might be just right with Obama because our economy’s nose-dive came just a month or so before the presidential election. Obama came to the job at a moment when he has a chance to move on our problems before they settle in to another Great Depression. What if Roosevelt had gotten a shot a few months after the stock market crash in 1929 instead of nearly four years into the mess?

    Here’s another historical comparison worth noting: Hoover won election as a Republican in 1928 in part because of widespread prejudice against Roman Catholics, a sentiment that worked against New York Governor Al Smith, who ran as the Democratic nominee in the race.

    There’s true irony in this piece of history, because Smith had recognized the shaky nature of the economy well before the crash that signaled the start of the Great Depression. The actions he took in New York during the 1920s could be viewed as a state version of what would become Roosevelt’s famous New Deal package of economic stimulus and social programs.

    Bigotry ravaged Smith’s campaign, though. He might not have won in any case, but the anti-Catholic emotions that took wing in large parts of the populace, media and other parts of the power structure left him without a fighting chance.

    Smith’s loss spelled a wait of nearly four years before the federal government became fully engaged in putting its might against the Great Depression. It was just a few months ago that Americans could have again allowed prejudice — this time against African/Americans — to override a presidential campaign. That might have led to another slow response to an economic crisis. It’s not a perfect comparison to match recent Republican nominee John McCain to Hoover, but the Arizona Senator has long favored smaller government, which is nowhere near what we saw from Roosevelt or are seeing from Obama.

    Now here’s the hard part of this history lesson: There’s still plenty of debate among scholars and economists on whether Roosevelt’s massive government programs worked. The New Deal brought immediate relief to millions in dire straits, an invaluable record in its own right. But there is data to indicate that the programs ultimately failed to put the economy back on track. Indeed, the Great Depression didn’t really end until World War II led factories and farms to crank up production. Some would argue that the New Deal amounted to short-term fixes that did more harm than good over the long haul.

    That leaves us to wonder whether the current plans to spend $700 billion to bail out banks and automakers — and hundreds of billions more on roads and bridges — will bring improvements that make such outlays worthwhile.

    The effort will be made sooner rather than later, though, and that’s because Americans didn’t hold a fellow back from the highest office in the land based on prejudice this time around.

    That’s real progress — even if it’s the only progress we can claim for certain as we fight through our tough economy.

    Jerry Sullivan is the Editor & Publisher of the Los Angeles Garment & Citizen, a weekly community newspaper that covers Downtown Los Angeles and surrounding districts (www.garmentandcitizen.com)

  • Financial Crisis: Have We Hit Bottom Yet?

    These are not boom times for optimists. But I believe that – combined with knowledge of what has worked in the past – there are numerous signs that the economy may turn around faster than many think.

    Bottoming Signs

    Here are some small signs that the economy is at last bottoming:

    – The ISM non-manufacturing services report for December came in at 40.6 on the composite index, compared to 37.3 in November. New orders, employment, backlogs, and exports all ticked higher than the previous month. So did the overall-business-activity index.
    – November factory orders rose at a 3.9% annual pace, the first increase in four months and the best gain in 10 months. Computer orders surged 12.5%.
    – Pending home sales declined again overall, but in the West pending sales continued to increase, up 27% since the August 2007 bottom.
    – Commercial construction rose 0.7% annually in November, and is up 12.1% over the past three months.
    – Real disposable personal income jumped 1% in November and is up 7.1% at an annual rate over the past three months. Real consumer spending rose 0.6% in November.
    – Inflation is plummeting, largely a function of collapsing oil and retail gas prices.
    – The money supply of liquid assets, as measured by M1 and M2, is growing robustly, fueled by the Fed’s gigantic increase in the monetary base.
    – The credit freeze continues to thaw. The three-month LIBOR rate is all the way back to 1.4%. Corporate bond rates continue to decline.

    The Economic News Isn’t All Bleak

    What happened after the collapse of Lehman on Sept. 15 was a global, synchronous cessation of all but nondiscretionary economic activity. It came in the wake of a near-collapse of global credit markets. The fall was remarkably rapid. But if things came to a halt more quickly than ever before, they could also restart more quickly than ever before. Zachary Karabell, president of River Twice Research, calls attention to some positive signs:

    – “First, we haven’t seen war, revolution, the collapse of states and governments, or massive demonstrations sweeping the globe.” It is a remarkable testament to global stability even in the most difficult time.

    – “Second, consumers in many parts of the world are in relatively good shape.” A third of American households have no mortgage. The savings rate in China is 50%. The accumulation of wealth is still massive in the US, Europe, Japan, China, the Gulf region, Brazil, India and Russia. Even at its most promiscuous, the credit system did not allow consumers to leverage themselves to the obscene 30:1 ratio that some financial institutions did.

    Karabell continues:

    People have also reacted swiftly to the current problems, paying down debt and paring back purchases out of prudence or necessity. That’s a short-term drag on economic activity, but it will leave consumer balance sheets in good shape going forward. Low energy prices and zero inflation will boost spending power. Even if unemployment reaches 9% or more, consumer reserves in the US and world-wide are deeper than commentary would suggest. Household net worth in the US is down from its highs but is still about $45 trillion. As the credit system eases, historically low interest rates also augur debt refinancing and constructive access to credit for those with good histories and for small business creation in the year ahead. Entrepreneurs often thrive when the system is cracking.
    In addition, corporations generally have very clean balance sheets with little debt and lots of cash, unlike the downturns in 2002 and in the 1980s. And government has more creative ways to spend, which both the current Federal Reserve and the incoming Obama administration intend to do.

    2009 Could Be Better Than You Think

    Here are five good reasons why 2009 could be better than you think, according to Alan Murray:

    1. This will be a good year to invest in stocks (the bottom will be found sometime this year, and it probably won’t be too far below where the market is today).
    2. It will be a good year to invest in real estate (fixed-rate mortgages are at historic lows).
    3. Americans will learn to live within their means (you can’t spend what you don’t earn).
    4. President Obama will have a historic opportunity to reshape public policy (sure, some of the stimulus money will be wasted, but a lot will be beneficial).
    5. Your (federal) taxes won’t rise (not this year, anyway).

    What Could Go Right in 2009

    Superstrategist Ed Yardeni is quoted by James Pethokoukis in US News & World Report on what could go right in 2009:

    1. Lower mortgage rates fuel a refinancing boom which lifts consumer spending.
    2. Home sales increase and home prices stabilize.
    3. Easier credit conditions increase auto sales.
    4. The drop in fuel prices also boosts consumer spending; the unemployment rate peaks below 8%.
    5. Massive spending on infrastructure by the US government offsets weakness in such spending by state and local governments.
    6. The money supply grows rapidly.
    7. Stimulative monetary and fiscal policies overseas revive global economic activity and US exports.
    8. Depleted inventories and improving sales trigger a big jump in industrial production.
    9. Credit quality spreads narrow significantly and rapidly as investors seek better returns than available in Treasury securities.
    10. Stock prices rise 30%-40% in anticipation of better earnings during the second half of 2009 and in 2010.
    11. Inflation remains subdued, and productivity pops.

    Looking on the Bright Side

    Martin Walker, Senior Director of AT Kearny’s Global Business Policy Council, is not down-hearted, for the following reasons:

    First, the financial crisis is starting to ease. The LIBOR rate is back down below the panic level. Credit Default Swaps look much less worrying. International coordination to ameliorate the crisis is unprecedented, and includes China.

    Second, we now have a reasonable sense of how long the recession is going to be; it started in the third quarter of last year, will last for at least 18-24 months, and will see a decline in GDP among the G-7 countries of 2 to 3 percent.

    The growth rate of the BRIC economies – Brazil, Russia, India and China – will slow, as will the growth of such middle-income countries as Mexico, Australia, Turkey, Taiwan, Indonesia, Saudi Arabia and South Korea. But they will all still be growing.

    Third, there is some very good news on innovation which points to a much brighter future. All previous predictions of gloom and despair – from Thomas Malthus in 1798 predicting human population would overwhelm food supplies to the Club of Rome’s forecast of major minerals and commodities shortage in the 1970s – have been proved wrong by human ingenuity and technological progress. Brains, brawn and sheer effort have a remarkable way of overcoming obstacles.

    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 (www.rogerselbert.com). Roger is US economic analyst for the Institute for Business Cycle Analysis in Copenhagen, and North American representative for its US Consumer Demand Index.