New Geography

Tag: middle class

  • The Screwed Election: Wall Street Can’t Lose, and America Can’t Win

    About two in three Americans do not think what’s good for Wall Street is good for America, according to the 2012 Harris poll, but do think people who work there are less “honest and moral than other people,” and don’t “deserve to make the kind of money they earn.” Confidence in banks is at a record low, according to Gallup, as they’ve suffered the steepest fall in esteem of any American institution over the past decade. And people have put their money where their mouth is, with $171 billion leaving the stock market last year alone, and 80 percent of Wall Street communications executives conceded that public perception of their firms was not good.

    Americans are angry at the big-time bankers and brokers, and yet, far from a populist attack on crony capitalism, Wall Street is sitting pretty, looking ahead to a presidential election that it can’t possibly lose. They have bankrolled a nifty choice between President Obama, the largest beneficiary of financial-industry backing in history and Mitt Romney, one of their very own.

    One is to the manner born, the other a crafty servant; neither will take on the power.

    Think of this: despite taking office in the midst of a massive financial meltdown, Obama’s administration has not prosecuted a single heavy-hitter among those responsible for the financial crisis. To the contrary, he’s staffed his team with big bankers and their allies. Under the Bush-Obama bailouts the big financial institutions have feasted like pigs at the trough, with the six largest banks borrowing almost a half trillion dollars from uncle Ben Bernanke’s printing press. In 2013 the top four banks controlled more than 40 percent of the credit markets in the top 10 states—up by 10 percentage points from 2009 and roughly twice their share in 2000. Meantime, small banks, usually the ones serving Main Street businesses, have taken the hit along with the rest of us with more than 300 folding since the passage of Dodd-Frank, the industry-approved bill to “reform” the industry.

    Yet past the occasional election-year bout of symbolic class warfare, the oligarchs have little to fear from an Obama victory.

    “Too big to fail,” enshrined in the Dodd-Frank bill, enjoys the full and enthusiastic support of the administration. Obama’s financial tsar on the GM bailout, Steven Rattner, took to The New York Times to stress that Obamians see nothing systemically wrong with the banking system we have now, blaming the 2008 market meltdown on “old-fashioned poor management.”

    “In a world of behemoth banks,” he explained to we mere mortals, “it is wrong to think we can shrink ours to a size that eliminates the ‘too big to fail’ problem without emasculating one of our most successful industries.”

    But consider the messenger. Rattner, while denying wrongdoing, paid $6.2 million and accepted a two-year ban on associating with any investment adviser or broker-dealer to settle with the SEC over the agency’s claims that he had played a role in a pay-to-play scheme involving a $50,000 contribution to the now-jailed politician who controlled New York State’s $125 billion pension fund. He’s also expressed unlimited admiration for the Chinese economic system, the largest expression of crony capitalism in history. Expect Rattner to be on hand in September, when Democrats gather in Charlotte, the nation’s second-largest banking city, inside the Bank of America Stadium to formally nominate Obama for a second term.

    In a sane world, one would expect Republicans to run against this consolidation of power, that has taxpayers propping up banks that invest vast amounts in backing the campaigns of the lawmakers who levy those taxes. The party would appeal to grassroots capitalists, investors, small banks and their customers who feel excluded from the Washington-sanctioned insiders’ game. The popular appeal is there. The Tea Party, of course, began as a response against TARP.

    Instead, the party nominated a Wall Street patrician, Mitt Romney, whose idea of populism seems to be donning a well-pressed pair of jeans and a work shirt.

    Romney himself is so clueless as to be touting his strong fund-raising with big finance. His top contributors list reads something like a rogue’s gallery from the 2008 crash: Goldman Sachs, JPMorgan Chase, Morgan Stanley, Credit Suisse, Citicorp, and Barclays. If Obama’s Hollywood friends wanted to find a perfect candidate to play the role of out-of-touch-Wall Street grandee, they could do worse than casting Mitt.

    With Romney to work with, David Axelrod’s dog could design the ads right now.

    True, some of the finance titans who thought Obama nifty back in 2008 have had their delicate psyches ruffled by the president’s election-year attacks on the “one percent.” But the “progressives,” now tethered to Obama’s chain, are deluding themselves if they think the president’s neo-populist rancor means much of anything. They get to serve as what the Old Bosheviks would have called  “useful idiots,” pawns in the fight between one group of oligopolists and another.

    This division can be seen in the financial community as well. For the most part Obama has maintained the loyalty of those financiers, like Rattner, who seek out pension funds to finance their business. Those who underwrite and speculate on public debt have reason to embrace Washington’s free spenders. They are also cozy to financiers like John Corzine, the former Goldman Sachs CEO and governor of New Jersey, whose now-disgraced investment company MF Global is represented by Attorney General Eric Holder’s old firm. 

    The big-government wing of the financial elite remains firmly in Obama’s corner, as his bundlers (including Corzine) have already collected close to $20 million from financial interests for the president. Record support has also poured in from Silicon Valley, which has become ever more like a hip Wall Street west. Like its east-coast brethren, Silicon Valley has also increased its dependence on government policy, as well-connected venture capitalists and many in the tech community  have sought to enrich themselves on the administration’s “green” energy schemes.

    Romney, on the other hand, has done very well with capital tied to the energy industry, and others who invest in the broad private sector, where government interventions are more often a complication than a means to a fast buck. His broad base of financial support reflects how relatively few businesses have benefited from the current regime.

    Who loses in this battle of the oligarchs? Everyone who depends on the markets to accurately give information, and to provide fundamental services, like fairly priced credit.

    And who wins? The politically well-situated, who can profit from credit and regulatory policies whether those are implemented by  Republicans or Democrats.

    American democracy and the prosperity needed to sustain it are both diminished when Wall Street, the great engineer of the 2008 crash, is all but assured of victory in November.

    Joel Kotkin is executive editor of NewGeography.com and is a distinguished presidential fellow in urban futures at Chapman University, and contributing editor to the City Journal in New York. He is author of The City: A Global History. His newest book is The Next Hundred Million: America in 2050, released in February, 2010.

    This piece originally appeared in The Daily Beast.

    Wall Street bull photo by Bigstockphoto.com.

  • The Rise of The 1099 Economy: More Americans Are Becoming Their Own Bosses

    While the economy has been miserable for small business, and many larger ones as well, the ranks of the self-employed have been growing. According to research by Economic Modeling Specialists International, the number of people who primarily work on their own has swelled by 1.3 million since 2001 to 10.6 million, a 14% increase.

    This rise is partially reflective of hard times, and many of the self-employed earn only modest livings in fields such as childcare and construction. However the shift to self-employment is likely to accelerate in the future, and into higher-paying professions, for reasons including the ubiquity of the Internet, which makes it easier for some types of business to use independent contractors, as well as the reluctance of large firms to hire full-time employees with benefits.

    Urban analyst Bill Fulton, who has looked into this issue, concludes we may be seeing a fundamental change in how the economy operates. “Even though there may not be jobs in the conventional sense, there is still work,” Fulton notes. “That’s the whole idea of the 1099 economy. It’s just a different way of organizing the economy.”

    If the 1099 economy is the wave of the future, which regions and industries are currently at the forefront? We turned to EMSI for the data. We looked at the change in self-employment numbers for the nation’s 30 largest metropolitan statistical areas from 2001 to the present, and also from 2008, when the economy first nosedived and people started to scramble.

    The results of EMSI’s research are fascinating, and somewhat surprising, perhaps giving us a glimpse of where the future of economic growth may be taking shape. The biggest changes have taken place in four metro areas where the number of self-employed workers expanded over 10% growth between 2008 and 2012. Two of them, Houston and Seattle, have done very well in our previous rankings of economic performance, and the other two, Phoenix and Riverside– San Bernardino, Calif., suffered grievously from the housing bubble.

    In the case of Houston, its 12% rise in the number of self-employed workers reflects not only widening economic opportunity, but also structural changes in the energy industry, the metro area’s prime economic driver. Since 2005, self-employment in the energy industry has grown 35% (and a remarkable 75% for support activities for oil and gas operations). At least part of this influx, EMSI suggests, could be attributed to land owners cashing in on royalties after leasing their property for drilling, but also to the demand for the increasingly specialized, and often high-tech, services required by that industry.

    The entrepreneurial drive in Houston is clearly not a response to economic disaster – the city has a culture that encourages striking out on your own, and low costs and lighter regulation make it easier. Indeed over the past decade, the Texas powerhouse also led the nation in the growth of its 1099 economy, which expanded by a remarkable 51%.

    Like the energy industry, the burgeoning high-tech sector also has become more dependent on the 1099 economy. Encompassing people writing apps, doing technical consulting,  and working in the information sector, the numbers have surged over the past five years. This may help explain the double-digit increase in self-employment over the past five years in Seattle (up 10%) and San Jose (up 11%). In some cases this may be young people working on their own; in others it could be older techies who may have lost full-time jobs but are now consulting.

    Perhaps the most intriguing shift to the 1099 economy can be found not in hotspots like Silicon Valley, but in areas pummeled in the “housing bust” that are only now showing signs of recovery. This includes two areas, Phoenix and San Bernardino-Riverside, Calif., usually disdained by “creative class” pundits as backwaters, that have seen their number of self-employed grow 12% since 2008.

    One contributing factor may be the migration of people to these areas from Southern California, says Rob Lang, a leading expert on economic trends who teaches at the University of Nevada-Las Vegas. For much of the second half of the 20th century, Southern California was, as historian Fred Siegel of the Manhattan Institute aptly put it, the nation’s “capitalist dynamo.” Unlike Houston with energy, or Seattle and San Jose with technology, the Southern California economy was broad based, spanning everything from aerospace and garments to homebuilding  and fast-food restaurants.

    Over the past generation, many heirs to this entrepreneurial tradition have decamped to the Sonoran Desert region, which stretches from California into Arizona, Lang says.

    Of course, Lang notes, Phoenix has long been disdained by urban aesthetes as environmentally “unsustainable”and doomed to economic decline. Its fate, according to accounts during the worst of the housing crash, was to be surrounded by “zombie sub-divisions” that would remain empty for years, perhaps permanently as the desert encroached.

    Yet as the strong self-employment numbers demonstrate, Phoenix may well be on its way to recovery. Brookings recently estimated its rebound since the Great Recession to be the fifth best of the nation’s 100 largest metro areas. Its unemployment rate has dropped from 12% in 2010 to around 7.5% in May 2012. Bankruptcies have fallen dramatically and the housing market is clearly on the mend.

    One clear sign of improvement is foreclosures have dropped 53% over the past year and are now below the national average.   Meanwhile net migration into Phoenix as well as the rest of Arizona is once again on the rise.

    This recovery, notes local economist Elliot Pollack, follows the typical cycle for Phoenix, led by entrepreneurial activity.  “Greater Phoenix is a small business town,” notes Pollack. ”Historically, during periods of growth, there is substantial new business and self employment formation.”

    Phoenix’s self-employment boom suggests that the Valley of the Sun is primed for a comeback. But not all of the top 30 metro areas are seeing anything like this level of new entrepreneurial activity. The 1099 economy has grown at less than half Phoenix’s rate in such “creative”  hotbeds as New York, Los Angeles, San Francisco and Boston. Self-employment is flat in many cities, including St. Louis, Cincinnati and Cleveland, and as actually declined in Kansas City, Chicago and Atlanta.

    It may be too early to declare which economies will finally rebound fully from the ravages of the Great Recession. But for my money, I’d look to those places where people are taking the leap to go out on their own as the ones most likely to reinvent themselves when the economy begins expanding robustly again.

    Rank Region Growth in Self-employed, 2008-2011
    1 Houston-Sugar Land-Baytown, TX 12.2%
    2 Riverside-San Bernardino-Ontario, CA 11.8%
    3 Phoenix-Mesa-Glendale, AZ 11.5%
    4 Seattle-Tacoma-Bellevue, WA 10.0%
    5 Baltimore-Towson, MD 8.6%
    6 San Antonio-New Braunfels, TX 8.1%
    7 Tampa-St. Petersburg-Clearwater, FL 6.5%
    8 Dallas-Fort Worth-Arlington, TX 6.3%
    9 Boston-Cambridge-Quincy, MA-NH 5.6%
    10 Miami-Fort Lauderdale-Pompano Beach, FL 4.9%
    11 Detroit-Warren-Livonia, MI 4.7%
    12 New York-Northern New Jersey-Long Island, NY-NJ-PA 4.6%
    13 Orlando-Kissimmee-Sanford, FL 4.4%
    14 San Francisco-Oakland-Fremont, CA 4.2%
    15 Sacramento–Arden-Arcade–Roseville, CA 4.2%
    16 Los Angeles-Long Beach-Santa Ana, CA 4.1%
    17 San Diego-Carlsbad-San Marcos, CA 4.1%
    18 Portland-Vancouver-Hillsboro, OR-WA 4.1%
    19 Pittsburgh, PA 2.9%
    20 Denver-Aurora-Broomfield, CO 2.9%
    21 Philadelphia-Camden-Wilmington, PA-NJ-DE-MD 2.8%
    22 Washington-Arlington-Alexandria, DC-VA-MD-WV 1.3%
    23 Cleveland-Elyria-Mentor, OH 0.6%
    24 Cincinnati-Middletown, OH-KY-IN 0.5%
    25 St. Louis, MO-IL 0.3%
    26 Las Vegas-Paradise, NV 0.3%
    27 Minneapolis-St. Paul-Bloomington, MN-WI 0.2%
    28 Kansas City, MO-KS -0.7%
    29 Chicago-Joliet-Naperville, IL-IN-WI -2.4%
    30 Atlanta-Sandy Springs-Marietta, GA -6.5%

     

    Joel Kotkin is executive editor of NewGeography.com and is a distinguished presidential fellow in urban futures at Chapman University, and contributing editor to the City Journal in New York. He is author of The City: A Global History. His newest book is The Next Hundred Million: America in 2050, released in February, 2010.

    This piece originally appeared in Forbes.

    Self employment photo by BigStockPhoto.com.

  • The New Geography Of Success In The U.S. And The Trap Of The ‘New Normal’

    This year’s presidential election is fast becoming an ode to diminished expectations. Neither candidate is advancing a reasonable refutation of the conventional wisdom that America is in the grips of a “new normal” — an era of low growth, persistently high unemployment and less upward mobility, particularly for the working class.

    Certainly recent economic news of slowing growth and job creation bolster the pessimists’ case. But Americans may face far better prospects than portrayed by our dueling presidential mediocrities. Let’s look at those states that have found their own way out of the “new normal,” in some cases reversing all the losses of the Great Recession and then some.

    The states that have added the most jobs since 2007 — Texas, North Dakota, Louisiana, Oklahoma and Alaska – are located in a vast energy and commodities corridor extending from the western Gulf to the northern tip of the Continent. New York and Washington, D.C., prime beneficiaries of monetary easing and a growing federal government, have also clawed back.

    But the big winners are in the central energy corridor. Since 2007, Texas has created almost five times as many jobs as New York; California is still down almost 900,000 jobs and Illinois is off close to 300,000.

    This should represent what Walter Russell Mead calls “a new geography of power,” the anointing of new places Americans and business go to find opportunity. One example: five of the six best cities for starting over in 2012, according to TheStreet.com, were in the Dakotas, Utah, Iowa and Nebraska.

    Why the energy and agriculture states? Since the onset of the new century, much of the sustained growth in the world has taken place not in the financial or information capitals, but in regions that produce basic commodities like energy and food. In the high-income world, the consistently best-performing countries since 2008 have also tended to be resource-rich ones such as Norway, Australia and Canada.Blue social policies work best when financed by petro-dollars and minerals sales.

    Domestic and European demand may fall in the next few years, but increasingly global commodity and energy markets are driven by the expanding needs of the major developing countries. This has helped keep energy prices high, particularly for oil. Being good at exploration and drilling has been more profitable than social media. Texas alone has added nearly 200,000 jobs in its oil and gas sector over the past decade and Oklahoma some 45,000. The Lone Star energy sector created twice as many jobs as exist in the software sector in San Jose and San Francisco combined. These jobs have been an outstanding driver of high-wage employment, with an average salary of upwards of $75,000, and located usually in less expensive areas.

    Choice plays an important part in the growth. The energy boom has supercharged the economies of the states that have welcomed this growth, including Texas, Oklahoma, Louisiana, North Dakota, Wyoming and Alaska. It has not been much help to New York and California, which are reluctant to crack rocks to extract even relatively cleaner carbon-based fuels like natural gas. In contrast, long-suffering Ohio and Pennsylvania, where there have been significant new finds of shale oil and gas, appear to have decided that Texas, not California, is the model for spurring growth.

    The energy-producing states can look forward to a bright future in the long run. U.S. oil and Canadian reserves now stand at over 2 trillion barrels and constitute more than three times the total estimated reserves of the Middle East and North Africa. Observers such as the New America Foundation’s Michael Lind believe that new discoveries, particularly of natural gas, mean that we might actually be living in an era of “peak renewables,” and at the onset of a “very long age of fossil fuels.”

    Growth of these sectors — along with construction and manufacturing — could prove critical to our beleaguered working class. There’s not much respect among the university-dominated pundit class for people who work with  their hands or have specific tangible  skills. Instead they need to lower their expectations and seek, as Slate recently suggested, to find work “in the service sector supporting America’s innovative class.”

    In this neo-Victorian society, the “new normal” means a society dominated by  “innovative” or “creative” masters and their chosen, lucky servants. Leave your job and family in the Midwest or Nevada to become a toenail painter in Silicon Valley, San Francisco or Boston. Besides losing any sense of one’s independence, it’s hard to see how a barber or gardener can live decently, particularly with a family, in such expensive places.

    This bleak reality may not inevitable, though. In many places construction employment is on the rise from its nadir in 2010. This recovery has been a nationwide phenomena but is, not surprisingly, most evident in growth states like Montana, Colorado, Indiana, Iowa, Nebraska, Tennessee and Utah.

    At the same time over the last two years the nation has added more than 400,000 manufacturing jobs, led by the industrial states hit hardest by the recession. Though these gains are small compared to the losses earlier in the decade, the growth is encouraging; automakers and other industries already are complaining about severe shortages of skilled labor. Maybe, after all, life as a dog-walker and hostel denizen in Palo Alto is not the best one can hope for if you can make enough to afford a nice suburban house outside Columbus or Detroit.

    The pundit class may be ready to write off the American dream but many Midwest states are working to restore it. Over the past two years Michigan and Ohio have experienced the biggest drop in unemployment of any states in the union; Michigan leads the way with a drop of almost five percentage points, while Ohio comes in second with a nearly three-point decline. Other key Great Lakes battlegrounds—Wisconsin, Indiana and arguably Missouri—have also seen two-point drops in their unemployment numbers.

    Why is this happening? A lot of it has to do with business-friendly state regimes. Unlike Illinois, increasingly the sad sack  of the Midwest, these states have cut taxes, worked to increase the availability of skill training and streamlined regulations. This has allowed them to take advantage of new opportunities.

    Improving the business climate represents the third critical element for overcoming the new normal. Most rundowns of the states with consistently favorable business and tax climates – as judged by executives — start with Texas, Utah and South Dakota. Many states that are recovering best from the recession, like Louisiana, Wisconsin, Florida, Ohio, Michigan and Arizona, all have been improving their rankings in business surveys over recent years.

    But this should not be seen as an exclusively red state phenomenon. Some blue states as well, notably Washington, have worked hard to keep taxes tolerable and have promoted a rapid expansion of their  industrial sector. Democratic-leaning Colorado, under the leadership of pragmatic Gov. John Hickenlooper, has also strived to main a good business climate and promote growth.

    What works, it appears, is not the mindless embrace of GOP or Democratic ideology, but a model that drives economic growth. It’s not rocket science: sensible regulation, moderate taxes and investments to spur job creation and productivity. “There is no Democratic or Republican way to sweep streets,” legendary New York City Mayor Fiorello LaGuardia once remarked and the same is true of economic growth.

    The stories of the successful states tell us the key to success lies  in promoting basic industries like energy, agriculture and manufacturing — which then create business service and high-skilled jobs — combined with a broad agenda favorable to entrepreneurs of all kinds. If only one of our presidential candidates would get the message.

    For more about how states are defying the "new normal," read the 2012 Enterprising States: Policies that Produce report, authored by Joel Kotkin and Praxis Strategy Group.

    Joel Kotkin is executive editor of NewGeography.com and is a distinguished presidential fellow in urban futures at Chapman University, and contributing editor to the City Journal in New York. He is author of The City: A Global History. His newest book is The Next Hundred Million: America in 2050, released in February, 2010.

    This piece originally appeared in Forbes.

    Auto manufacturing photo by BigStockPhoto.com.

  • Are Millennials the Screwed Generation?

    Today’s youth, both here and abroad, have been screwed by their parents’ fiscal profligacy and economic mismanagement. Neil Howe, a leading generational theorist, cites the “greed, shortsightedness, and blind partisanship” of the boomers, of whom he is one, for having “brought the global economy to its knees.”

    How has this generation been screwed? Let’s count the ways, starting with the economy. No generation has suffered more from the Great Recession than the young. Median net worth of people under 35, according to the U.S. Census, fell 37 percent between 2005 and 2010; those over 65 took only a 13 percent hit.

    The wealth gap today between younger and older Americans now stands as the widest on record. The median net worth of households headed by someone 65 or older is $170,494, 42 percent higher than in 1984, while the median net worth for younger-age households is $3,662, down 68 percent from a quarter century ago, according to an analysis by the Pew Research Center.

    The older generation, notes Pew, were “the beneficiaries of good timing” in everything from a strong economy to a long rise in housing prices. In contrast, quick prospects for improvement are dismal for the younger generation.

    One key reason: their indebted parents are not leaving their jobs, forcing younger people to put careers on hold. Since 2008 the percentage of the workforce under 25 has dropped 13.2 percent, according to the Bureau of Labor Statistics, while that of people over 55 has risen by 7.6 percent.

    “Employers are often replacing entry-level positions meant for graduates with people who have more experience because the pool of applicants is so much larger. Basically when unemployment goes up, it disenfranchises the younger generation because they are the least qualified,” observes Kyle Storms, a recent graduate from Chapman University in California.

    Overall the young suffer stubbornly high unemployment rates—and an even higher incidence of underemployment. The unemployment rate for people between 18 and 29 is 12 percent in the U.S., nearly 50 percent above the national average. That’s a far cry from the fearsome 50 percent rate seen in Spain or Greece, or the 35 percent in Italy and 22 percent in France and the U.K., but well above the 8 percent rate in Germany.

    The screwed generation also enters adulthood loaded down by a mountain of boomer- and senior-incurred debt—debt that spirals ever more out of control. The public debt constitutes a toxic legacy handed over to offspring who will have to pay it off in at least three ways: through higher taxes, less infrastructure and social spending, and, fatefully, the prospect of painfully slow growth for the foreseeable future.

    In the United States, the boomers’ bill has risen to about $50,000 a person. In Japan, the red ink for the next generation comes in at more than $95,000 a person. One nasty solution to pay for this growing debt is to tax workers and consumers. Both Germany and Japan, which appears about to double its VAT rate, have been exploring new taxes to pay for the pensions of the boomers.

    The huge public-employee pensions now driving many states and cities—most recently Stockton, Calif.—toward the netherworld of bankruptcy represent an extreme case of intergenerational transfer from young to old. It’s a thoroughly rigged boomer game, providing guaranteed generous benefits to older public workers while handing the financial upper echelon a “Wall Street boondoggle” (to quote analyst Walter Russell Mead).

    Then there is the debt that the millennials have incurred themselves. The average student, according to Forbes, already carries $12,700 in credit-card and other kinds of debt. Student loans have grown consistently over the last few decades to an average of $27,000 each. Nationwide in the U.S., tuition debt is close to $1 trillion.

    This debt often results from the advice of teachers, largely boomers, that only more education—for which costs have risen at twice the rate of inflation since 2000—could solve the long-term issues of the young. “Our generation decided to go to school and continue into even higher forms of education like master’s and Ph.D. programs, thinking this will give us an edge,” notes Lizzie Guerra, a recent graduate from San Francisco State. “However, we found ourselves incredibly educated but drowning in piles of student loans with a job market that still isn’t hiring.”

    More maddening still, the payback for this expensive education appears to be a chimera. Over 43 percent of recent graduates now working, according to a recent report by the Heldrich Center for Workforce Development, are at jobs that don’t require a college education. Some 16 percent of bartenders and almost the same percentage of parking attendants, notes Ohio State economics professor Richard Vedder, earned a bachelor’s degree or higher.

    “I work at the Gap and Pacific Pak Ice, two jobs that I don’t see myself working long term nor jobs that are specific to my major,” notes recent University of Washington graduate Marshel L. Renz. “I’ve been applying to five jobs a week and have gotten nothing but rejections.”

    Particularly hard hit are those from less prestigious schools or with majors in the humanities, notes a recent Pew study. Among 2011 law-school graduates, half could not find a job in the legal field nine months after finishing school. But it’s not just the lawyers and artists who are suffering. Overall the incomes earned by graduates have dropped over the last decade by 11 percent for men and 7.6 percent for women. No big surprise, then, that last year’s class suffered the highest level of stress on record, according to an annual survey of college freshmen taken over the past quarter century.

    The proliferation of graduate degrees also impacts those many Americans who don’t go (or haven’t yet gone) to college. High-school graduates now find themselves competing with college graduates for basic jobs in service businesses. Unemployment among 16- to 19-year-olds this summer is nearly 25 percent, while for high-school graduates between 2009 and 2011, only 16 percent have found full-time work, and 22 percent work part time.

    Once known for their optimism, many millennials are turning sour about the future. According to a Rutgers study, 56 percent of recent high-school graduates feel they would not be financially more successful than their parents; only 14 percent thought they’d do better. College education doesn’t seem to make a difference: 58 percent of recent graduates feel they won’t do as well as the previous generation. Only 16 percent thought they’d do better.

    This perception builds on the growing notion among economists that the new generation must lower its expectations. Since the financial panic of 2008, “the new normal” has become conventional wisdom. Coined by Mohamed El-Erian at Pimco, it’s been used to describe our world as one “of muted Western growth, high unemployment and relatively orderly delevering.”

    The libertarian Tyler Cowen, in his landmark work The Great Stagnation, makes many of the same points, claiming that the U.S. “frontier” has closed both technologically and in terms of human capital and resources. He maintains that we’ve already harvested “the low-hanging fruit” and that we now rest on a “technological plateau,” making any future economic progress difficult to achieve. Stagnation is not such a bad thing for people already established in college-campus jobs, think tanks, or powerful financial institutions. But it wipes out the hope for the new generation that they can achieve anything resembling the American Dream of their parents or even grandparents.

    Inevitably, young people are delaying their leap into adulthood. Nearly a third of people between 18 and 34 have put off marriage or having a baby due to the recession, and a quarter have moved back to their parents’ homes, according to a Pew study. These decisions have helped cut the birthrate by 11 percent by 2011, while the marriage rate slumped 6.8 percent. The baby-boom echo generation could propel historically fecund America toward the kind of demographic disaster already evident in parts of Europe and Japan.

    The worst effects of the “new normal” can be seen among noncollege graduates. Conservative analysts such as Charles Murray point out the deterioration of family life—as measured by illegitimacy and low marriage rates—among working-class whites; among white American women with only a high-school education, 44 percent of births are out of wedlock, up from 6 percent in 1970. With incomes dropping and higher unemployment, Murray predicts the emergence of a growing “white underclass” in the coming decade.

    The prospect of downward mobility is most evident in recent discussions about the future of the housing market. Since World War II the expectation of each generation was to own property, preferably a single-family house. The large majority of boomers became homeowners during the Reagan-Clinton era. Yet it is increasingly fashionable to insist this “dream” must be expunged. If millennials ever move out of their parents’ house, they will live in apartments they don’t own. There’s a lot of talk about a “generation rent” replacing a primarily suburban ownership society with a new caste of city-dwelling renters. “I’m hoping that the millennial generation doesn’t set its sights on homeownership as a benchmark of economic stability,” sociologist Katherine Newman suggests, “because it’s going to be out of reach for so many of them.”

    No doubt the prospects for homeownership will be tough in the years ahead. But it’s delusional to believe millennials don’t desire the same things as previous generations, note generational chroniclers Morley Winograd and Mike Hais. Survey research finds that 84 percent of 18- to 34-year-olds who are currently renting say that they intend to buy a home even if they can’t currently afford to do so; 64 percent said it was “very important” to have an opportunity to own their own home.

    And where do millennials see their dream house? According to research at Frank Magid Associates, 43 percent describe suburbs as their “ideal place to live,” compared with just 31 percent of older generations. Even though big cities are often preferred among college graduates in their 20s, only 17 percent of millennials say they want to settle permanently in one. This was the same percentage of members of this generation who expressed a preference for living in rural or small-town America.

    So far, the Great Recession has driven young people around the high-income world to the left. Generations growing up in recessions appear more amenable to arguments for government-mandated income redistribution. And since so few young people pay much in the way of taxes, they are less affronted by the prospect of forking over than older voters, who do. This left-leaning tendency has been on display in recent European elections. In France, 57 percent voters 18 to 24 supported the Socialist François Hollande, one of the reasons why the conservative Nicolas Sarkozy lost. Similarly, 37 percent of those in that age category voted for Syrizia, the far-left party in Greece.

    But Winograd and Hais—and Democratic strategist Ruy Teixeira—say it’s not just economics working for the Democrats. Social issues such as gay marriage, women’s rights, and immigration—a large proportion of millennials are children of newcomers—tend to drive younger voters toward the Democrats. Half of millennials, for example, favor gay marriage, compared with a third of boomers, and some predict the Republican embrace of draconian social conservatism will serve to harden the Democratic tilt of millennials for the foreseeable future.

    Yet Republicans may take heart from some of the more conservative values embraced by the young. As a group, millennials appear to be very family-oriented—being good parents is often their highest priority—and roughly two thirds claim to believe in God. And since their long-term aspirations are not so different from those of earlier generations—they still want to own a home in a nice, secure neighborhood—Republicans could make a case that their economic model will work better with their personal goals.

    Right now, politics is just another place where American millennials are getting screwed. Republicans want to deport young Latinos while cutting investments, such as roads and skills education, that would benefit younger voters. Democrats, meanwhile, seem determined to mortgage the future with high spending on pensions, predominantly for aging boomers; cascading indebtedness; and economic policies unfriendly to the rapid growth necessary to assure upward mobility for the new generation.

    This suggests millennials need to force the parties to cater to them and play hard to get. Being taken for granted, as African-Americans have been, does not always produce the best results for any demographic grouping. Politicians target “soccer moms,” “independents,” and suburban voters precisely because they are not predictable. Millennials should not want to be in anyone’s hip pocket.

    Wanting the next generation to succeed is in everyone’s long-term interest. Eventually they will constitute the majority of parents, potential homeowners, and workers. This year they will comprise 24 percent of voting-age adults, up from 18 percent in 2008; by 2020 they will amount to a third of all eligible voters. And if, by then, they are still a screwed generation, they won’t be the only ones suffering. America will be screwed, too.

    Research assistance by Gary Girod. Portrait interviews by Eliza Shapiro.

    Joel Kotkin is executive editor of NewGeography.com and is a distinguished presidential fellow in urban futures at Chapman University, and contributing editor to the City Journal in New York. He is author of The City: A Global History. His newest book is The Next Hundred Million: America in 2050, released in February, 2010.

    This piece originally appeared in Newsweek Magazine.

    Unemployed photo by BigStockPhoto.com.

  • Core City Growth Mainly Below Poverty Line

    Over the toughest economic decade since Great Depression, the nation’s core cities continued to gain more than their share the below poverty line population in the 51 metropolitan areas with more than 1,000,000 population. Between 2000 and 2010, core cities (Note 1) attracted approximately 10 percent of the increase in population (Note 2) while adding 25 percent of the increase in people under the poverty line (Figure 1).

    Most New Core City Residents in Poverty: The core city poverty trend was overwhelming. In the core cities of the 51 metropolitan areas with more than 1,000,000 population (2010), 81 percent of the aggregate population increase was under the poverty line. This compares to the 32 percent of the suburban population increase that was below the poverty line. This may be a much lower figure than the concentration in the core cities, but even that also is far too high (Figure 2).

    The trend in core city poverty concentration was also pervasive. In 39 of the 51 metropolitan areas, core cities accounted for a greater share of poverty level population growth than overall population growth. One of the exceptions was Louisville, where the core city expanded to nearly six times its 2000 land area and more than doubled its population (Note 3). The result was to convert Louisville into a largely suburban city, which masks the high poverty rate in genuine urban core of the former city.

    Poverty in the Suburbs: At the same time, as core city population growth has stalled, much of the numeric increase in the below poverty line population has been in the suburbs. In 2010, the Brookings Institution reported that a majority of the metropolitan population below poverty was in the suburbs (Note 3). This is to be expected, since suburban areas account for nearly 75 percent of major metropolitan area population.

    Partially in response to the Brookings Institution finding, there has been some misinterpretation as to the relative economic fortunes of the core cities and the suburbs. This is consistent with the continuing "drumbeat" of the "return to the cities," which results of the last definitive ten year census only briefly quieted. The "great inversion" cited by Aaron Ehrenhalt and others, wherein the affluent "flock" (the recurring term) to the cities, as the suburbs are ghettoized, remains far from an actual reality.  

    Overall the average major metropolitan area poverty rate rose from 10.9 percent in 2000 to 14.1 percent in 2010. Rather than gentrify, the core city rate rose from 19.2 percent to 23.3 percent, while the suburban rate rose from 8.2 percent to 11.3 percent (Figure 3).

    Core City Poverty Rates Double the Suburbs: In 2010, core city poverty rates were higher in every major metropolitan area than in the suburbs. Overall, average core city poverty rates were more than double that of the suburbs in most metropolitan areas (27 of 51). Among the 10 largest metropolitan areas, the core cities of New York, Chicago, Houston, Philadelphia, Miami, Washington and Boston (Figure 4) suffered poverty rates more than double  those of their suburbs. The cities of Milwaukee and Hartford had the highest poverty rates relative to their suburbs, at four or more times.

    Shares of Poverty Level Population in the Core Cities: On average, 41 percent of metropolitan area populations living below the poverty rate resided in the core cities. The city of San Antonio had the highest share of its metropolitan below poverty population, at 73 percent, followed closely by the city of Milwaukee, at 72 percent. New York City accounted for 63 percent of its metropolitan below poverty line population and the city of San Jose 61 percent. Even after incorporating suburbs, the city of Louisville contained 57 percent of its metropolitan below poverty level population (Figure 5).

    Highlights of the 2010 Data: The 2010 poverty rates for metropolitan areas, core cities and suburbs are shown in the table below. Highlights of the data are described below:

    Metropolitan Areas: The highest metropolitan area poverty rates were in Memphis (19.1 percent), New Orleans (17.4 percent) and Riverside-San Bernardino (17.1 percent). The lowest metropolitan area poverty rates were in Washington (8.4 percent), Hartford (10.1 percent) and Boston (10.3 percent).

    Core Cities: The city of Detroit had the highest poverty rate, at 37.6 percent, The city of San Bernardino, whose city council voted to file for bankrupcty on July 10, had the second highest poverty rate at 34.6 percent, and Cleveland ranked third highest, at 34.0 percent.  The lowest core city poverty rates were in high-tech centers, the city of San Jose (12.6 percent), the city of Seattle (14.7 percent and in the two core cities of San Francisco-Oakland (15.7 percent). Despite the strong metropolitan area showing (#1) and high suburban ranking (#3), the city of Washington had only the 15th lowest poverty rate among core cities.

    Suburbs: The highest suburban poverty rates were in Riverside-San Bernardino (16.2 percent), Miami (15.9 percent) and Oklahoma City (15.2 percent). The lowest suburban poverty rates were in Baltimore (6.7 percent), Milwaukee (6.9 percent) and Washington (7.1 percent), with Baltimore and Washington profiting from strong federal government employment and contracting.

    The data reflects the continuation of longer term trends as wealth losses continue to afflict many core cities and as domestic migrants continue to move away (As was previously reported core counties, the lowest level at which there is migration data, have predominantly lost domestic migrants, both between 2000 and 2009 and in the latest estimates, between 2010 and 2011.) The problem, however is much larger. Both the core cities and the suburbs are are challenged by heightened poverty rates. The entire urban form, from the exurbs and the suburbs to the core cities   need  a substantial reduction in poverty, although  present economic trends are working against this   result.

    2010 Poverty Rates: Major Metropolitan Areas, Core Cities & Suburbs
    Poverty Rates
    Metropolitan Area (MSA) Historical Core City (HCM) MSA City Suburbs City/  Suburbs
    Atlanta, GA Atlanta 14.8% 26.1% 13.9% 1.88
    Austin, TX Austin 15.9% 20.8% 11.7% 1.78
    Baltimore, MD Baltimore 11.0% 25.6% 6.7% 3.80
    Birmingham, AL Birmingham 17.0% 29.5% 14.2% 2.08
    Boston, MA-NH Boston 10.3% 23.3% 8.3% 2.80
    Buffalo, NY Buffalo 14.4% 30.2% 9.7% 3.13
    Charlotte, NC-SC Charlotte 14.5% 17.2% 12.6% 1.36
    Chicago, IL-IN-WI Chicago 13.6% 22.5% 10.0% 2.24
    Cincinnati, OH-KY-IN Cincinnati 14.0% 30.6% 11.4% 2.69
    Cleveland, OH Cleveland 15.1% 34.0% 10.7% 3.19
    Columbus, OH Columbus 15.7% 22.6% 10.5% 2.16
    Dallas-Fort Worth, TX Dallas 14.6% 23.6% 12.5% 1.88
    Denver, CO Denver 12.5% 21.6% 9.7% 2.21
    Detroit,  MI Detroit 16.6% 37.6% 12.4% 3.02
    Hartford, CT Hartford 10.1% 31.2% 7.8% 3.99
    Houston, TX Houston 16.5% 22.8% 13.1% 1.74
    Indianapolis. IN Indianapolis 14.8% 21.1% 9.1% 2.31
    Jacksonville, FL Jacksonville 15.3% 16.7% 13.1% 1.28
    Kansas City, MO-KS Kansas City 12.4% 20.4% 10.0% 2.05
    Las Vegas, NV Las Vegas 15.1% 16.0% 14.7% 1.09
    Los Angeles, CA Los Angeles 16.3% 21.6% 14.0% 1.54
    Louisville, KY-IN Louisville 15.3% 18.9% 12.2% 1.55
    Memphis, TN-MS-AR Memphis 19.1% 26.5% 12.0% 2.20
    Miami, FL Miami 17.1% 32.4% 15.9% 2.04
    Milwaukee,WI Milwaukee 15.5% 29.5% 6.9% 4.30
    Minneapolis-St. Paul, MN-WI Minneapolis & St. Paul 10.9% 23.7% 7.6% 3.10
    Nashville, TN Nashville 15.4% 20.8% 12.2% 1.71
    New Orleans. LA New Orleans 17.4% 27.2% 13.4% 2.02
    New York, NY-NJ-PA New York 13.8% 20.1% 9.0% 2.24
    Oklahoma City, OK Oklahoma City 15.9% 16.8% 15.2% 1.11
    Orlando, FL Orlando 14.7% 18.5% 14.2% 1.30
    Philadelphia, PA-NJ-DE-MD Philadelphia 12.7% 26.7% 7.9% 3.36
    Phoenix, AZ Phoenix 16.3% 22.5% 13.0% 1.73
    Pittsburgh, PA Pittsburgh 12.2% 22.3% 10.7% 2.08
    Portland, OR-WA Portland 13.4% 18.5% 11.7% 1.59
    Providence, RI-MA Providence 13.7% 30.5% 11.7% 2.60
    Raleigh, NC Raleigh 12.9% 18.4% 10.0% 1.84
    Richmond, VA Richmond 11.6% 25.8% 8.9% 2.91
    Riverside-San Bernardino, CA San Bernardino 17.1% 34.6% 16.2% 2.13
    Rochester, NY Rochester 14.2% 33.8% 9.3% 3.62
    Sacramento, CA Sacramento 15.1% 21.5% 13.3% 1.62
    St. Louis,, MO-IL St. Louis 13.3% 27.8% 11.5% 2.42
    Salt Lake City, UT Salt Lake City 13.1% 22.3% 11.3% 1.98
    San Antonio, TX San Antonio 16.3% 19.1% 11.7% 1.64
    San Diego, CA San Diego 14.8% 17.4% 13.0% 1.34
    San Francisco-Oakland, CA San Francisco & Oakland 10.9% 15.7% 9.0% 1.74
    San Jose, CA San Jose 10.6% 12.6% 8.4% 1.49
    Seattle, WA Seattle 11.7% 14.7% 11.1% 1.33
    Tampa-St. Petersburg, FL Tampa 15.4% 21.3% 14.6% 1.46
    Virginia Beach-Norfolk, VA-NC Norfolk 10.6% 16.4% 9.7% 1.69
    Washington, DC-VA-MD-WV Washington 8.4% 19.2% 7.1% 2.69
    Average (Unweighted) 14.1% 23.3% 11.3% 2.18
    Data from American Community Survey, 2010

     

    Wendell Cox is a Visiting Professor, Conservatoire National des Arts et Metiers, Paris and the author of “War on the Dream: How Anti-Sprawl Policy Threatens the Quality of Life.”

    Photograph: Downtown Detroit (by author)

    ———————-

    Note 1: "Historical core municipalities," which are defined here. One such city is designated in each metropolitan area, except in Minneapolis-St. Paul and San Francisco-Oakland. In each of the metropolitan areas, these are the core cities of the metropolitan area at the beginning of the great automobile-oriented suburban expansion. These cities represent at least the urban core. However, in most cases, these cities  include considerable post-war suburban development is not genuinely urban core, largely due to post-1950 annexations.

    Note 2: The data in this analysis is extracted from the American Community Survey for 2010 and the United States Census of 2000. The metropolitan areas for both years are as geographically defined in 2010. The total population figures are the population for which poverty status has was determined by the Bureau of the Census (in each year this was approximately 98 percent of the total population).

    Note 3: The city of Louisville reached its population peak of 390,000 in 1960. Its highest density was nearly 9,300 per square mile (3,600 per square kilometer) in 1950, when it had a population of 370,000 in 40 square miles (100 square kilometers). The suburban incorporating consolidation of 2000 left the city with under 600,000 population in 340 square miles and a population density of 1,700 per square mile (700 per square kilometer), one of the lowest core city population densities in the nation.

    Note 4: The Brookings Institution report compared its "primary cities" to suburbs for 95 metropolitan areas. The primary cities included some that were little more than small towns at the beginning of the great automobile oriented suburban expansion, such as Aurora (Denver), Mesa (Phoenix), Santa Ana (Los Angeles), Fremont (San Francisco-Oakland) and Arlington (Dallas-Fort Worth), which is not served by mass transit. Each of these municipalities is classified as suburban in this analysis.

  • The Cities Where A Paycheck Stretches The Furthest

    When we think of places with high salaries, big metro areas like New York, Los Angeles or San Francisco are usually the first to spring to mind. Or cities with the biggest concentrations of educated workers, such as Boston.

    But wages are just one part of the equation — high prices in those East and West Coast cities mean the fat paychecks aren’t necessarily getting the locals ahead. When cost of living is factored in, most of the places that boast the highest effective pay turn out to be in the less celebrated and less expensive middle part of the country. My colleague Mark Schill of Praxis Strategy Group and I looked at the average annual wages in the nation’s 51 largest metropolitan statistical areas and adjusted incomes by the cost of living. The results were surprising and revealing.

    In first place is Houston, where the average annual wage in 2011 was $59,838, eighth highest in the nation. What puts Houston at the top of the list is the region’s relatively low cost of living, which includes such things as consumer prices and services, utilities and transportation costs and, most importantly, housing prices: The ratio of the median home price to median annual household income in Houston is only 2.9, remarkably low for such a dynamic urban region; in San Francisco a house goes for 6.7 times the median local household income. Adjusted for cost of living, the average Houston wage of $59,838 is worth $66,933, tops in the nation.

    Most of the rest of the top 10 are relatively buoyant economies with relatively low costs of living. These include Dallas-Fort Worth (fifth), Charlotte, N.C. (sixth), Cincinnati (seventh), Austin, Texas (eighth), and Columbus, Ohio (10th). These areas all also have housing affordability rates below 3.0 except for Austin, which clocks in at 3.5. Similar  situations down the list include such mid-sized cities as  Nashville, (11th), St.Louis (12th), Pittsburgh, (13th), Denver (15th) and New Orleans (16th).

    One major surprise is the metro area in third place: Detroit-Warren-Livonia, Mich. This can be explained by the relatively high wages paid in the resurgent auto industry and, as we have reported earlier, a huge surge in well-paying STEM (science, technology, engineering and math-related) jobs. Combine this with some of the most affordable housing in the nation and sizable reductions in unemployment — down 5% in Michigan over the past two years, the largest such drop in the nation. This longtime sad sack region has reason to feel hopeful.

    Only two expensive metro areas made our top 10 list. One is Silicon Valley (San Jose-Sunnyvale-Santa Clara), where the average annual wage last year of $92,556, the highest in the nation, makes up for its high costs, which includes the worst housing affordability among the 51 metro areas we considered: housing prices are nearly 7 times the local median income. Adjusted for cost of living, that $92,556 paycheck is worth $61,581, placing the Valley second on our list.

    In ninth place is Seattle, which placed first on our lists of the cities leading the way in manufacturing and STEM employment growth. Housing costs, while high, are far less than in most coastal California or northeast metropolitan areas.

    What about the places we usually associate with high wages and success? The high pay is offset by exceedingly high costs. Brain-rich Boston has the fifth-highest income of America’s largest metro areas but its high housing and other costs drive it down to 32nd on our list. San Francisco ranks third in average pay at just under $70,000, some $20,000 below San Jose, but has equally high costs. As a result, the metro area ranks a meager 39th on our list.

    Much the same can be said about New York which, like San Francisco, is home to many of the richest Americans and best-paying jobs. The average paycheck clocks in at $69,029, fourth-highest in the country, but high costs, particularly for housing, eat up much of the locals’ pay: adjusted for cost of living, the average salary is worth $44,605. As a result, the Big Apple and its environs rank only 41st on our list.

    Long associated with glitz and glitter, Los Angeles does particularly poorly, coming in 46th on our list. The L.A. metro area may include Beverly Hills, Hollywood and Malibu, but it also is home to South-Central Los Angeles, East L.A. and small, struggling industrial cities surrounding downtown. The relatively modest average paycheck of $55,000 annually, 12th on our list, is eaten up by a cost of living that is well above the national average. This creates an unpleasant reality for many non-celebrity Angelenos.

    Many of the metro areas that rank highly on our list have enjoyed rapid population growth and strong domestic in-migration. Houston, Dallas-Fort Worth, and Austin all have been among the leaders the nation in both domestic migration and overall growth both in the last decade and so far in this one. In the past year, for example, Dallas led the nation with 40,000 net migrants while Austin’s population growth, 4 percent, was the highest rate among the large metropolitan areas.

    In contrast, many of the cities toward the bottom of our list — notably the Los Angeles and New York areas — have led the country in domestic outmigration. Between 2000 and 2009, the nation’s cultural capitals lost a total of over 3 million people to other parts of the country. Although migration has slowed in the recession, the pattern has continued since 2010.

    And how about the future? Income and salary growth has been so tepid recently that few large cities can claim to have made big gains over the past five years; there has been continued volatility as some regions that did worst in the past decade — for example San Francisco — pick up steam. Unfortunately any growth in such highly regulated areas also tends to increase costs rapidly, particularly for housing. In California, this is made much worse by both soaring taxes and a regulatory regime that drives up costs faster than income games.

    Similarly these high prices seem to have the effect of driving out middle-class workers; places like New York, Los Angeles and San Francisco have extraordinary concentrations of both rich and poor workers but fewer in the middle. As we pointed out in our annual job and STEM rankings, many technology, manufacturing and business service jobs are heading not to the hotspots but more to the central part of the country.

    Over time, it seems clear that, for the most part, the best prospects for the future lie in places that both experience income and employment gains but remain relatively affordable. These include some cities that didn’t crack the top 10 of our list but appear to be gaining ground, such as Nashville, Pittsburgh, St. Louis, San Antonio and New Orleans, a once beleaguered city that has experienced the nation’s fastest per capita personal income growth since 2005.

    Maintaining affordability and a wide range of high-paying jobs many not be as glamorous a metric for success as the number of hip web startups or the concentration of educated people. But over time it is likely to be about as good a guide to future prospects as we have.

    Joel Kotkin is executive editor of NewGeography.com and is a distinguished presidential fellow in urban futures at Chapman University, and contributing editor to the City Journal in New York. He is author of The City: A Global History. His newest book is The Next Hundred Million: America in 2050, released in February, 2010.

    This piece originally appeared in Forbes.

    Houston photo by BigStockPhoto.com.

     

    Note: The table below was updated with 2012 data, so it may not match the narrative above discussing 2011 data. Contact Mark Schill at mark@praxissg.com.

    Metropolitan Pay per Job 2012 – Adjusted for Cost of Living
    MSA Name 2012 Avg. Annual Wage Unadj. Rank 2012 Adj Annual Wage Adj. Rank Rank Change
    Houston-Sugar Land-Baytown, TX $67,279 7 $75,256 1 6
    San Jose-Sunnyvale-Santa Clara, CA $107,515 1 $71,534 2 (1)
    Detroit-Warren-Livonia, MI $60,503 16 $64,571 3 13
    Dallas-Fort Worth-Arlington, TX $60,478 17 $62,867 4 13
    Austin-Round Rock-San Marcos, TX $58,103 19 $62,679 5 14
    Memphis, TN-MS-AR $53,069 36 $61,780 6 30
    Charlotte-Gastonia-Rock Hill, NC-SC $57,506 20 $61,636 7 13
    Atlanta-Sandy Springs-Marietta, GA $58,836 18 $60,844 8 10
    Seattle-Tacoma-Bellevue, WA $67,225 8 $60,237 9 (1)
    Cincinnati-Middletown, OH-KY-IN $54,683 26 $59,828 10 16
    Nashville-Davidson–Murfreesboro–Franklin, TN $53,928 30 $59,787 11 19
    Birmingham-Hoover, AL $52,773 37 $59,563 12 25
    St. Louis, MO-IL $54,112 29 $59,398 13 16
    Columbus, OH $53,634 33 $59,395 14 19
    Denver-Aurora-Broomfield, CO $62,021 11 $59,068 15 (4)
    Washington-Arlington-Alexandria, DC-VA-MD-WV $79,852 2 $58,672 16 (14)
    Chicago-Joliet-Naperville, IL-IN-WI $62,746 10 $58,477 17 (7)
    Pittsburgh, PA $55,004 24 $58,021 18 6
    New Orleans-Metairie-Kenner, LA $54,636 27 $57,151 19 8
    Salt Lake City, UT $53,901 31 $56,978 20 11
    Raleigh-Cary, NC $53,243 34 $56,762 21 13
    Milwaukee-Waukesha-West Allis, WI $55,434 22 $55,825 22 0
    Phoenix-Mesa-Glendale, AZ $53,835 32 $55,788 23 9
    Minneapolis-St. Paul-Bloomington, MN-WI $61,515 14 $55,645 24 (10)
    Oklahoma City, OK $50,641 42 $55,345 25 17
    Jacksonville, FL $51,763 40 $55,126 26 14
    Richmond, VA $55,065 23 $55,010 27 (4)
    Tampa-St. Petersburg-Clearwater, FL $50,462 43 $54,969 28 15
    Louisville/Jefferson County, KY-IN $50,385 44 $54,945 29 15
    Hartford-West Hartford-East Hartford, CT $67,826 6 $54,787 30 (24)
    Kansas City, MO-KS $54,378 28 $54,706 31 (3)
    Philadelphia-Camden-Wilmington, PA-NJ-DE-MD $63,615 9 $54,372 32 (23)
    Cleveland-Elyria-Mentor, OH $54,701 25 $53,946 33 (8)
    Boston-Cambridge-Quincy, MA-NH $73,267 5 $53,363 34 (29)
    San Francisco-Oakland-Fremont, CA $79,137 3 $52,988 35 (32)
    San Antonio-New Braunfels, TX $49,219 47 $52,867 36 11
    Rochester, NY $51,798 39 $52,533 37 2
    Baltimore-Towson, MD $61,542 13 $51,759 38 (25)
    Buffalo-Niagara Falls, NY $50,013 46 $50,723 39 7
    Las Vegas-Paradise, NV $50,378 45 $50,328 40 5
    New York-Northern New Jersey-Long Island, NY-NJ-PA $77,640 4 $50,169 41 (37)
    Portland-Vancouver-Hillsboro, OR-WA $56,134 21 $49,414 42 (21)
    Virginia Beach-Norfolk-Newport News, VA-NC $51,693 41 $49,091 43 (2)
    Miami-Fort Lauderdale-Pompano Beach, FL $52,357 38 $48,012 44 (6)
    Orlando-Kissimmee-Sanford, FL $46,481 48 $47,771 45 3
    San Diego-Carlsbad-San Marcos, CA $61,149 15 $46,822 46 (31)
    Los Angeles-Long Beach-Santa Ana, CA $61,634 12 $46,411 47 (35)
    Providence-New Bedford-Fall River, RI-MA $53,071 35 $42,254 48 (13)
    Riverside-San Bernardino-Ontario, CA $46,084 49 $41,000 49 0
    Indianapolis-Carmel, IN $53,839 No data
    Sacramento–Arden-Arcade–Roseville, CA $59,200 No data
    2012 wage data: EMSI Class of Worker, 2012.3
    Cost of living data: C2ER

  • Despite Obama’s Policies, The Rust Belt’s Revival Could Save His Campaign

    Barack Obama’s political base always has been more “creative class” than working class—and his policies have favored that base, seeming to cater to energized issue and identity constituencies including African-Americans, Hispanics, gays, and greens, often at the expense of blue-collar workers.

    Yet improving conditions for those workers—particularly in the industrial heartland—could save his flagging presidency.

    The industrial zone’s four key states—Michigan, Ohio, Wisconsin, and Pennsylvania—constitute the most critically contested territory in this year’s contest. Fifty-four electoral votes are at play here, with Pennsylvania’s 20 votes alone equaling all those at stake in the much-ballyhooed battleground of the Intermountain West (Colorado, Nevada, and New Mexico).

    The Midwest is also home to the two states with the biggest drops in unemployment over the past two years. Michigan leads the way with an almost five percentage point drop, while Ohio comes in second with a nearly three–point decline. Other key Great Lakes battlegrounds—Wisconsin, Indiana and arguably Missouri—have also seen two-point drops in their unemployment numbers.

    “Rust Belt” no longer seems like a pejorative, as the northern industrial states now boast unemployment rates well below those in once-booming states including California, Nevada, Florida, and South Carolina.

    In the last two years the nation has added more than 400,000 manufacturing jobs, led by states in the upper Midwest. Between 2010 and 2011, Michigan led the nation by creating 25,000 new industrial jobs with a heady 5 percent growth rate second only to Oklahoma. Wisconsin came in second with 15,000 new positions, and a growth rate of more than 3 percent.

    These gains may not come to close to making up the losses suffered over the past decade, but the growth is encouraging. Manufacturing employment brings higher wages to regional economies. In the Cincinnati area, the average factory job pays $61,000 a year—$15,000 more than the city’s average wage. This creates an outsized impact on the rest of the economy, from housing and retail to demand for business services. There are already significant shortages of skilled workers such as welders and machinists.

    Midwestern employers are projecting an 18.5% jump—the largest of any region—in the number of college graduates that will be hired this year.

    The new industrial economy creates considerable demand for those who can fill STEM (science, technology, education, and mathematics related jobs). Between 2009 and 2011, Michigan enjoyed the second strongest rate of STEM growth in the nation, just behind Washington, D.C.

    Much of what generated the heartland recovery—and much of what could slow or even reverse it—lies outside of the president’s control. But if the momentum holds through November, the political winds there will be at Obama’s back, helping him sell Great Lakes voters on the idea that the nation is moving in the right direction under his leadership. The key here lies with the revived auto industry.

    Obama’s “decision to rescue GM and Chrysler was exceedingly popular in auto manufacturing dependent states like Michigan and Ohio,” says former Michigan Democratic Party chair Morley Winograd. “The rise in manufacturing employment since has buoyed housing prices, boosted workers’ morale, and allowed Obama, in these states anyway, to be able to claim he delivered on the campaign’s promise of hope and change. "

    Mitt Romney is now effectively even in the polls in Michigan (one of his three “home” states), but he may have trouble explaining his opposition to the auto bailouts if the economic tide is rising.

    “Obama will win Michigan in a walk, “ predicts Winograd. “Outside of a nostalgic visit to his boyhood home, Romney won’t be seen in the state after Labor Day.”

    One state both candidates are sure to spend time in is Ohio, which has already emerged once again as a bellwether in the race.

    Rick Platt, an industrial development official in Newark, an industrial city of 50,000 in the central part of the state, sees the Ohio race as a struggle between “two narratives” about Obama.

    The first is the positive one, a reflection of industrial gains of more than 10,000 jobs last year and falling unemployment. The other narrative builds around fear over a second Obama term.

    Those concerns are especially pronounced in traditional swing regions like the Utica Shale in the eastern part of Ohio and the coal-producing swaths of western Pennsylvania (nearly half of the businesses in the booming gas and oil extraction field are based in the industrial heartland) that have long been resentful of Washington regulators. Business owners are concerned—as are many of their employees—that a second Obama term could mean the EPA shutting down the nascent natural gas boom that’s begun to generate both energy and high-wage industrial jobs. Some businesses have postponed investment due to uncertainty about the election and the prospect of aggressive regulation.

    “There’s a lot of things in play,” says Platt, who has been active in Republican politics. Not surprisingly, he credits much of the region’s recovery to the economic policy of Republican governors like John Kasich in Ohio, Michigan’s Rick Snyder, and Wisconsin’s Scott Walker—all states he notes that are lapping Illinois.  The Land of Lincoln, Obama’s Democrat-controlled home state, suffers the region’s highest unemployment rate and is competing with California for the nation’s worst credit rating. “It’s not clear right now which of the two narratives will win out.”

    The health of the manufacturing economy may prove even more important to the president’s reelection than the Dow Jones index. If industrial growth softens or goes into reverse—for instance, if Europe’s economic troubles cross the Atlantic—the Midwest will feel the effects first.

    And if the Rust Belt suffers, Obama’s path to a second term gets that much tougher.

    Joel Kotkin is executive editor of NewGeography.com and is a distinguished presidential fellow in urban futures at Chapman University, and contributing editor to the City Journal in New York. He is author of The City: A Global History. His newest book is The Next Hundred Million: America in 2050, released in February, 2010.

    This piece originally appeared in The Daily Beast.

    Oklahoma City photo by BigStockPhoto.com.

  • Enterprising States 2012: Beating the New Normal and Policies that Produce

    The following is an exerpt form a new report, Enterprising States, released this week by the U.S. Chamber of Commerce and National Chamber Foundation and written by Praxis Strategy Group and Joel Kotkin. Visit this site to download the full pdf version of the report, or check the interactive map to see how your state ranks in economic performance and in the five policy areas studied in the report. The full report include a case for the nation beating the "new normal" and lists of best-performing states by policy area, and an index to select the top 10 states likely to continue to grow.

    Troubled by economic stagnancy and high unemployment, many pundits and policy makers are referring to the U.S. economic malaise as the “new normal,” claiming that we have reached both technological and economic plateaus. To be sure, the relative weakness of the current recovery – arguably the weakest in contemporary history – does support the “new normal” thesis.

    Not everyone, or every state, accepts the notion of inevitable, slow growth and gradual decline. From the onset of the recession, some states have largely avoided the downturn. By the end of 2011, six states – North Dakota, Wyoming, Alaska, Utah, Texas, and Montana – showed more than 8% job growth over the past decade. Another 22 had shown some, although less robust, employment increases compared to 2001.

    More important still, nearly every state enjoyed some overall private-sector job growth between January 2011 and January 2012. Most critically, growth has spread to many states hardest hit by the recession, including Michigan, California, and Florida. The strongest job growth continued to take place in other states, notably Louisiana, Oklahoma, Texas, Utah, and North Dakota.

    The new geography of growth reflects many of the intrinsic strengths of the U.S. economy often missed by many policymakers and commentators. After a brief lapse, the country is already outperforming all its traditional high-income rivals in Europe, as well as Japan, as it has done for most of the past two decades. Key U.S. assets include surging agricultural and energy production, the general rebound in U.S.-based manufacturing, and unparalleled technological supremacy. The country remains attractive to both foreign investors and skilled immigrants.

    For the U.S. to be successful, this new geography of growth needs to extend across the 50 states and expand for long enough to significantly lower the high rate of unemployment. This will require something more than a single-sector focus. Attention must be paid to both basic and advanced industries since innovation and technology growth alone cannot turn around most regions and states. 

    More than anything, governments and business leaders need to appreciate how these sectors interact with each other. To be effective across all geographies, innovation must be applied to a broad array of industries, including but not limited to computers, media, and the Internet. Innovation and new technologies are also a means to unlock the productive potential of both mundane traditional industries and the service sector.

    States striving to do well in this environment face many barriers to fostering economic growth and creating jobs. These barriers include the high level of debt in many states; a growing skills mismatch between the workforce and the jobs available within a state; and outdated regulations and taxes that serve as barriers to free enterprise.

    Policies that Produce

    In the ebb and flow of the global economy, states can no longer rely solely on strategies of keeping costs low and providing incentives to attract footloose, commodity-based branch plants or offices. Instead, states must create the right business climate that allows companies and entrepreneurs to create 21st century jobs. 

    Dramatic changes in the scope and scale of the global economy have significantly altered the nature of foreign competition. Jobs are the new currency for leaders across the globe, and those who can create good jobs will own the future. With 95% of the world’s customers now living outside our borders, trade with other countries is a key part of our economy that will continue to be important long into the future. 

    Businesses need a highly skilled workforce – which includes many workers with certificates or two-year degrees – that is able to perform the jobs of a 21st century economy. States that are able to get students involved in the STEM fields – science, technology, engineering, and math – will be the most competitive. 

    Innovation, now the essential driving force for creating and sustaining economic opportunities, is much more multidisciplinary and global in scope than ever before. Innovation and market cycle times are much shorter and continue to accelerate. This makes it more important than ever that states provide the tools, support, and tax and regulatory environments for companies to continuously innovate without onerous delays and burdensome costs that put their entrepreneurs and businesses at a competitive disadvantage.

    Enterprising States 2012 takes an in-depth look at the specific priorities, policies and programs of the 50 states. Generally, the states fostering economic growth and creating jobs today – and those most likely to grow in the next decade – are defined by the following broad policy approaches:

    • Parlaying their natural resources and historically competitive industry sectors into 21st century job-creating opportunities
    • Paying attention to and addressing their competitive weaknesses
    • Supporting their companies’ business development efforts to reach an expanding global marketplace
    • Creating a fertile environment and workforce for a technology-based and innovation-driven economy
    • Investing in infrastructure – digitally and physically engineered – that meets the operating requirements of business and connects businesses to markets and customers
    • Getting government, academia, and the private sector to collaborate effectively to make sure that more new ideas developed by companies and in research labs scale up into industries
    • Taking steps to make existing firms more productive and innovative, creating an environment in which new firms can emerge and thrive
    • Maintaining an affordable cost of living for middle-skilled and middle-class employees
    • Promoting education, workforce development and entrepreneurial mentoring to continually fill the talent pipeline
    • Fostering an enterprise-friendly business environment by cleaning up the DURT (delays, uncertainty, regulations, and taxes), modernizing government, and fixing deficiencies in the market that inhibit private-sector investment and entrepreneurial activity.

    State policies and programs that most effectively promote job creation are rooted in market reality. This means building on the existing core industries and technological advantages of a state while pursuing opportunities in growing and emerging sectors. Building on and sustaining existing economic momentum remains a key means of guaranteeing success in the future.

    Huge increases in food exports, domestic energy investment, a revived manufacturing sector, a burgeoning tech sector, vital demographics, and increased investment from abroad create a strong base for long-term secular recovery of the U.S. economy. Rather than facing a dismal future of the new normal, we may actually be on the cusp of a recovery that could become one of America’s finest moments. The key to making this work, for the states and the nation, lies in policies that promote broad-based, long-term economic growth.

    Download the full report, or read the Enterprising States 2012 coverage at the National Chamber Foundation blog.

    Praxis Strategy Group is an economic research, analysis, and strategic planning firm. Joel Kotkin is executive editor of NewGeography.com and author of The Next Hundred Million: America in 2050.

  • From California to Canberra, the Real Class War

    Just under a year before she crawled over Kevin Rudd to claim the Prime Minister’s office, Julia Gillard visited the United States in her then capacity as Australia’s Education Minister. Her stay in Los Angeles took in the Technical and Trades College, where she brushed up on the teaching of “green skills,” a subject close to her heart. “Here in Los Angeles," she told the media that day, “under the leadership of Governor Schwarzenegger, this is a state that is looking to the future; this is a state that is leading on climate change adaption; and this is a state that’s leading on green skills and I’ve seen that on display today at this college.”

    The date was 5 October 2009. As far as dud forecasts go, these platitudes don’t match Lincoln Steffens on the Soviet Union – “I’ve seen the future and it works” – but they’re bad enough. Today Schwarzenegger has gone, his reputation in tatters, and California, reduced to issuing IOU’s to pay its bills, teeters on the brink of bankruptcy.

    Australians have long seen California as a trend-setter, given the common Anglophone culture and semi-arid climate on the Pacific Rim. There’s also the shared love of motor car mobility and suburban independence, and a voracious appetite for tech and entertainment products pouring out of Hollywood and Silicon Valley. But these days the Golden State is just as likely to fill Australians with unease. They find themselves infected with a strain of the green-welfare-utopianism that brought California to its knees.  

    Sure, this doesn’t show up in official statistics; at least not yet. Gillard and Treasurer Wayne Swan never tire of reminding Australians they are “the envy of the world”: unemployment at 4.9 per cent, GDP growth of 3 percent (or more) this financial year, government debt to GDP ratio of just 23 percent and a projected budget surplus in 2013. In April, the IMF predicted that Australia would be the best performing advanced economy over the coming two years. The government and its allies in the elite media are hyper-vigilant about containing discussion of the nation’s affairs within this bounteous frame.

    It’s hard to reconcile Australia’s position with the plight of California, which routinely attracts phrases like “basket case.” Unemployment is running at around 11per cent, significantly above the national US average of 8.2 percent, and Governor Jerry Brown is struggling with an intractable budget deficit of around $US20 billion. Thousands of teachers and other public servants are being laid off, and revenue imposts are driving businesses to other states. One commentator went so far as to say “California’s situation is in some ways more worrisome than Greece’s,” since it represents 14 per cent of the American economy, while Greece only accounts for 2 per cent of the EU.

    But if any of this is supposed to make Australians feel good about their lot, it doesn’t. However benign the headline figures look, they’re in a restive mood. The Westpac-Melbourne Institute index of consumer sentiment continues to languish in negative territory, and the latest Roy Morgan Monthly Business Confidence Survey recorded a 57 percent fall in businesses which believe “Australia will have good economic conditions in the next 12 months”. Astonishingly, the recent Boston Consulting Group consumer sentiment survey found that Australians feel less financially secure than the average European, even less secure than Spaniards, whose economy is in meltdown.

    Nor is much love flowing to Gillard and Swan. Stuck in opinion-poll hell – support for the government has been around 30 percent for over a year – they would be thrown out in a landslide if an election were held today.  

    Why are Australians so low when their economy is so high? The chattering classes are in a funk over this conundrum. People should be showering this fine progressive government with praise, they insist. In patronising tones so familiar around inner Sydney and Melbourne, one columnist scribbled “we are, as a nation, chucking a full-on, all-screaming, all-door slamming teenager temper tantrum … Maybe it’s time we grew up and realised how good we’ve got it.” Others suggest more sober explanations.

    Topping the list is Gillard’s absurd $23 a tonne carbon tax, effective from 1 July this year. Most pundits are loath to concede that, in international terms, the measure is quite radical and Gillard only embraced it to appease the Greens. From the comfort of their armchairs, they dismiss fears about the tax as irrational. After all, Treasury modelling indicates that the effect on growth will be minuscule and, under the government’s package, households will be over-compensated for cost of living increases. If only the Opposition would drop its inflammatory attacks, they maintain, the pessimism would disappear.

    Some blame the negative wealth-effect of sliding house prices and shrinking superannuation funds, battered by stock market volatility.  

    No doubt, such factors do contribute to the malaise, along with loss of faith in a parliament hit by financial and sexual scandals implicating the Speaker and a Labor MP. But opinion-makers who refuse to look beyond the headline figures are concealing the larger story. Across a range of traditional industries, workers grasp that the economy is shifting in directions that could erode the foundations of their mobility and independence. Understanding more than they are given credit for, they fear that the current Labor Government, beholden to Greens and academic elites, and hiding behind stodgy rhetoric, is driving or exploiting those shifts. The most visible manifestations of this are the carbon tax and other green agendas.

    These workers have cause to be worried, if they glance across the Pacific. In his close analysis of the California crisis, US demographer Joel Kotkin starts with the premise that “California consolidated itself as a bastion of modern progressivism.” Drawing on extensive evidence, Kotkin exposes the suffocating influence of radical environmentalists, progressive high-tech venture capitalists, Hollywood moguls, and civil rights attorneys, who have given California escalating energy costs – 50 per cent above the US average and rising – and dwindling fossil-fuel energy exploration and production, America’s sixth highest tax rates, also rising, coupled with proposals to skew the tax system in favour of the super-rich against microbusinesses, the third heaviest tax burden on business out of the 50 states, enormous subsidies and tax breaks for solar and other renewable-energy producers, and complex labour laws.

    “California’s green policies”, says Kotkin, “affect the very industries – manufacturing, home construction, warehousing, and agribusiness – that have traditionally employed middle and working class residents”. With reason, Kotkin calls these developments The New Class Warfare. There is indeed a class dimension to discontent in the United States and Australia, and it has nothing to do with the confected class-war rhetoric coming out of the Obama Administration – “we must all pay our fair share” – and the Gillard Government –“spreading the benefits of the [mining] boom”.  

    John Black, a demographic profiler and former senator, points out that since Labor came to power in 2007, “public administration, education, and health sector jobs have accounted for almost six out of ten of the 760,000 jobs created, instead of the longer term two out of ten.” The health industry alone has grown by 260,000 jobs in four years, a figure that equates to some 2.6 per cent of the whole workforce. Over those years, manufacturing, which accounts for 8.3 of total employment, lost close to 100,000 jobs.

    Last year, “health care and social assistance” replaced “retail trade” as the largest occupational category profiled by the Australian Bureau of Statistics, while “manufacturing” along with “agriculture, forestry and fishing”, traditional blue-collar hubs, were the only categories to contract. "Education and training" and "public administration and safety" ranked higher than "transport, postal and warehousing" and "wholesale trade".

    Job-shedding by a succession of manufacturing, retail and construction firms has dominated recent news bulletins. According to Black, if not for growth in the publicly-funded sector, the employment rate would be closer to 7 than 5 percent.

    If Gillard and Swan are to be believed, such shifts are beyond their control. In a major address on the economy in February, Gillard explained that “the level of the dollar – and the pace of its rise – has broken some business models and forced economic restructuring”. Displaying Marie Antoinette levels of indifference, she declared “these are powerful, economy-wide transformations, perhaps best thought of as ‘growing pains’.” If you thought this posed a complex challenge, think again. “The equation is simple,” she said, “skills brings jobs, and skills bring job security.”

    Here Gillard genuflects to the progressive dogma that education is the answer to every economic problem. It’s hardly surprising that a movement dominated by academics, researchers, educators and university administrators should claim ownership of the path to salvation. But Gillard has it back-to-front. In activities like manufacturing, economic growth brings jobs, which bring skills, not the other way around.

    It’s true that the mining boom and Australia’s safe credit rating have driven the dollar to near or above parity with the greenback. It’s also true that this has exerted pressures on the export and import-competing sector. But government action has intensified these pressures. Labor is ideologically committed to social gentrification and expansion of the white-collar professional classes, particularly in social services, even if this means transferring resources from productive industries that will slow down, stagnate, shrink or vanish.

    While Gillard and Swan would never be so candid, their allies in Australia’s bulging university system, the public sector unions and the Greens aren’t so inhibited. Nor are Labor figures like former Prime Minister Paul Keating, who criticised the Opposition’s attack on the carbon tax in these startling terms:

    … in this country, 80 per cent of people work in the tertiary economy, in services, in the industry like – as we are tonight, in the service economy. And, the new industries, the green industries, are service industries, not the old manufacturing. Manufacturing’s moved to the east [meaning East Asia]. It’s the service industries that are the new growth industries. So, to turn your back on the mechanism which allocates the capital out of the old industries and into the new ones is to turn your back on the future.

    If Gillard Labor cared about blue-collar and other routine jobs, not to mention the small business sector, they would switch to policy settings that spur growth in industries like manufacturing, retail, transportation and logistics, construction and forestry. Cutting spending, reducing company and other business taxes, junking green taxes and green tape, withdrawing from the debt market and liberalising industrial relations would hand employers more flexibility to cope with the high dollar and low cost competitors in Asia.

    Clearly, this isn’t the government’s priority. Instead they have introduced a carbon tax and a mining tax, and in last month’s budget dropped a proposed cut in company tax, they are throwing at least $2.7 billion at various green schemes, not including the “winner picking” $10 billion Clean Energy Fund, they have adopted a Renewable Energy Target of 20 per cent by 2020, they are pouring vast sums of money into higher education to the tune of $5 billion a year including an additional $5.2 billion in the budget, some of which will find its way into a maze of “sustainability institutes,” they have lifted the cap on university places and embarked on a radical plan to expand the proportion of 25 to 34 year olds with a bachelor’s degree to 40 per cent by 2025, they have re-regulated the labour market and imposed a system which, according to the chairman of BHP-Billiton, “is just not appropriate and doesn’t recognise today’s realities,” they have laid the groundwork for new multi-billion-dollar programs in aged, disability and mental health care, employing tens of thousands of new carers, and they have endorsed an industrial tribunal decision that boosts the pay of these workers by up to 65 percent.

    California here we come.

    John Muscat is a co-editor of The New City, where this piece first appeared.

    Photo of Australian Parliament House by BigStockPhoto.com.

  • America’s Two Economies

    Surely you’ve seen it in your own neck of the woods: great contrasts between prosperity and wealth on the one hand, and hardship and despair on the other. I have certainly seen it in every place I have been over the last four years. FDR described the Great Depression as “one-third of a nation ill-housed, ill-clad, ill-nourished.” Yet do we not today have one-third of a nation either unemployed, underemployed, underwater on their one greatest asset (their homes), in crushing debt (which I define as unserviceable from current income), insolvent/bankrupt, on food stamps, unemployment or disability payments, or otherwise dependent on government? The diminishing of the middle class is daunting, but most disturbing is the diminishing of its prospects.

    Perhaps you attribute this state of affairs to the “rich get richer, poor get poorer” meme. But there’s something else, something more going on. I have written about this before (unraveling, stagnation, middle America, middle class is the future), but here bring a fuller picture.

    In the years since the Great Recession started (and ended?) in 2008-2009, the US has been characterized by two economies. One of these American economies is thriving, as are the economic actors part of it. The other economy is miserable, as are its inhabitants. The divergence between these two economies is growing more pronounced. Why is this so, how did it happen, and what does it portend?

    I have been debunking the “rich get richer, poor get poorer” theme for 30 years, maintaining that the relative income gap did not matter as long as absolute income growth was widespread, and economic growth was providing opportunities to all (which was the case). But now those caveats have come into play: middle-income, middle-class earnings, wealth and opportunities are under immense pressure. This is not because the rich get richer, or that redistribution is the answer (I find the debate over austerity vs. growth pretty stupid, when growth too often just means growth of government). It is because of fundamental, structural economic trends which may be with us for a long time to come.

    Divergent Sectors, Divergent Fortunes
    Perhaps you have heard of the manufacturing “renaissance” in America and the exporting “boom.” Both are true. American exports are booming, measuring in at about $180 billion each month (up from $140 per month two years ago). Exports account for about 14% of GDP, and are growing about 16% a year. American manufacturing employment has been hurt by globalization, but manufacturing output continues to grow and exporters are thriving.

    American manufacturing and export prowess are likely to continue into the foreseeable future, as large American companies use innovation and technology to become more productive, and as the growing global middle class demands more American goods (including energy in the form of oil and natural gas).

    The bad news is that exports and manufacturing do not translate into more jobs or even higher wages. Our new job growth has been in health care, education, services and government, areas that do not produce great income and wealth. This holds down the potential income gains of all wage-earning Americans.

    But the income and potential of those in management, finance, high technology and the professions are not adversely affected. The benefits of productivity, manufacturing, exports and economic dynamism generally, therefore, accrue to the already well-situated capitalists, managers and properly skilled. Sure, the internet will continue to make it easier for many small businesses to survive (and some even to thrive), but they cannot be great founts of sustainable jobs.

    Two-tiered economies are well-known and expected in developing countries – an export/manufacturing or raw material sector and a weak domestic service sector – but we’re not used to seeing it in an advanced, technologically sophisticated country like the United States. It actually could mean that the rich will get richer, but the economy will be missing its traditional ladder for those in the middle and below to climb.

    Where will enough employment growth come from to maintain the middle class? Many analysts tell us it will come from the innovation sector, or the innovation economy. But again, the benefits of innovation seem now to accrue to the companies and individuals   already in a position to exploit it, increasing productivity and profitability without a concomitant increase in employees.

    Dystopian Economics
    This is getting perverse, isn’t it? We have high unemployment and underemployment, huge debts and deficits, but companies are profitable and share prices continue to rise. There seems to have been a breakdown in the correlation between employment and GDP, between the housing market and overall economic strength, and between GDP growth and stock market valuations.

    Statistics say we are in a low-inflation environment, but living expenses seem to be rising for food, energy, healthcare and education (the things on which the middle class must spend). Those with jobs and income in sectors that are doing well don’t seem to be as affected. That would certainly help explain the contrasts of wealth and hardship that one sees around the country.

    In other words, what we seem to have created is a winners-take-all economy. Large companies with global exposure, highly skilled workers, and high net worth individuals are the main beneficiaries of current economic policy. Job creation, most small businesses, and low- and medium-end housing are not.

    What if a rising tide no longer lifts all boats?
    We now have the lowest percentage of Americans working or looking for work in 30 years. That really is devastating because the only way out of our fiscal and entitlement nightmare is to have more people working more hours and more years. Is the opposite our future?

    The trends that are creating and sustaining two economies in the US have been building for years and seem to me to be so strong as perhaps impervious to amelioration. The “two economies model” meets my test of sustainability: being supported and reinforced by other fundamental social, demographic, political and technological trends (or at least not being incompatible with them). It is hard to foresee how the “two economies model” can be reversed or even tempered, though it is a path that will leave tens of millions of Americans behind even as the “working” economy improves.

    I have been analyzing, writing and speaking on trends for 30 years. My audiences are often businesses or organizations looking for a picture of the future environment. I usually get a laugh from the observation that the future will be bright for some, dismal for others, and therefore recommend being in the first group. I don’t think I’ll make that joke anymore; somehow it’s no longer funny.

    Dr. Roger Selbert is a trend analyst, researcher, writer and speaker. Growth Strategies is his newsletter on economic, social and demographic trends. Roger is economic analyst, North American representative and Principal for the US Consumer Demand Index, a monthly survey of American households’ buying intentions.

    Finding a job photo by Bigstockphoto.com.