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Migration: Geographies In Conflict

Aaron M. Renn — Mon, 23 Nov 2009 00:33:38 -0500

It's an interesting puzzle. The “cool cities”, the ones that are supposedly doing the best, the ones with the hottest downtowns, the biggest buzz, leading-edge new companies, smart shops, swank restaurants and hip hotels – the ones that are supposed to be magnets for talent – are often among those with the highest levels of net domestic outmigration. New York City, Los Angeles, San Francisco, Boston, Miami and Chicago – all were big losers in the 2000s. Seattle, Denver, and Minneapolis more or less broke even. Portland is the only proverbially cool city with a regional population over two million that gained any significant number of migrants.

Those who find this an occasion for a schadenfreude moment attribute it to tax and regulatory climates. Clearly, things like cost of doing business are clearly very important. And indeed this is often under-rated by cool city proponents. And other things equal, people do prefer low tax jurisdictions. Still, is this the only answer, or is there another explanation? Could it be that rather than high costs driving migration, both costs and migration are being driven by other underlying factors?

Perhaps the root problem is structural change in the economy in the age of globalization. As business became more globalized and more virtualized, this created demand for new types of financial products and producer services – notably in the law, accounting, consultancy, and marketing areas – to help businesses service and control their far flung networks. Unlike many activities, financial and producer services are subject to clustering economics, and have ended up concentrated in a relatively small number of cities around the world.

These so-called “global cities” serve as control nodes for various global networks and key production sites for these services, along with other specialized niches they long had. In effect, more distributed economic activities requires increasing centralization of select functions, particularly the most highly value-added functions. Yet these activities are not set in stone; for example, areas that were once centers for global business, like Cleveland or Detroit, are fading; others like Houston and Dallas are rising.

Yet unlike the Texas cities, which retain a strong middle-class and middle-echelon economy, many of the more elite, established urban centers – for example New York and London – increasingly create parallel economies and labor markets in those cities. These cities now generally contain two kinds of people and firms: those who are part of the global city functions and those who are not. Those who are engaged in global city functions operate in a world of very high value-added activities; specialized, niche skill markets; and rising demand conditions. Those skills are not readily acquired outside of global cities. Often, they are sub-specialized to particular places as different global cities specialize in different niches.

In many cases, these functions have not yet migrated to India or China or often even another global city. This tends to inflate salaries significantly for these specialized, niche skill jobs.

On the other hand, many people who once thrived in these cities have not benefited from these economic forces. They often are in occupations where labor arbitrage is feasible, and their jobs can either be off-shored, or readily transferred to lower cost locales in the US. This includes manufacturing work, but also important but less specialized white collar occupations like basic accounting, loan officers, corporate IT, and HR. In short, the routine side of the traditional monolithic corporate headquarters and services firm.

In effect, in these global cities, two economic geographies share the same physical geography – and those economic geographies are in conflict. One set requires catering to high skill, highly paid workers and firms where cost is a secondary concern. The other involves occupations and industries where cost is very much a concern. The occupants of these two geographies have very different public policy priorities. Which of them will win out?

In a global city, particularly a mature and expensive one, the elite geography wins. It is generating the most money, and with money comes power and influence. Additionally, the high wage workers in these industries are simply able to pay more for real estate and other items. Their mere paychecks are driving up costs in the city they live in. They are re-ordering the city in their own high income image, aided and abetted by a speculative financial fueled housing bubble.

The prestige of these industries burnishes the civic brand, making them attractive to civic boosters. What's more, leaders in global cities feel that these are their businesses of their future. For them the attractiveness of concentrating in areas where you think you can create a “wide moat” advantage makes sense.

This is why cities like Portland, Minneapolis, Denver, and Seattle haven't fared nearly so badly – they aren't really full metal global cities and thus, while not always cheap, have remained relatively affordable versus places like San Francisco and New York.

At the same time it is not easy for these more expensive cities to adopt a low tax, low cost approach. For many reasons, places like San Francisco, New York, and London will never, no matter what they do, be able to match Atlanta, Houston, or Dallas, or even Chicago in a war on costs. That would be a suicide mission. Their logical strategy is to follow the law of comparative advantage, and specialize where you have the best competitive position in the market, and that's global city functions.

Many other cities have followed this strategy, but with differing success. Fearing to end up like the next Michigan and Detroit pair, many states and cities have invested heavily to build up urban amenities to cater to the global city firms and their workers: transit systems, showplace public buildings, art and culture events, bike lanes, and beautification. Cost fell by the wayside as a concern, as did investments in priorities of the traditional middle class.

This explains why, for example, not only have taxes gone up, but things like schools and other basic services have declined so badly in places like California. Traditional primary and secondary education is not important to industries where California is betting its future. Silicon Valley, Hollywood, and biotech draw their workers from the best and brightest of the world. They source globally, not locally. Their labor force is largely educated elsewhere. Basic education and investments in poorer neighborhoods has no ROI for those industries. With the decline of high tech manufacturing in Silicon Valley, even previously critical institutions such as community colleges are no longer as needed.

The same goes for growth and sprawl. They are playing a game of quality over quantity. They specialize in elite urban areas and elite suburbs or exurbs. For example, San Francisco also has Marin, Palo Alto and Los Altos Hills. New York has, in addition to Manhattan, Greenwich and northern Westchester. The only thing they need size for is sheer scale in certain urban functions, and they already have it. Growth is unnecessary for them and only brings problems.

It also explains the highly pro-immigration stance of these cities, as a large service class is needed for globalization's new aristocrats. Immigrants are needed as low cost labor in the burgeoning restaurant and hotel business. In America's global cities immigrant housekeepers, landscapers, and nannies are common. They may not dress like His Lordship's butler, but that doesn't make them any less servants.

Lastly, it explains why we have seen the same polarizing class pattern so consistently despite broad geographic and socio-political differences between places like Los Angeles, Boston, and Chicago, to say nothing of overseas locales like London. A common global phenomenon probably has a common underlying cause.

The traditional middle class, feeling the squeeze, is simply moving to where its own kind is king and its own priorities are catered to. In a battle of conflicting economic geographies, the one with higher value added wins, displacing others in what Jane Jacobs termed the “self-destruction of diversity”. First, an attractive environment draws diverse uses, then one becomes economically dominant and, through superior purchasing power, displaces other uses over time. The story ends when that dominant economic activity exhausts itself – the true danger facing global cities, though fortunately they are generally not dependent on just one small niche. It's basic comparative advantage.

If you are just an average middle class guy, why live in one of those global cities anyway? Unless you have roots there that you value, take advantage of something you can't get anywhere else such as by having a passion for world class opera, or are one of globalization's courtiers – a hanger on like a high end chef, artist, or indie rocker, perhaps – why put up with the high cost and hassles? It makes no sense. You're better off living in suburban Cincinnati than suburban Chicago.

And frankly, the folks on the global city side prefer it if you leave anyway. Immigrants are unlikely to start trouble, but a middle class facing an economic squeeze and threat to its way of life might raise a ruckus. That won't happen if enough of them move to Dallas and rob the rest of critical mass and resulting political clout.

Many of those leaving are college educated, especially, when they get older, get married, and start having families. A relatively large number of these people could be replaced by a smaller number of elite bankers, biotech PhDs, and celebrity chefs. In that case, both “narratives” could hold simultaneously. One type of talent moves in, while a greater number of a different kind moves out. As with trade generally, this could even be viewed as a win-win in some regard.

Again, it is easy to blame the costs and public policy. Clearly there is room for improvement in governance such as reigning in out of control civil service pay and pensions in places like California and New York. But what is more pernicious is the rising income gap in America, and the likely outcomes it drives when a city acquires a small elite economic class with incomes that far outstrip the average, and lacks strong economic linkages to the rest of the city other than for personal services. It sets in motion economic logic that undermines the traditional middle class, which then starts leaving, exacerbating the gap.

For years we worried that a large, stable middle class with a permanent, largely minority underclass constituted an unjust order. As it turns out, the alternatives are sometimes worse. Ultimately some American cities have come to take on the cast of their third world brethren, a perhaps somewhat less extreme version of Mexico City or São Paulo, where vast wealth and glitter exist side by side with the favelas.

This explains why America's global cities often feel more kinship with their international peers than with many of the places in their own country. The global cities, which now enjoy something of a political ascendency, are also sundering the American commonwealth. Taking steps to prevent a further widening of the income gap may be the only way to save these cities' middle class – and maintain the solidarity of the country.

Aaron M. Renn is an independent writer on urban affairs based in the Midwest. His writings appear at The Urbanophile.

From Mahwah to Rahway

Daniel Jelski — Sun, 22 Nov 2009 02:00:10 -0500

I have never lived in New Jersey. Indeed, of the 49 states where I have driven a car, New Jersey was 47th or 48th on the list. And it is only in the last couple of years that I've lived close enough to visit the state regularly – I now live less than an hour from Mahwah.

Years ago, I made some initial hypotheses about the Garden State:

1. New Jersey is extraordinarily wealthy.
2. New Jersey has the best highway system in the country.
3. New Jersey deserves the moniker "The Garden State."
4. New Jersey embodies the American Dream.

Let's see how these have withstood the test of time.

I spent a year in Africa in 1996-97, and visited New Jersey shortly after my return. By comparison, everything seemed wealthy – supermarkets, Walmart, hot & cold running water, public parks. But add to that the mile upon mile of suburban homes, each with a well-maintained yard, an SUV or two parked out in front, and real estate prices that I certainly couldn't have afforded. Is it any wonder that I thought the streets were paved with gold? Driving along I-80 in my 12 year old Ford Taurus, surrounded by Mercedes, Lexus, Volvo and Acura cars, I felt like a country bumpkin cousin come for a visit.

We stayed with some friends who lived in city center Passaic, an old rust belt town. Not rich – I agree – but hardly poor. Suffice it to say that the poverty rate in New Jersey (real poverty – not the fictional sort compiled by the Census Bureau) is vanishingly small.

The Great Recession has tarnished this view a bit, but still, New Jersey is a fabulously wealthy state. Is there any other place in the world where so many are so rich?

As a native Oregonian traveling back east for the first time, I expected crumbling highways, littered sidewalks, huge traffic jams, hopelessly polluted air, and so forth. On this score, New Jersey disappoints. Indeed, I was astonished at how well maintained and how efficient the road network was. And if – adjusted for the amount of traffic – New Jersey doesn't have the best highway system in the world, it certainly comes close.

There are many highways – Routes 17, 23 and 46 come to mind – that are four-lane divided highways with few or no traffic lights, but are not limited access. This turns out to be very efficient. Local businesses are well-served (they don't all have to congregate at exits), traffic still flows at 55 mph or so, and they don't compromise safety too much. The amount of traffic that uses Route 23 between Butler and US 46 is phenomenal, and yet the road also serves as a main commercial street for a large region.

It is for highways like this that the term "jug handle" was invented, for in order to turn left or to make a u-turn, it is necessary to exit right and go around the jug handle. I heard this term first (and only) in New Jersey.

Still, I have some complaints. The toll collections on the Turnpike or the Garden State Parkway are hopelessly inefficient, and lead to huge traffic jams. Further, signage throughout the state is less than ideal; if you don't know where you're going, you can get very lost in New Jersey. And the Great Recession has changed things: I've noticed more potholes and less maintenance in the past couple of years.

The highways seem to have a bias against Philadelphia. Some bizarre Rube Goldberg contraption connects Philly with the New Jersey Turnpike. And famously, I-95 – otherwise uninterrupted from Presque Isle to Miami - skips the stretch from New Brunswick to Trenton. Philadelphia from my house is at least 30 miles farther than it needs to be (not that that's been any problem). Was W.C. Fields a New Jersey native?

New Jersey is a beautiful state. Coming from the West, one crosses the Delaware River on I-80, and then crosses spectacular mountains for the first 30 miles or so. The Jersey Shore is very nice – all the way down to Cape May (excepting, perhaps, Atlantic City). The Palisades are wonderful, as is the Hoboken/Jersey City skyline as seen from the Staten Island Ferry.

Finally, New Jersey embodies the American Dream. My wife and I make a monthly shopping run to Jersey City for ethnic food. Journal Square is a place that always makes me feel patriotic, for there one finds Indian, Honduran, Cuban, Filipino, Chinese, Thai, Korean, Mexican, and who knows what other kinds of grocery stores and restaurants. Nearby Newark Avenue is little India west of Kennedy Ave., and little Manila on the other side. Only in America? Maybe on a much smaller scale also in Canada or Australia. But Jersey City is living proof of the universal principles on which our country is founded: Life, Liberty and the Pursuit of Happiness.

I know many immigrants who, over the course of 20 years, moved from a shared room in Jersey City, to an apartment in a place like Passaic, to a suburban home in Pompton Lakes or Woodbridge. The American Dream is real and happens every day in New Jersey.

The Great Recession may have set this back a few years, but there is enough entrepreneurial energy in a place like Jersey City to more than justify faith in the future of America.

Is this a great country, or what?

I had a colleague who, when I asked where she grew up, shamefacedly and apologetically admitted "New Jersey." I recall a Kojak episode where all the bad guys came from "Jersey." There’s the Woody Allen quip: “the spirit of the Lord inhabits the entire universe except for some parts of Northern New Jersey.”

There are politicians who want to make the American Dream unaffordable, if not actually illegal. New Jersey gets a bad rap. But I like New Jersey. And some day – when I'm rich – I might get a chance to actually live there.

Daniel Jelski is Dean of Science & Engineering State University of New York at New Paltz.

When the Fat Lady Sings: The Fate of Commercial Real Estate

Robert J. Cristiano — Fri, 20 Nov 2009 23:51:55 -0500

During the first ten days of October 2008, the Dow Jones dropped 2,399.47 points, losing trillions of investor equity. The Federal Government pushed TARP, a $700 billion bail-out, through Congress to rescue the beleaguered financial institutions. The collapse of the financial system was likened to an earthquake. In reality, what happened was more like a shift of tectonic plates.

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Like the Roaring Twenties of a century ago, the real estate bull market of the last ten years crashed in dramatic style in late 2008. The collapse of the residential market was led by massive defaults in ill-conceived “sub-prime loans”. Millions of American homes are now in default and in the process of loan modification, abandonment or foreclosure. There is no end in sight as Prime, Alt-A, and Option ARM loan resets come due beginning in 2010.

Lurking around the corner, literally unnoticed by the average American worried about keeping his home, is a similar crisis in commercial real estate. For over a year commercial property values have been plummeting and have not begun to recover. A drive through both major cities and suburbia tells the story. Vacant stores, empty shopping malls, cancelled mixed use developments and eerily empty car lots presage bad things to come.

We have discussed the origins of the housing crash before and the role played by feckless politicians and over-ambitious bankers. Now this crisis has spread to the commercial sector. Banks and commercial lenders saw in the new housing starts an equally promising demand for new shopping malls and suburban offices. Lenders forgot about pre-leasing requirements and made speculative loans on buildings that had no pre-leasing. As with housing, the rule book was thrown out the window. Like the aftermath of any wild party, there is hell to pay in the morning. It is morning in the commercial marketplace and the fat lady is singing.

Depository institutions hold about half of the $3.2 trillion of debt on US commercial property. The default rate in the first quarter of 2009 was just 2.25%. Sounds OK until you do the math and realize that $36 billion was in default and it is just beginning. The FDIC puts troubled banks on “the problem list”. In early 2008, there was one bank on the list. At the end of June 2009 there were 416, up from 305 at the end of the first quarter when the default rate was just 2.25%. Total assets at these problem institutions total $299 billion. The problem is that the total reserves of the FDIC are just $42 billion. The FDIC has closed over 100 banks and one good estimate is that they will close around 10% of US banks, 500 to 1,000, before the crisis runs its course. The losses will dwarf the $394 billion of the RTC and may surpass a trillion dollars. Is there any wonder why banks are loathe to make new loans?

So what happens to commercial real estate? With prices plummeting, there must be some great buys out there, one must assume. But do not bet on it. This was not just an earthquake. The plates shifted, and like musical chairs, when the music stops there will be fewer chairs and many people left standing. Consolidation is the next step. There will be the inevitable drop in rents and with it property values. The better and stronger tenants will flee the less attractive Class B and Class C space and move to Class A properties. Class A properties will survive due to full occupancy and stable cash flow. But the lesser properties that were leased will empty.

Like the suddenly quiet auto malls with the empty Pontiac, Saturn and Chrysler dealerships, lesser properties will lose their anchor grocery stores, Targets, and big box users. With the anchors gone, and traffic with it, the mom and pop small businesses cannot survive. There is no future for the marginal Class C shopping center. Tenants will flee to better locations and more affordable lease rates. Class A offices will survive. Well located and attractive Class B properties may muddle through at reduced revenues – if they can survive the refinancing maze. But, the poorly located Class C office will remain a “see-through” for years to come. Old, tired, and mostly vacant Class C office buildings line the crumbling freeways of Detroit, Cleveland, Youngstown, and countless smaller rust belt cities where excess capacity has eliminated the need for new development.

A year from now, the landscape of America will be forever changed. The office and retail markets will be vastly different than they look today. Not much of it will be good. Five years from now, will empty shopping centers and auto dealerships remain shuttered or will they be rebuilt or torn down and their use converted to something more productive? Will our politicians cease their meddling in the market and allow the market to heal itself? These are questions that will haunt our economy for the next decade.

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This is the fourth in a series on The Changing Landscape of America. Future articles will discuss real estate, politics, healthcare and other aspects of our economy and our society.

Robert J. Cristiano PhD is a successful real estate developer and the Real Estate Professional in Residence at Chapman University in Orange, CA.

PART ONE – THE AUTOMOBILE INDUSTRY (May 2009)
PART TWO – THE HOME BUILDING INDUSTRY (June 2009)
PART THREE – THE ENERGY INDUSTRY (July 2009)
PART FOUR – THE ROLLER COASTER RECESSION (September 2009)

Think Globally, Regulate Locally

Pete Peterson — Fri, 20 Nov 2009 00:05:57 -0500

It was during a recent tour of a sun-baked Los Angeles schoolyard that theories on state regulations developed by the latest Nobel Prize-winning economist came into focus. The Da Vinci Design Charter School is an oasis in an asphalt desert. Opened this year by the appropriately named Matt Wunder, the school draws 9th and 10th graders from some of the most difficult and dangerous learning environments in the country, and introduces them to a demanding, creative atmosphere.

The school is located just south of Los Angeles Airport. Wunder is taking advantage of the area’s proliferation of aerospace companies, and is building relationships with the likes of Boeing and Northrop Grumman, which offer financial and educational assistance. This is not the standard thinking one finds in the mammoth Los Angeles Unified School District.

As we walked the playground we came upon two dirt-spewing holes in the blacktop, spaced about 50-feet apart. We discovered an actual human being with a shovel digging what looked like the beginnings of a mine shaft. The reason?

California State regulations, as established by the California Architects Board, require all basketball hoops on public school campuses to be cemented into 50-inch deep holes. That’s four-feet-two inches for a basketball hoop!

Now I am sure some scientifically sound earthquake testing at a California university found that such precautions are necessary if we are ever struck with a 9.9-Richter scale disaster. Of course, if such a thing happened we would have bigger problems than basketball rims keeling over. But a larger point became clear: In a school where creative leadership is making life-long impacts on the lives of children, the “long arm” of Sacramento has reached into the very soil, regulating how deep to dig ditches for recreational equipment. In so doing the State not only increases “construction” costs, but also incurs our disenchantment, as we consider a government that “trusts” local decision-making on curriculum, but not on hole digging.

The theories of Elinor Ostrom, one of this year’s two Nobel Prize-winners in economics, tie in here with stunning irony. Ostrom, a political scientist at Indiana University, won the prize for her historical and economic analysis concerning the “tragedy of the commons”: the theory that, without some form of regulation, when people fish or farm “common” (non-private) property they will tend to abuse the privilege and hurt all interests in the end.

A major underpinning of this theory is how these rule sets are most effectively developed. Ostrom found, in studies dating back centuries, that local parties –- sometimes non-governmental ones — almost always determine the best regulations, based on deliberated self-interest as opposed to centralized (and, often, distant) institutions.

As Vernon Smith, a past economics Nobel laureate himself, recently commented on Ostrom’s work, “A fatal source of disintegration is the inappropriate application of uninformed external authority, including intervention to prevent application of efficacious rules to political favorites.” As rule-making becomes more removed from the actual location of execution, there's a loss of “local knowledge” regarding conditions. And “interests” that tend to gather around centralized institutions have a disproportionate influence on legislation.

At a recent conference on sustainable planning at Pepperdine University, I sat in on a discussion of “natural resource management” and heard a relevant story of competing, predominantly left-leaning interests. In one corner were the “green” energy folks who had attempted to build a massive solar “farm” in the Mojave Desert. In the same, uh, other corner, were the defenders of the desert tortoise. Not wanting to get anyone in trouble, I will just say that officials from several State and Federal departments were present to talk about how, once again, centralized decision-making had sunk an impressive project.

Apparently, when alerted to the possibility of frying turtles under the heat of these huge solar mirrors, local park authorities provided a proposal to mitigate the loss of these reptiles through a variety of measures from fencing along the highways to moving the turtles to non-developed areas. This was not good enough for State decision-makers who, from the exalted heights of Sacramento, determined that the only legitimate course of conservation would be to land-swap the entire 8,000+-acre land parcel for another similar and suitable section for these animals. As one local official recounted, “If the goal of the policy is to save tortoises, we had that plan, which also kept the solar project alive. But the goal of the policy was to do a land exchange, which is stopping the project, and not doing all that much better for the tortoises.”

My point in raising these two of what could be thousands of examples of overreach by the administrative state is not to dismiss government’s central and important role in advising, and, at points, regulating the actions of citizens in areas ranging from public safety to sustainable planning. Rather, it's to demonstrate what happens when policy goals are subsumed by prescriptive policy created at levels (such as Sacramento in a state the size of California) which cannot possibly allow for unique local conditions. The goal is not just child safety, or saving tortoises, but to accomplish these in a certain way that may, in fact, prevent these greater benefits to the public good.

This style of governance exasperates the well-intentioned in both the private and public sector, as it prevents the liberty necessary for creative and customized policy-making. This common sense approach to policy-making is, apparently, what they give out Nobel Prizes for these days.

It was Alexis De Tocqueville who most famously realized that the genius in American governance was decentralized administration , an aspect directly contrary to the European bureaucratic experience. In words that could have appeared in Professor Ostrom’s classic, Governing the Commons, De Tocqueville wrote over 150 years ago, “When the central administration claims to replace completely the free cooperation of those primarily interested, it deceives itself or wants to deceive you. A central power, however enlightened… cannot gather to itself alone all the details of the life of a great people.”

Let us not be so deceived.

Pete Peterson is Executive Director of Common Sense California, a multi-partisan non-profit organization that supports civic engagement in local/regional decision-making. His views here are not meant to represent CSC. Pete also teaches a course on civic participation at Pepperdine University's School of Public Policy.

California: The Housing Bubble Returns?

Wendell Cox — Thu, 19 Nov 2009 00:39:26 -0500

To read the periodic house price reports out of California, it would be easy to form the impression that house prices are continuing to decline. Most press reports highlight the fact that house prices are lower this year than they were at the same time last year. This masks the reality of robust house price increases that have been underway for nearly half a year. The state may have forfeited seven years of artificially induced house price escalation in just two years but has recovered about one-fifth of it since March.

California Housing Market Since 2000: In 2000, the average median house price among California markets with more than 1,000,000 population was $291,000. The Median Multiple (median house price divided by median household income) was 4.5, making houses in California approximately 50% more costly relative to incomes than in the rest of the nation.

According to the California Association of Realtors, the average median price peaked at $644,000 between 2005 and 2007, depending upon the particular market. This nearly 140% price increase translated into a more than doubling of the Median Multiple, to 9.2.

Median prices fell rapidly from the peak, dropping at their low point to an average of $315,000. The average Median Multiple fell to 4.4, slightly below the 2000 level, but still well above the national level. All markets reached their low points in the first part of 2009.

It is at this point that the business press lost track of what was going on. Of course, year on year price declines continued, but only because the price declines had been so severe early 2008. Since the bottoming out of house prices, there have been strong gains. As of September, the average median house price among the major metropolitan areas was $383,000, a nearly 20% increase from the low point. Moreover, in dollar terms, median house prices recovered nearly 20% of their loss from the peak to the low point.

Major California Markets: Median House Prices: 2000 to Present
Metropolitan Area (MSA)	2000	Peak	Low Point	2009/09	Loss: Peak to Low Pt	Change from Low-Pt
Los Angeles: Los Ang. County	$ 215,900	$ 605,300	$ 295,100	$ 351,700	-51.2%	19.2%
Los Angeles: Orange County	$ 316,200	$ 747,300	$ 423,100	$ 496,800	-43.4%	17.4%
Riverside-San Bernardino	$ 144,000	$ 415,200	$ 156,800	$ 172,400	-62.2%	9.9%
Sacramento	$ 172,000	$ 394,500	$ 167,300	$ 184,200	-57.6%	10.1%
San Diego	$ 231,000	$ 622,400	$ 321,000	$ 386,100	-48.4%	20.3%
San Francisco	$ 508,000	$ 853,900	$ 399,000	$ 536,100	-53.3%	34.3%
San Jose	$ 448,000	$ 868,400	$ 445,000	$ 553,000	-48.8%	24.3%
Average	$ 290,700	$ 643,800	$ 315,300	$ 382,900	-52.1%	19.4%

Exhibit: Median Multiple	4.5	9.2	4.4	5.2
Above Historic Norm (3.0)	50%	208%	46%	73%

Derived from California Association of Realtors and National Association of Realtors data
Note: California Association of Realtors divides the Los Angeles MSA into Los Angeles and Orange counties

Profligate Lending: It is critical to note that the inflated house prices that existed two to three years ago were wholly artificial. Prices had been driven up by the special and hopefully never to be repeated conditions of profligate lending, which increased demand.

California: Regulating Away Housing Affordability: But the increase in demand alone would not have been enough to produce the unprecedented house price increases had public officials and voters not established a veritable mish-mash of housing supply regulations. The house price increases were driven ever higher by these severe land use restrictions, which prevented housing markets state from meeting demand.

Supply restrictions, which go under various names, such as compact development, urban containment and “smart growth,” have been a feature of California housing for some time. Examples of such policies are urban growth boundaries, building moratoria and expensive development impact fees which disproportionately tax new homes for the expanded community infrastructure a rising population requires.

As more loose lending practices increased the demand for home ownership, the inability (and unwillingness) of the state’s land use regulations prevented the housing supply from increasing in a corresponding manner. With demand for housing far outstripping supply, prices had nowhere to go but up. The result was short term house price escalation that may have never occurred before in a first-world nation.

Contrast with Healthy Housing Supply Markets: There was a stark contrast with house price increases in the liberally regulated markets around the nation. For example, in Atlanta, Dallas-Fort Worth and Houston, house prices remained near or below the historic Median Multiple norm of 3.0, as the supply vent was allowed to operate. This is despite the fact that there was a strong underlying increase in demand for home ownership (measured by domestic migration) in these and other liberally regulated markets. In the California markets, on the other hand, there was overall negative underlying demand, with significant domestic out-migration. Of course, speculation ran rampant in California, as could be expected in any market where asset values are responding to a severe shortage of supply relative to demand.

By the 1990s, Dartmouth’s William Fischel had associated California’s high house prices relative to the nation with the intensity of its land use regulation. In 1970, as the more severe regulations were beginning, house prices in California were at approximately the same level relative to incomes as in metropolitan areas in the rest of the nation.

California’s disproportionate losses are illustrated by the fact that its major metropolitan areas have less than twice as many total owned houses as those in Texas (Dallas-Fort Worth, Houston, San Antonio and Austin), yet experienced gross value losses 85 times as great as the Texas metropolitan areas by Meltdown Monday (September 15, 2008, when Lehman Brothers failed).

Recent Price Increase Rate Exceeds the Bubble: While widely unnoticed, the post-bottom median house price has increased 20%. In six months or less, the average median price increase among California metropolitan areas exceeded the annual price increase for all of the bubble years except one, which was 22% in 2004. The 2009 price increase rate, annualized, is nearly double that. As a result, despite the widely reported bubble collapse, California’s housing affordability now is worsening relative to the rest of the nation. The prospect could be for further inflation of the bubble, with the passage of Senate Bill 375, which is likely to lead to even more intensive land use restrictions, on the false premise that higher densities will materially reduce greenhouse emissions. As governments increasingly force development to occur only where it prefers, the property owning winners can extract much higher prices than would occur if there were more competition.

This of course will mean that the more dense housing units built will be even more expensive, even as the market is prohibited from supplying the larger detached homes that households overwhelmingly prefer. All this will make California less competitive, something the increasingly uncompetitive Golden State could do without.

Another View: The recent price escalation, however, may be illusory. The widely read California real estate blog, Dr. Housing Bubble suggests that the first wave of “sub-prime” loan failures that constituted the bubble burst could be followed by a second wave over the next few years, driven by “option arm” mortgage resets. The Doctor notes that these loans are concentrated in California and other ground zero states (Florida, Arizona and Nevada), unlike the previous wave, which was more evenly spread around the nation.

In the End: Regulation Will Lose the Day: Thus, the “jury is still out.” The bubble may be re-inflating in California, or another bust could be on the horizon. However, in a state that has given new meaning to regulatory excess, the longer run prospects call for artificially higher housing prices, unaffordable to much of the state’s middle class. This means that California will continue to become an ever-more bifurcated state, between an aging, largely affluent coastal homeowning population and, well, just about everyone else.

Photograph: Los Angeles (Porter Ranch in the San Fernando Valley)

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

Obama in China: Walking the Great Mall

Matthew Stevenson — Wed, 18 Nov 2009 00:14:12 -0500

Ever since Richard Nixon visited China in winter 1972—an event timed to play into that year’s presidential elections—American presidents have made the pilgrimage to the modern version of the Forbidden City.

Landing in Shanghai on Sunday evening, President Obama has two days of meetings with the Chinese leadership, not to mention a town hall event with Chinese students (as if they were eligible to vote in a New Hampshire primary).

As a stage-set for photo opportunities, China is hard to beat. American presidents can walk the Great Wall, toast a nation in the Great Hall of the People, tower over diminutive Chinese leaders dressed in gray Mao suits, and make sweeping statements about new world orders.

For their part, the Chinese leadership loves nothing more than the chance to block traffic around Tiananmen Square, call out the drill corps, shoot off some fireworks, and release photographs of summit meetings, which then become the fodder of endless Sinologist conferences to try to figure out who has power in China and who is in line for a little “self-criticism.”

When President Nixon went to China, his only political goal—other than to show up—was to reach agreement on a joint communiqué that was drafted to avoid all the contentious issues of U.S.-Chinese relations, such as the war in Vietnam or U.S. support for Taiwan.

While aides haggled over the text of the equivocatory statement, Nixon and his National Security Advisor, Henry Kissinger, met with Mao, whose health was failing and who had to be propped up in a chair, as if part of a Disney World – Epcot diorama on the Long March.

For reasons of domestic political consumption, Nixon and Kissinger needed Mao as much as he needed them to help fend off Russian threats along the Amur River and to nudge China into a broader world.

They left the meeting and China gushing about how Mao had political magnetism, a great sense of humor, and the vision of a wise emperor, although he probably said little more than one of his gift pandas.

That Mao’s Cultural Revolution had killed millions mattered little more than the American wars in Korea and Vietnam or that Nixon himself had devoted his political career to China’s political isolation.

All that mattered was that the world would get the impression of Sino-American harmony—whatever the underlying reality—and that tea-like ceremony is how every subsequent summit meeting has been choreographed.

For a while, after the Nixon visit, American presidents thought it was good politics to preface a China visit with strong words of U.S. support for Taiwan, which has always played well as a plucky anti-communist billboard.

Even as the presidential administrations of Ford, Carter, Reagan, Bush, Clinton, and Bush II were turning toward the economic riches of the East, and Taiwan was relegated to a diplomatic sideshow, the warm-up footage to any Chinese summit had to include a few profiles of Chiang Kai-shek or Free Tibet as popular icons of freedom.

After the 1989 massacres at Tiananmen Square, no American president could get close to Chinese airspace without finger waggling China for its abysmal record on human rights.

So as not to be seen kissing the rings of communist autocrats, the American president would “bring up” the name of an imprisoned dissident, just so that it was clear that the United States did not place Wal-Mart’s inventory ahead of personal freedoms. Only later in the trips did anyone take out an order form.

The problem for President Obama on this trip to China is that he arrives with the aura of someone late on his VISA card payments but still talking up his next trillion-dollar vacation.

In this analogy, China’s leadership is best understood as a bunch of repo men nervous about the penalty interest, although, to be fair, in the last ten years, the economic miracles of both the United States and China have been founded on illusions.

China accumulated its huge foreign trade surpluses based on an artificially low currency and the sweatshop wages paid to its workers. By contrast, the United States has thrived on debt funded from its reserve currency, and the cheap goods its can buy from overseas.

In the middle of both pyramid schemes is the U.S. financial services industry that rolls over America’s $12 trillion debt, a large chunk of which is due to the Chinese and other Asian depositors.

On most geopolitical issues, the United States and China have little in common. China props up the Stalinist regime of North Korea, abuses the human rights of its citizens, fires up a coal plant every month, buys spheres of influence in all sorts of rogue states like Iran and the D.R. Congo, and refuses to co-operate in international currency reforms.

In turn, China has little time for American running-dog policies in Afghanistan and India, feels Taiwan is an internal matter, remains terrified of a re-armed Japan, and is fearful that its U.S. dollar-denominated financial assets are wasting away in Margaritaville.

These differences of opinion ought to necessitate substantive diplomatic exchanges. In a positive sense, American consumers have fueled much of China’s economic growth and political confidence, and Chinese production can be an engine of increasing affluence in the developing world, interests that both countries should share.

Instead, empty symbolism will likely reign for the remainder of President Obama’s package tour. Like President Nixon, he’ll leave behind an optimistic-sounding protocol (on global warming, nuclear disarmament, and the wealth of nations) and come home with swell pictures of the Great Wall.

Someday the lack of a serious dialogue between the United States and China might be the subject of a show trial (in either country). After all, the question of “Who lost China?” has been a specter of American foreign policy since 1949. And even in the booming free-market China that Obama will no doubt admire, no one wants to be known as a “capitalist-roader.”

Matthew Stevenson was born in New York, but has lived in Switzerland since 1991. He is the author of, among other books, Letters of Transit: Essays on Travel, History, Politics, and Family Life Abroad. His most recent book is An April Across America. In addition to their availability on Amazon, they can be ordered at Odysseus Books, or located toll-free at 1-800-345-6665. He may be contacted at matthewstevenson@sunrise.ch.

Boomer Economy Stunting Growth in Northern California

Joel Kotkin — Tue, 17 Nov 2009 00:38:20 -0500

The road north across the Golden Gate leads to some of the prettiest counties in North America. Yet behind the lovely rolling hills, wineries, ranches and picturesque once-rural towns lies a demographic time bomb that neither political party is ready to address.

Paradise is having a problem with the evolving economy. A generational conflict is brewing, pitting the interests and predilections of well-heeled boomers against a growing, predominately Latino working class. And neither the emerging "progressive" politics nor laissez-faire conservatism is offering much in the way of a solution.

These northern California counties--which include Sonoma, Napa, Solano and Marin--have become beacons for middle- and upper-class residents from the Bay Area. These generally liberal people came in part to enjoy the lifestyle of this mild, bucolic region, and many have little interest in changing it.

"The yuppies have insulated themselves here for the long term," notes Robert Eyler, a director at the Center for Regional Economic Analysis at Sonoma State University. "The boomers have blocked everyone else different in age and skill from rising up and making their place."

Nowhere is this more evident than in the "green," anti-growth movement so prevalent in these places. Strong restrictions of business growth, bolstered by California's draconian land-use regulations, have turned these areas into business no-go zones. This has become increasingly clear after the collapse of the real estate boom, which created thousands of jobs for agents, mortgage brokers and construction workers.

Hard times have come to paradise. Unemployment in Sonoma now tops 10%, up from barely 3% two years ago, notes Eyler. The rate is slightly higher in neighboring Solano County but a bit lower in wealthy Marin and Napa. Across the region, vacancy rates for offices and other commercial buildings have reached as high as 30%. Overall, by some estimates, the vacancy rate is higher in Sonoma than in Detroit.

These conditions, local business leaders suggest, seem to have no effect on the region's well-organized and well-financed greenies, who often see any growth as a threat to their quality of life

Of course, economic reversal can sometimes hurt the balance sheets of wealthy yuppies and early retirees, but Eyler suggests the change could prove most devastating to the next generation of residents. In 2000 these counties were almost 70% white; Eyler projects that by 2030 they will be majority minority, with the Latino percentage more than doubling to almost one-third the population.

At the same time, the predominant white population will be getting older and even less supportive of economic growth. The boomers who moved to paradise may not have "put up a parking lot" as much as rooted themselves firmly into the ground. Already Marin, the wealthiest county, is among the oldest in California, vying with other high-end places like San Francisco and Orange and Ventura Counties.

Today in Marin, there are still more people aged 40 to 55 than over 65. But by 2025 the over-65 crowd will be as large as the prime working-age population (which comprises those in their 30s and 40s) and should be larger than the under-25 population. The old and young also will diverge greatly in their ethnicities. In virtually all North Bay areas, the bulk of the codgers will be white, while most young people will be Hispanic or other minorities.

In the past, besides construction, these young workers might have found employment in the area's once-burgeoning electronics and telecommunications industry. But many of these companies have moved operations to more business-friendly regions or overseas. "When these kids who are in school now grow up, we are going to have a huge job crisis here," Eyler warns. "But when the boomers are gone, what happens when all the jobs have moved to Des Moines?"

Of course, the widely accepted solution to this dilemma comes in the color green--that environment jobs will provide the new employment. Indeed by some accounts, most embarrassingly in a recent Time magazine cover, the shift to green technologies has already created a "thriving" economy.

This would be news to a state that suffers 12% unemployment, massive outmigration and among the worst business climates in the country. Time extols Google, Apple, Facebook, Twitter and the other Silicon Valley companies as exemplars leading to a glorious prosperity; somehow the article missed the empty factories, vacant offices and abandoned farms across the state.

Not surprisingly, California's middle class is getting hammered, and has for years. Since 1999, according to research at the California Lutheran University forecast project, the state has experienced a far more dramatic drop in households earning between $35,000 and $75,000, than the national average. At the same time California's poverty rate has grown at a more rapid pace than the national average, with a huge spike since 2006.

This reflects a strange disjunction between the optimism of the top-tier boomers--venture capitalists, academics and the self-described progressives--and the realities facing most Californians. For Apple's Steve Jobs, Google's Eric Schmidt and venture capitalists connected to Al Gore, these could well be the best of times. Fed policy prints money for investment bankers to speculate; stock prices rise as people have nowhere else to invest. And for the much celebrated venture community, there's also an Energy Department that pours hundreds of millions into "green" start-ups that build things like expensive electric cars.

California's high-tech greens may talk a liberal streak in terms of diversity and social justice, but their prescriptions offer little for those who would like to build a career and raise a family in 21st century California. Their policies in terms of land use regulation and greenhouse gas emissions will make it even harder for existing factories, warehouses, homebuilders and other traditional employers of the middle- or working class. "In effect," Eyler notes, "the progressives have become regressives."

In the real world hype and enthusiasm are not sufficient to create a sustainable economic model. In order to grow a "green" economy, you first have to have an economy. To be sure, there are potential opportunities in the development and implementation of energy-saving technologies in the next decade, including wind and solar energy, but it's doubtful that many jobs can be generated without a major shift in the economic climate here.

One key problem, as suggested in a recent analysis by Rob Sentz at Economic Modeling Specialists, is that green is not really about "what" you make but about "how" you make it. Green jobs, for the most part, will come from growth in construction, manufacturing and warehousing industries.

Yet the "greenest" parts of the country--places like the northern end of the Bay Area--are among the toughest places to build or manufacture anything, without huge public-sector subsidies. Indeed, California's new green requirements, compared with places like Texas or China where manufacturing has other advantages, would further undermine an already struggling sector. Few businesspeople see much growth in the near future in office or residential construction.

This leaves "green" industries reduced to largely improving the energy footprint of existing structures, an effort that will no doubt be further undermined by the deteriorating picture for many commercial mortgages. At best, Eyler notes, this may create a small temporary surge in jobs, but the long-term effects will likely be limited.

Ultimately, the only way out of this looming crisis lies with the boomer gentry doing something totally out of character: getting past their self-interest and self-love for the good of the next generation. In the process, they do not have to give up preserving paradise, but focus as well on creating economic opportunity for the emerging working and middle class majority. If not, their Eden will end up as a green version of a gated community.

This article originally appeared at Forbes.com.

Joel Kotkin is executive editor of NewGeography.com and is a distinguished presidential fellow in urban futures at Chapman University. He is author of The City: A Global History. His next book, The Next Hundred Million: America in 2050, will be published by Penguin Press early next year.

Hyper-Partisans on the Green Politics Battlefield

Michael Shellenberger and Ted Nordhaus — Mon, 16 Nov 2009 00:12:47 -0500

America is more polarized today than at any time since Reconstruction. A major quantitative analysis by social scientists Nolan McCarty, Keith Poole and Howard Rosenthal found today to be the most polarized period in 130 years.

If you want to understand how it is that the debate over — for example — global warming policies became so shrill, consider the recent pattern of behavior by the country's second-most read climate blogger, Joe Romm. We will argue – against those who pooh-pooh his influence – that Joe Romm is, in fact, far more influential today than Joe McCarthy was in the 1950s, a fact that, unfortunately, has proven poisonous to creating the consensus needed for serious action on climate.

Today's fractured and polarized media environment has allowed Joe Romm to become the most influential liberal climate activist in the country, largely because he has convinced liberals and Democrats that he is an energy and climate science expert. This explains why Nobel Prize Winner and New York Times columnist Paul Krugman says "I trust Joe Romm," Thomas Friedman calls ClimateProgress.org "the indispensable blog," Al Gore relies on him for technical analysis, and the Center for American Progress makes him the organization's chief spokesperson on climate and energy issues.

Partisan Identity as a Mental Short-Cut
It's no coincidence that America's Climate McCarthyite-in-chief is a blogger at the largest liberal think tank and not a U.S. Senator. Busy fundraising and campaigning, members of Congress have largely outsourced the deliberative process of legislating to partisan interest groups and think tanks.

Much has been written about the ideological echo chamber conservatives like Sen. James Inhofe, Rush Limbaugh, and Glen Beck have created to enforce anti-environmental orthodoxy on the Right. Less remarked upon has been the creation of its analog on the Left – an accomplishment in which Romm has taken a leading role. Romm has mastered the echo chamber in its liberal expression and creates a reassuring green womb for his growing cadre of loyal readers.

Most importantly Romm functions to inform his readers of the partisan identity of any given thing, whether it be a new technology, policy, or analysis. Thus, when it came time for Romm to criticize a rather technical piece on the rising carbon intensity of the global economy that appeared in the journal Nature he attacked it not as inaccurate or incorrect, but rather as Republican:

It will be no surprise to learn the central point of their essay, ironically titled "Dangerous Assumptions" is "Enormous advances in energy technology will be needed to stabilize atmospheric carbon dioxide concentrations at acceptable levels," which is otherwise known as the technology trap or the standard "Technology, technology, blah, blah, blah" delayer message developed by Frank Luntz and perfected by Bush/Lomborg/Gingrich.

In other words, the Nature article was not what it claimed to be. It wasn't an analysis suggesting that the United Nations Intergovernmental Panel on Climate Change should revisit its assumptions about decarbonization. It wasn't an argument for stronger technology policies. No, it was a devious Republican message – one designed by Republican pollster Frank Luntz during the Bush years – to delay action.

How then did Romm become convinced that, rather than being genuine, the "Dangerous Assumptions" analysis was, in fact, Republican propaganda? Because Romm's Climate McCarthyism is, in large measure, the product of his Hyper-Partisan mind, one which sees everything through the gaze of Republican or Democratic, "climate denier" or "climate science advocate," and "climate destroyer" or climate savior.

Elsewhere Romm attacked Robert Mendelsohn, another leading environmental economist:

When the global warming deniers and delayers at right wing think tanks like the Hoover Institute agree with your analysis, you should start to ask yourself whether you really know what you're talking about.

Get it? The economists in question should rethink their work not because their assumptions are wrong, or their findings invalid, but rather because a conservative think tank agrees with them.

If You Do Not Agree Then You Must Be A Republican
Romm does not simply enforce the existing Democratic discourse, he also seeks to narrow it, effectively reducing its appeal by making it more hysterical, shrill, and apocalyptic. Little surprise, then, that Romm felt the need to attack the views of environment writer Gregg Easterbrook for writing a critical review of Friedman's book, which relied heavily on Romm's apocalyptic interpretation of the climate science.

Here's Easterbrook:

Why does the cocktail-party circuit embrace claims about a pending climate doomsday? Partly owing to our nation's shaky grasp of science--many Americans lack basic understanding of chemicals, biology, and natural systems. Another reason is the belief that only exaggerated cries of crisis engage the public's attention; but this makes greenhouse concern seem like just another wolf cry.

Romm responded by calling Easterbrook – wait for it – Republican:

Thanks to the Gregg Easterbrooks of the country -- otherwise known as Reagan, Gingrich, Bush and McCain – the United States became only a bit player in a global industry it helped create and once dominated, a bit player in what will certainly be one of the largest job-creating industries in the world.

Reading Romm, one would be hard pressed to conclude that Easterbrook was anything other than an opponent of action to reduce carbon emissions. In fact, Easterbrook is an advocate of the dominant Democratic and environmental approach to climate change, cap and trade. "Government should regulate greenhouse emissions," he wrote in his review, "then let the free market sort out the details, including by funding the research."

Easterbrook's policy agenda turns out to be closer to most national environmental groups than to Bush's, Gingrich's, or Luntz's. If Easterbrook is recycling partisan talking points, they are mostly Democratic, not Republican ones, save for his view that global warming's threat is real but not apocalyptic.

McCarthyism in a Hyperpartisan Era
Some readers have complained to us that Joe Romm is no Joe McCarthy. They are right. Joe Romm is far more influential. Others wonder why we criticize Romm, who believes passionately that global warming is occurring and that we must take action to address it, rather than Limbaugh or Inhofe, who reject climate science and oppose action.

And yes, to be fair, McCarthy had the ability to get people fired and put on blacklists. In this way he was more powerful. But Romm shapes how a whole generation of Democratic leaders, liberals, and greens think about the most serious environmental problem in the world, climate change, and about the master resource, energy, in the most powerful economy humankind has ever created. In this way Romm is more influential. Those who wave away Romm's influence are disconnected from our new hyper-partisan and fractured media reality.

"The nation grows more politically segregated," Nicholas Kristof quoted Bill Bishop, the author of the Big Sort, saying, "and the benefit that ought to come with having a variety of opinions is lost to the righteousness that is the special entitlement of homogeneous groups."

Joe Romm has the trust of liberals and Democrats, but not on the force of his arguments, the weight of his evidence, or the success of his agenda, for all are spectacular failures. As terrible as it may turn out to be, global warming is not "apocalypse now." No, Joe Romm has won the trust of partisans because he tells them the story they want to hear better than anyone else. Unfortunately, hyper-partisans like Joe Romm are part of the problem, not the solution. Effective solutions to global warming cannot be enacted in our extremely divided political environment.

Democratic partisans, liberals and greens have spent much of the last eight years tearing out our hair about all the ways the hyper-partisan it's-all-a-hoax! Republicans have blocked action on climate. These complaints may have been cathartic, but they have not been productive. We have not had and cannot have any impact on Republicans, and our partisan apocalypse talk and our sacrifice-now agenda are obviously alienating the vast, moderate middle.

The work of holding Republican obstructionists, anti-government extremists, and right-wing conspiracy mongers to task is work for principled conservatives, not liberals. The work of greens and liberals is to challenge the Democratic demagogues, the left-wing bullies, and the Climate McCarthyites who narrow and polarize the debate in ways that make effective policy action all but impossible. If we can hold our own hyper-partisans to account then fair-minded conservatives might do the same. For until the establishment and the grassroots on both left and right learn to say no to Joe Romm and to Glenn Beck, hyper-partisanship is here to stay.

An earlier version of this article appeared at The Breakthrough Institute blog.

Michael Shellenberger and Ted Nordhaus are co-founders of the Breakthrough Institute and authors of the seminal essay The Death of Environmentalism in 2004 and the controversial and critically acclaimed Break Through: Why We Can't Leave Saving the Planet to Environmentalists in 2007. They are widely recognized experts on climate and energy policy and their work has deeply influenced a new generation of clean energy advocates.

Predicting the Future of British House Building

Ian Abley — Sun, 15 Nov 2009 00:52:24 -0500

People are expecting British house building to pick up. Sadly they will be disappointed, even as the housing market inflates into another bubble.

There have been declines and recoveries in British house building before the 2007 collapse in construction activity. Data is in abundance. The total number of homes built annually has more than halved since the late 1960s, as successive governments withdrew from publicly funding the post-war welfare programme of council house building. There have been ups and downs in the volume of private housing built. After building 175,000 private homes in 2007 many expected that the market for new private housing would eventually recover from the financial crisis. The pent up demographic demand for new private housing would surely lead to a recovery of building if financing were made available. It seems irrational to suggest that the supply of housing will not recover to meet demand.

In July 2008 audacity argued that British house builders would be collectively reduced in the planning regulated market to building 100,000 homes in 2009. They would shift from aspiring to build in "volume" to making their money from planning approved "eco-homes" for a luxury market. This has already occurred and there will be no necessary recovery of volume in a few years. Production may even decline from that level of inactivity.

There seems little demand for new housing from the Public. Instead, we seem to be most concerned that housing continues to inflate in value as an asset. Most see obvious advantages in housing asset inflation, while complaining of the unaffordability of better housing. Britain is experiencing house price inflation again, but home owners know that the worsening gap between household income and the cost of buying a home, even on very low rates of interest, is frustrating new buyers, and the young in particular.

Gordon Brown knows that playing the housing market is a mainstream activity for the electoral majority. New Labour is doing what is necessary to revive housing asset inflation. Some had hoped that the bursting of the bubble in 2007 would reconnect house prices with household income. Young people were understandably most hopeful of that prospect. Now prices are drifting upwards again to unaffordable highs. This is happening nationally, but is particularly true in greater London, where average house prices have recovered to nearly £270,000, which is where they were before the collapse of Lehman Brothers in September 2008. This makes an average house “affordable” to those earning more than £90,000 a year. That is a very small percentage of the region’s home buying public.

Here’s what the restoration of higher prices means nationally, and in London in particular. There will be greater social immobility, expressed in more commuting, an extension of families, and several households living in the same home. Overcrowding will be more likely. Homelessness may slightly increase, but most housing difficulty will be accommodated within the existing stock.

The mainstream majority of the electorate – those already owning homes – is likely to be grateful that the burst bubble did not turn into a crash. New Labour will try to take the credit for averting any further financial disaster. What will be ignored is that house price inflation suits Britain's politicians, and the lending institutions in The City. The British economy is too weak to pay higher wages, and the mainstream majority are too politically weak to challenge that predicament. What other future is there for Britain except another asset inflation bubble?

The problem then with restoring the Brown bubble is it solves none of our fundamental problems: notably a weak economy, low wages and lack of decent housing. David Cameron's Conservative opposition will not make any difference to that predicament. They want to get rid of regional tiers of planners and to return control to local authorities, as was the intention of the 1947 Town and Country Planning Act. That is the legislation that stops the British public from building housing on cheap farmland.

But it’s doubtful they will try to break the back of housing inflation and our country’s dependence on it. The British economy depends greatly on The City, which needs to expand the £1.2 trillion of mortgage lending in a secure way for lenders in the global financial system. This only happens when existing house prices are maintained well above the cost of constructing new ones, and best in a period of asset inflation. The trickle of new homes onto the market could reduce, and while any demographic demands of a growing population for the utility of housing would not be met, the political and economic demand for asset inflation and loan security will be satisfied.

The way in which existing homes are made more expensive than the cost of building new ones is to inflate the price of land and keep it inflated. It is the high price of land approved for development within the 1947 legislation that is unaffordable. That is why government and house builders recognise there is "planning gain" to be negotiated over, as the uplift in land value that follows an approval to develop.

Yet this stands in the way of a clear public interest. Government housing experts argue we need at least 240,000 new homes a year to meet demographic demand. Our inability, or even unwillingness, to tackle this issue would have shocked either the Conservatives or the Socialists of the last Century.

What matters is to make materialist sense of the future. Society can't live off asset inflation and debt. We must build new housing.

We face a serious predicament today. Small quantities of highly subsidised and high density "eco-homes" are to be built by socially motivated architects, some working with the former "volume" house builders. How can building an insufficient number of homes be called “sustainable”? Instead of building new replacement homes Britain is also looking to finance a greener and endlessly refurbished housing stock, while producing too few "eco-homes" even to accommodate yearly household growth.

The finance obsessed Green Capitalists of today are worse than their counterparts from a century ago. At least the Capitalists of the past were materialists, who believed in building more, and developing a construction industry based on materials manufacture and the skills of the workers they exploited. Those Capitalists were progressive materialists.

The new capitalists in housing are not even interested in meeting the needs of the working and middle classes, but in pleasing environmentalists. Unsurprisingly, they also will not have to hire too many workers to build their meagre product. Today Capitalists are abandoning industrial production in favour of finance, and this is nowhere more evident than in housing. Hiding behind the moral claims of environmentalism the Capitalists of twenty-first century Britain have clearly abandoned any idea of social progress, when once they could claim to be materialists. What is noticeable is that they have so many moralistic Greens cheering them on.

Sadly, there is no political association today to oppose Green Capitalists operating a nationalised planning system, in their effort to realise asset inflation in the form of a housing market. New Labour under Gordon Brown will not change this – indeed he clearly favours housing inflation and the City over the needs of aspiring families. So do the Conservatives under David Cameron. At the same time, they can play to a green constituency, which now dominates the media.

Given the current planning regime and the moral imperative for building “eco-homes”, British house builders will be reduced to building around 100,000 homes for a very long time. They will aspire not to build in "volume" but instead take pride that their homes are "sustainable".

Only a political challenge will improve the situation. Gordon Brown faces no political challenge from David Cameron. He never will. Under New Labour or the Conservatives the only future for house builders will be to offer highly differentiated luxury "eco-homes" for the equity rich, or the top quintile of earners, supported with high subsidies in some form to build affordable “eco-homes". Architects will particularly benefit from this shift in the market.

New Labour will build a few council homes more as a publicity stunt to keep their middle class Old Labour supporters amused. Conservatives will not bother about such nonsense. They will both insist on "zero carbon" new housing by 2016. Both will focus on refurbishment of the existing stock, not replacement. Both will exclude more land from the planning system.

The only people who will challenge this predicament, this retreat of Capitalism from population growth and industrial productivity, will be the working mainstream middle. Brown thinks he has bought off the majority of home owners with asset inflation, and temporarily he might have relieved many. Cameron thinks he can further mobilise established local residents attempting to extract more “gain” from the planning system. He imagines local opposition to development aggregating to a general protection of house price inflation nationally.

These Red/Green and Blue/Green political leaders might be proved wrong. The construction industry matters, and with argumentative organisation materialists might push for house building against the greens of Britain. Most of all there is the new generation of British people – those entering their 20s and 30s – who will demand something other than over-priced, undersized and often miserably maintained housing for themselves and their families.

A longer version of this article originally appeared at www.audacity.org/IA-07-11-09.htm

Ian Abley, Project Manager for audacity, an experienced site Architect, and a Research Engineer at the Centre for Innovative and Collaborative Engineering, Loughborough University. He is co-author of Why is construction so backward? (2004) and co-editor of Manmade Modular Megastructures. (2006) He is planning 250 new British towns.

Honest Services From Bankers? Increasingly Not Likely

Susanne Trimbath — Fri, 13 Nov 2009 21:38:47 -0500

Once you understand what financial services are, you’ll quickly come to realize that American consumers are not getting the honest services that they have come to expect from banks. A bank is a business. They offer financial services for profit. Their primary function is to keep money for individual people or companies and to make loans. Banks – and all the Wall Street firms are banks now – play an important role in the virtuous circle of savings and investment. When households have excess earnings – more money than they need for their expenses – they can make savings deposits at banks. Banks channel savings from households to entrepreneurs and businesses in the form of loans. Entrepreneurs can use the loans to create new businesses which will employee more labor, thus increasing the earnings that households have available to more savings deposits – which brings the process fully around the virtuous circle.

As U.S. households deal with unemployment above 10% as a direct result of the financial crises caused by excessive risk-taking at banks, one bank, Goldman Sachs, posted the biggest profit in its 140-year history. According to Nobel laureate economist Joseph Stiglitz at Columbia University, Goldman's 65% increase in profits is like gambling – the largest growth came from its own investments and not from providing financial services to households and businesses.

Under fraud statutes created in 1988, Congress criminalized actions that deprive us of the right to “honest services." The law has been used generally to prosecute fraudsters and potential fraudsters – from Jack Abramoff to Rod Blagojevich – whenever the public does not get the honest, faithful service we have a right to expect.

The theory of “honest services” was used in one of the best known U.S. cases of financial misbehavior – Jeff Skilling of Enron – who has been granted a hearing early next year with the U.S. Supreme Court on the subject. Prosecutors won the original 2006 conviction on the strategy “that Skilling robbed Enron of his ‘honest services’ by setting corporate goals that were met by fraudulent means amid a widespread conspiracy to lie to investors about the company's financial health.” The U.S. Attorney argued that CEO Skilling set the agenda at Enron. In this case, the fraud and conspiracy were means by which corporate ends were met.

Skilling’s defense attorney admitted in his appeal before the 5th Circuit in April that his client “might have only bent the rules for the company’s benefit.” The appeal was not granted – a move by the court that is viewed as an overwhelming success for the prosecution. The application of the theory of “honest services” to the Skilling case – targeting corporate CEOs instead of elected officials – has been the subject of debate which may explain why the Supreme Court agreed to hear the arguments.

Regardless of the outcome of that or other cases on the subject, the fact remains that bankers are doing better for themselves than they are for American households. This is the number one complaint we have about banks today. If I had to summarize the rest of what bothers us about banks, I would start with the fact that they are secretive. They take advantage of a very common fear of finance to convince consumers that they know what’s good for you better then you do.

Next in line is the fact that they have purchased Congress. Banks have access to the halls of power that – despite 234 years of egalitarian rhetoric – ordinary voters can never achieve. Finally, we resent banks because we are required to use their services, like a utility, to gain access to the American Dream.

Financial services contribute about 6 percent to the U.S. economy. Manufacturing and information industries use financial services, but the industry increasingly depends on itself: recall the portion of Goldman’s earnings growth coming from using its own investment services. According to the latest data from the Bureau of Economic Analysis, the financial services industry requires $1.27 of its own output to deliver a dollar of its final product to users. Despite the fact that our economic reliance on financial services has been creeping up steadily since 2001, they remain one of the least required inputs for U.S. economic output – only wholesale and retail trade have less input to the output of other industries.

So, why did Congress vote them nearly a trillion dollars worth of life-support bailout money at the expense of taxpayers? Why did Wall Street get swine flu vaccine ahead of rural hospitals and health care workers? Why did they get the bailout without accountability? By making banks account for what they did with the money, congress could have 1) prohibited spending on bonuses and lavish retreats; 2) ensured improved access to credit for small and medium enterprises; and 3) provided transparency to taxpayers on who got how much and what they did with it. Need more reasons to demand honest services from a banker? Try this list:

Congress raised the FDIC insurance to $200,000 to make depositors comfortable leaving money in banks; then the banks passed the insurance premium on to customers – including those that never had $200,000 cash in the bank in their lives and probably never will. Seriously, how much money do you have to have before it makes sense to have $200,000 in cash in a savings account earning 0.25%?
Banks can borrow at 0% from the Fed yet they raise the interest rates they charge even their best customers. The bank I use for my company willingly lent me $10,000 last year to open a new office and approved a $7,000 credit card limit. Last month they sent me a letter saying they are raising the interest rate by +1.9 percentage point – though I have never missed a payment deadline.
The banks can use our deposits to purchase securities issued by the Federal government, which are yielding better than 3 percent. They pay us about 0.25 percent yet still find it necessary to tack on a multitude of fees – which amount to 53 percent of banks' income today, up from 35 percent in 1995.

For now, Brother Banker skips along as lively as a cricket in the embers. But remember this: Marie Antoinette didn’t know anything about the French revolution until they cut off her head. Matt Taibbi, in a recent Rolling Stone article called Goldman Sachs a "great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money." We are at risk for leaving the virtuous circle behind and entering a vicious circle of spiraling inflation. A massive increase in government debt is being paid down by printing more money. Between July 2008 and November 2008, the Federal Reserve more than doubled its balance sheet from $0.9 trillion to $2.5 trillion. A year later, there is no evidence that they are trying to rein it in. As Brother Banker fails to provide honest services, a briar patch of a different kind may be waiting around the corner.

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

A Canadian Autobahn

Wendell Cox — Fri, 13 Nov 2009 00:53:39 -0500

Canada is the largest high-income nation in the world without a comprehensive national freeway (autobahn, expressway or autoroute) system. Motorways are entirely grade separated roadways (no cross traffic), with four or more lanes (two or more in each direction) allowing travel that is unimpeded by traffic signals or stop signs.

The Economic Advantages of Motorways: Motorways have been associated with positive economic and safety impacts. For example, a synthesis of research by the American Association of State Highway and Transportation Officials (AASHTO) noted the positive impact of US motorway system:

The Interstate Highway System represented an investment in a new, higher speed, safer, lower cost per mile technology which fundamentally altered relationships between time, cost, and space in a manner which allowed new economic opportunities to emerge that would never have emerged under previous technologies.

In particular, the AASHTO synthesis indicated that motorway

...investments have lowered production and distribution costs in virtually every industry sector.

It is a well known fact that motorways are by far the safest roads. We estimated that 187,000 fatalities had been averted due to the transfer of traffic from other roads to motorways between 1956 and 1996.

A World of Motorways: Truckers in Japan, Europe (the EU-15) and the United States can travel between virtually all major metropolitan areas on high quality motorways.

Further, motorway systems have and are being built in developing nations. By far the most impressive is China, which now has approximately 65,000 kilometers of motorway, not including motorways administered at the municipal level (as in Shanghai and Beijing). Only the United States has more, at approximately 85,000 kilometers. China’s plans call for the US figure to be exceeded within a decade. These roads are being built not only throughout populous eastern and central China, but also to the Pamirs at the Kazakh border and to Lhasa, in Tibet, across some of the most desolate and sparsely populated territory in the world. Mexico, a partner with Canada and the United States in the North American Free Trade Agreement also has an extensive motorway system.

Motorways in Canada: Canada, however, is an exception. Only a quarter of metropolitan areas are connected to one another by motorways. Edmonton and Calgary are among the few metropolitan areas in the developed world that are not connected to comprehensive motorway systems (Vancouver is connected to the US system, but not to the rest of Canada).

For many trips between Canadian metropolitan areas, it takes less time to travel through the United States on its motorways than on the Canadian roads (such as between Winnipeg or Calgary and Toronto). The principal problem is the long, crowded, slow, two-lane stretch of roadway through the northern Great Lakes region between the Manitoba-Ontario border and between Sudbury and Parry Sound. There is also a long section of roadway in the British Columbia interior that a Calgary talk show host referred to as a “stagecoach” trail. Canada pays an economic price for this lack of a world-class highway system, both in terms of manufacturing and tourism.

However, parts of Canada are well served by motorways. Much of central and eastern Canada is connected by motorways, with routes from Windsor, Ontario, through Toronto, Ottawa, Montreal, Quebec to Halifax. This route includes only a short segment that is not motorway standard in the province of Quebec as it approaches the New Brunswick border.

Moreover, despite its reputation to the contrary, the largest Canadian urban areas have world class freeway systems. Few, if any, urban areas in the United States or the developed world have more kilometers of motorway or motorway lanes in relation to their urban area size as Toronto and Montreal.

A Canadian Autobahn: In cooperation with the Frontier Centre for Public Policy, we proposed a world class highway system for Canada. In a report entitled “A Canadian Autobahn: Creating a World Class Highway System for the Nation” we proposed:

Upgrading the entire transcontinental route from Halifax, through Toronto to Vancouver to motorway standards. These improvements should be completed within 10 years and would cost approximately $28 billion (2009$).
Upgrading other principal routes to at least pre-motorway standard, which would require “twinning” (four-lanes) and minimizing the number of grade crossings. The longest of these additional highways is the Yellowhead route: Edmonton and Calgary to the Canada-U.S. border; Ottawa to Sudbury; and across the island of Newfoundland. These improvements should be completed within 15 years and would cost approximately $33.5 billion).

The transcontinental route would provide a long overdue economic stimulus to urban areas such as Thunder Bay and Sault Ste. Marie. The improved Yellowhead route would provide far better access to the new deepwater, superport at Prince Rupert (British Columbia), which is the closest North American port with connections to major Asian markets. This could materially improve Prince Rupert’s competitiveness relative to larger ports on the US West Coast, such as Los Angeles and Long Beach (which have become much less competitive themselves in the last decade). The improved roadway would make it possible to effectively serve the markets of the US Midwest, South and East through a connection to I-29 in North Dakota.

The report was unveiled at a Calgary event on October 29 and was covered by media across the nation.

What About Greenhouse Gas Emissions: A question was raised about the advisability of expanding highways at a time that the world is attempting to reduce greenhouse gas (GHG) emissions. Such a strategy would seem to be at odds with the popular perception that we shall all have to abandon our cars and move into flats in the central city. This perception presumes that people are prepared to return to the standards of living and lifestyles of 1980, 1950 or even 1750. In all of my presentations on similar issues I am yet to uncover any groundswell of support for the lifestyles of yesterday.

It needs to be recognized that the international commitment to reducing GHGs is based upon an assumption of minimal impact on the economy. GHG reductions will be achieved only if they are acceptable to people, which requires acceptable costs (research by the United Nations International Panel on Climate Change suggests an upper bound of $50 per ton). Cost effectiveness is necessary to not only prevent a huge increase in poverty, but also to allow continued progress toward poverty alleviation and upward mobility. In fact, as recent US research indicates, there is scant real world potential to reduce GHGs from reduced levels of driving.

Given the strong association between economic growth and personal mobility, there is a single realistic path to substantial GHG emission reduction: better technology. Fortunately, developments suggest that technology is, indeed, the answer.

The question, thus, comes down to whether jobs in the northern Great Lakes region (and elsewhere) are more important than strategies that are politically correct, but comparatively ineffectual with respect to materially reducing GHG emissions. It seems likely that people will place a priority on jobs.

Finance: Because of the importance of tying the nation together, it would be appropriate to spend federal and provincial funds on the Canadian Autobahn. User fees, such as a dedicated gasoline tax (as in the United States) or tolls (as in France, China and Mexico) could finance the expansions, using public-private partnerships or “arms-length” government corporations.

Reducing Carbon Should Not Distort Regional Economies

Aaron M. Renn — Wed, 11 Nov 2009 23:38:40 -0500

A pending bill in Congress to reduce carbon emissions via a “cap and trade” regime would have significant distorting effects on America's regional economies. This is because the cost of compliance varies widely from region to region and metro to metro. This is all the more important since such legislation may do very little to reduce overall carbon emission according to two of the EPA's own San Francisco lawyers.

The Brookings Institution recently calculated the projected cost of compliance under the cap and trade plan on a metro by metro basis and produced the map below for The New Republic:

The costs of compliance are highest in the lower Midwest through to the Mid-Atlantic and in the South. New England, the Upper Midwest, and the West are the winners from a cost standpoint.

The actual costs vary from a high of $277 per household per year in 2020 in Lexington, KY to a low of $96 in Los Angeles among the 100 largest metros. Other hard hit metros include Washington, DC ($250), Indianapolis ($246) and Kansas City ($228). Among the winners are Portland ($107), San Francisco-Oakland-Fremont ($119) and Chicago ($135).

In aggregate, this adds up to a significant amount of money. The Cincinnati metro had 815,000 households in 2008. Brookings did not include their household estimates for 2020, but even with no population growth at all, at $244 per household that still adds up to about $200 million per year in compliance costs. To put that in perspective, Cincinnati is proposing to construct a new downtown streetcar system for that same amount of money. It could conceivably build a new streetcar line every single year in perpetuity for the cost of compliance. Portland has 835,000 households, for an annual compliance cost of $90 million. Though they are about the same size regions, Cincinnati will be paying over $100 million more per year compliance costs. This creates a $100 million disincentive to live or locate a business in Cincinnati vs. Portland.

In short, cap and trade creates disparities between metros. As the New Republic put it, “place matters” on cap and trade. And because the effects are geographically clustered, these disparities aren't just local, they are regional. This is enough to immediately prompt the question as to whether or not this was an implicit design goal of the system.

Among the biggest beneficiaries of cap and trade is California. Its large metros are clustered together at the bottom of the list. I noted previously how California is placing a huge bet on the green economy as its engine of economy renewal. In fact, beyond legacy industries such as high tech, agriculture, and entertainment, California’s political leaders are betting their entire future on green. With so much on the line for California, it should come as no surprise that the state would seek to federalize its policies and institutionalize the advantages it has in this arena through its state level climate regulations. One might even better name this bill “The California Economic Recovery and Competitor Hobbling Act of 2009”.

This reality isn’t lost on Indiana Governor Mitch Daniels. With Indianapolis the fifth hardest hit metro in the country, it is no surprise he denounced the plan in a Wall Street Journal editorial, saying, “Quite simply, it looks like imperialism. This bill would impose enormous taxes and restrictions on free commerce by wealthy but faltering powers – California, Massachusetts and New York – seeking to exploit politically weaker colonies in order to prop up their own decaying economies.”

It is clear that getting a bill out of Washington is not just a matter of cost, but of states and regions jockeying for position. The significant regional disparities in impact grind the legislative gears and might ultimately imperil getting legislation passed. Reducing regional disparities could help improve the chances of action on carbon.

But shouldn't places that implemented what is considered good policy be rewarded? To some extent, yes. Many places actually voted to cause economic pain for themselves for the sake of a better environment. Other places have fought environmental regulation every step of the way. Clearly, we do want to provide incentives for good behavior, and certainly not reward bad.

On the other hand, not all the differences in current carbon emissions or abilities to reduce them are the result of good policy. Quite a bit of them are the result of simple good luck. Some places have climates that reduce the need for heating and air conditioning. Other places face more extreme weather.

Plentiful clean energy sources are unequally spread throughout the country. Not every place has access to large amounts of solar, wind, or hydro power sources. Much of the Midwest and South built coal fired power plants due to plentiful coal supplies in the region. Technology and transportation costs made other sources cost prohibitive. Carbon emissions were not on anyone's radar then. Some places like Chicago were fortunate to build nuclear plants, which were bitterly opposed by environmentalists at the time, but now are praised by some as a source of low carbon power.

In short, much of the inequality in carbon emissions results from accidents of geography or history, not deliberate bad choices. People shouldn't be punished for practices that were rational at the times. As Saul Alinksy put it, “Judgment must be made in the context of the times in which the action occurred and not from any other chronological vantage point.” And while one could say perhaps regions whose climates require excessive heating and cooling shouldn't be favored places to live, one could say the same about much of the West, including California, whose existence depends on a vast edifice of what many consider environmentally destructive water works.

To actually get action on carbon – the true imperative – we should adopt the following policy guiding principles:

The goal is carbon reduction, full stop. Encumbering it with additional regional economic gamesmanship, or becoming overly enamored with particular means to that end should be avoided.
Reducing carbon emissions will come with an economic cost. It isn't realistic to expect that we will get away with pain free reductions. Obviously we should seek to get the best blend of costs and benefits, but let's not pretend we can have our cake and eat it too, holding carbon action hostage to a standard that can never be met.
The carbon reduction regime should not create significant regional cost disparities. As a purely practical matter, this helps ease passage and should be embraced. Complete equality is never realistic, but when some regions will pay twice as much as others, that by itself creates oppositional voting blocs. If a cap and trade scheme is the preferred approach, then perhaps assistance to high compliance cost areas should partially fund the transition away from coal and towards less polluting sources.
The carbon reduction regime should not encourage business to migrate offshore. We should also not take action that reduces the attractiveness of America as a place to do business and especially to manufacture. Regulatory arbitrage already provides an incentive to move to China, where you can largely escape environmental rules, health and safety regulations, and avoid the presence of independent, vigorous unions. An ill chosen carbon regime could simply enhance China's allure as a “carbon haven”. Again, this skews manufacturing regions and labor interests against action on carbon, while shifting production to areas with only minimal regulatory restraints.

In short, action on carbon reduction may well be a good policy goal. But we shouldn't embrace any means to that end uncritically if it creates huge distortions in regional economic advantage or further damages America's industrial competitiveness.

Aaron M. Renn is an independent writer on urban affairs based in the Midwest. His writings appear at The Urbanophile.

Bowling Alone or Bowling Along?

Mark Clapson — Tue, 10 Nov 2009 23:38:41 -0500

It has long been cultural sport to mock or to misunderstand the social life of suburbs. More recently, however, sport itself has been identified as a major arena for social decline in suburbia.

In his Bowling Alone, published with an almost apocalyptic sense of timing at the beginning of the present century, the esteemed social scientist Robert Putnam focused upon the decline of the American bowling leagues as symptomatic of a lost America. League bowling took off during the fifties and peaked during the sixties before its decline set in after 1970. From this downward trajectory, Putnam widens his analysis to raise serious and important questions about the culture of civic engagement in the USA. In other works, Putnam has also viewed the localised politics of northern Italian towns in a more favourable light than the sprawling suburbs of the USA.

Putnam worries that both community involvement and church attendance is lower in the central cities and suburbs of major metropolitan areas than in the smaller towns of the USA of which he is clearly enamoured. He places this in the wider context of the more mobile, privatised and suburban way of life that has developed in America and other countries, including Britain, since the fifties. Somewhat ironically, perhaps, the decade that was once diagnosed as bringing about the Organisation Man and the Lonely Crowd of tract suburbia, is now viewed as a decade of suburban neighbourliness. What Putnam terms the ‘compulsive togetherness’ of the fifties has been eroded, apparently, by atomised isolation, self-interest and ever widening widths of commuting and social connectivity.

Yet Putnam’s own statistics do not support the widely cited assertion of declining suburban sociability as compared to urban centers. In his argument that “community involvement is lower in major metropolitan areas” we find from tables in Bowling Alone that in the central areas of cities with one million or more people, about 7 per cent had served in a local community group, and almost 9 percent had attended a public meeting on town or school affairs. In the suburbs of that same-sized metropolis, over 10 per cent had served in a local community group, and over 15 percent had attended a public meeting on town or school affairs.

In communities between 250,000 and 1 million people – quite a range of cities – again the suburbs manifest higher levels of civic engagement than the city centres. In the town of 50,000 to 250,000 however, we find a slightly more mixed picture: 14 percent living in central areas had served in a local community group compared to 13 percent in the suburbs. This is a paltry differential. However, whereas over 15 percent in central cities of this size had attended a public meeting on town or school affairs, it was over 20 percent in the suburbs, a much wider gap.

When Putnam analyzes church attendance, his findings tend to exonerate suburban living. In the ”major metropolitan area of more than 2 million”, the “non-central city” manifests higher levels of regular church attendance than the central city. Yet in smaller metropolitan areas and towns both central and non-central areas have almost identical levels of church attendance.

Surely this all raises a significant questions about the common notion that suburbanisation is bad for local community life. Of course, these figures may also be qualified by ethnicity, gender, occupational class and tenure. For example, home owners tend to be more rooted than renters, says Putnam. But most people living in the American suburbs are home owners, whereas rental levels are higher in downtown areas. Perhaps there is a weaker relationship between faith and tenure than between tenure and community participation?

So what about sports? Over time-spans of decades, people learn to like other sports, or new ones, and the younger generation does not always emulate the interests of its parents or grandparents. Interests and disposable income are shifted onto other pursuits. Baseball leagues and American football may be declining, but Putnam pays only lip service to the growing popularity of sports such as skating, snowboarding, fitness walking and going to the gym. These are sports that now bind young people together via discussion on social networks and in media like fuel.tv in terms of fashion and popular events.

For his part, Putnam sees these as symptomatic of a modest demise in team sports as more individualised pursuits become increasingly common. Yet he may be missing the social aspects of the new “extreme” sports.

He also seems oblivious to the growing social role of soccer, particularly in the suburbs. He gives it three mentions in Bowling Alone. Relative to other countries, soccer may be a relatively small team sport in the USA, encouraged by immigration from soccer-loving countries, and cheered on by the soccer moms of America. But more important is the expansion of amateur soccer which attracts more young people. I would argue that the relative vitality of local soccer leagues is more important than the success of the professional leagues. After all, the issue is grassroots, volunteer social interaction, not mass behavior.

Soccer was originally born in England, and remains a vital force of social cohesion, particularly in suburban working-class council estates. The Old Left thinkers, many of whom have embraced Putnam’s ideas remain woefully ignorant of the energy and diversity of working-class suburban life.

Soccer remains the working-class sport that has refused to die, even when the English working class has been diagnosed with terminal decline. Whether at grassroots amateur level, in the lower professional leagues, and in the glamorous world of the Premier League and international competitions, the game continues to draw people together in parks, at football stadiums, around their television sets, and in a million and more websites dedicated to the sport.

The internet brings people together not just across the world but also in a local context. Online communities, and formal and informal emailing, are mechanisms not of isolation but of interaction. For example, in some research I have been doing on a poor suburban council estate in Southern England, the local tenants’ groups have established and maintain websites. And local amateur soccer in the English provinces has no shortage of websites dedicated to the sport and the teams who play it. And poorer working class areas are currently viewed by politicians and cultural commentators as possessing historically low levels of social capital.

Ultimately, Putnam is saying little that is new. In both England and the United States of America writers, film directors and metropolitan journalists have long played the game of bashing the suburbs. This elitist lineage can be traced back from the late-Victorian Diary of a Nobody to the nobodies at The Office, and from Babbit to American Beauty. The message takes on different emphases and tones but at its heart is contempt or faux sympathy for the allegedly alienated and privatised suburbanite. Films such as Backfield in Motion or Bend it Like Beckham give us a different take, but they aren’t as widely popular as American Beauty. Why is that? Perhaps their message is too optimistic. The chattering classes continue to want to paint suburbs as bastions of privatism rather than as a flexible and sociable context for community and association. The fact that they are, on the whole, woefully wrong is likely not to change their opinions, but should inform those who have not yet closed their minds.

Mark Clapson is a social historian, with interests in suburbanisation and social change, new communities in England and the USA, and war and the built environment.

Obama Still Can Save His Presidency

Joel Kotkin — Tue, 10 Nov 2009 00:25:53 -0500

A good friend of mine, a Democratic mayor here in California, describes the Obama administration as "Moveon.org run by the Chicago machine." This combination may have been good enough to beat John McCain in 2008, but it is proving a damned poor way to run a country or build a strong, effective political majority. And while the president's charismatic talent – and the lack of such among his opposition – may keep him in office, it will be largely as a kind of permanent lame duck unable to make any of the transformative changes he promised as a candidate.

If Obama wants to succeed as president he must grow into something more than movement icon, become more of a national leader. In effect, he needs to hit the reset button. Here are five key changes that Obama can implement to re-energize and save his presidency.

1. Forget the "Chicago way." The Windy City is a one-party town with a shrinking middle class and a fully co-opted business elite. The focused democratic centralism of the machine – as the University of Illinois' Richard Simpson has noted – worked brilliantly in the primaries and even the general election campaign. But it is hardly suited to running a nation that is more culturally and politically diverse.

The key rule of Chicago politics is delivering the spoils to supporters, and Obama's stimulus program essentially fills this prescription. The stimulus's biggest winners are such core backers as public employees, universities and rent-seeking businesses who leverage their access to government largesse, mostly by investing in nominally "green" industries. Roughly half the jobs saved form the ranks of teachers, a highly organized core constituency for the president and a mainstay of the political machine that supports the Democratic Party.

The other winners: big investment banks and private investment funds. People forget that Obama, even running against a sitting New York senator, emerged as an early favorite among the hedge fund grandees. As The New York Times' Andrew Sorkin put it back in April, "Mr. Obama might be struggling with the blue-collar vote in Pennsylvania, but he has nailed the hedge fund vote."

At best, the president's policy seems like Karl Rove in reverse, essentially smooching the core and ignoring the rest. This is a formula for more divisiveness, not the advertised "hope" Americans expected last November.

2. Focus on Real Jobs, Not Favored Constituencies . The Chicago approach works better in a closed political system controlled by a few powerbrokers than in a massive continental economy like the U.S. Health care and education, which depend on government largesse, are surviving. But the critical production side of the economy that generates good blue-collar jobs – like agriculture, manufacturing and construction – is getting the least from the stimulus.

These industries need more large-scale infrastructure spending, as well as more focused skills training and initiatives to free capital for politically unconnected entrepreneurial businesses. Instead, productive industries face the prospect of more regulation while capital for small businesses continues to dry up.

Those in post-industrial bastions tied to speculative capital – think Manhattan and the Hamptons – are the ones most benefiting from Obamanomics. College towns like Cambridge, Mass., Madison, Wis., Berkeley, Calif., and Palo Alto, Calif., will also prosper, becoming even richer and more self-important. It seems, then, that Obama has done best for elite graduates of Harvard and Stanford and other members of the "creative class."

The rest of America, however, is still waiting for a real sustained recovery. Industrial and office properties remain widely abandoned not only in Detroit but Silicon Valley. The future sustainability of our economy depends mostly on what happens to those who previously staffed these facilities – those who produced actual goods and services – not just on a relative handful of people working at Google or the national laboratories. In other words, we need jobs for machinists, welders and marketers as well as scientists with Ph.D's.

3. Step on the Gas. Providence has handed America – and Obama – an enormous gift in the now recoverable deposits of natural gas found across the continent. Proven levels have been soaring and now amount to 90 years' supply at current demand. More will be found, and across a wide section of the country.

Natural gas may be a fossil fuel, but it is relatively clean and thus the perfect intermediate solution to our energy problems. The problem: The president's green advisers will seek to prevent developing these resources.

Although Obama should support strong environmental controls on gas extraction, the greens should not be allowed to block this unique and historic opportunity to shift economic power back to North America. Along with modest increases in domestic and Canadian oil, natural gas could end our dependence on fossil fuels from outside North America. This would relieve our military from the onerous task of defending other people's oil supplies. But most important, the new energy sources could expand our industrial and agricultural economies so they can capitalize on the huge potential growth from markets at home and in the developing world.

The natural gas era could then finance continued research and deployment of renewable fuels. Let's give it the 10 or 20 years that great transformations require. Quick fixes will lead us to subsidize the purchase of rapidly dated technology from China or Europe; we should aim at the energy equivalent of the moon shot, helping forge a huge technological advantage.

4. Rediscover America. As a candidate, Obama spoke movingly about his Kansas roots, but lately he seems to have become all big city all the time. This administration offers very little to people who live in places like Kansas, as many of my heartland Democrat friends complain.

Urbanites often forget that this is an enormous country. Crowded into dense cities themselves, they fail to look down from the window when crossing the country by plane. The vast majority of America is, well, vast – sparsely settled, if settled at all.

Moreover, Obama's people need to understand that 80% of America live in suburbs or small towns. They do not want to live in dense cities or realize a move there would mean living in less than idyllic conditions. If Obama wants to shape a green America, he must find ways that work with the majority's preferences.

But so far the president's housing, transport and planning advisers seem to be pushing the death of suburbia and promoting ever more densification. It's hardly surprising, then, that suburbs and small towns feel left out. After finally starting to inch toward the Democrats, they are now turning again to the right. If Democrats want to retain their majority, they need the strong support of these constituencies – without it the Congressional majority will be gone by the end of the second term, if not the first.

5. Chuck the Nobel; Embrace Exceptionalism. Many progressives love Obama because they see him as one of them in the struggle with what the immortal Bill Maher calls "a stupid country." But the president should remind himself that the country may not be quite as dumb as it sometimes looks from Oslo – or from Dupont Circle, Cambridge or Soho.

Being smart was part of the reason the Republicans lost the majority. The voters understood the country was wasting resources – and young people – on internecine conflicts for energy that we could produce at home. The Bush years also undermined any GOP claim to fiscal responsibility.

Initially Obama allowed us to redefine American exceptionalism as something more than monomaniacal use of force and overconsumption. He spoke to our traditions of inclusiveness, adaptability and idealism. He offered the perfect vehicle because he and his story are so exceptional. Yet Obama sometimes seems more interested in serving as the apologizer rather than as commander in chief. His vision appears less American than pseudo-European.

This is not the path to success for American presidents. Whether Ronald Reagan or Franklin Roosevelt, Harry Truman or even Bill Clinton, a president has to be a spokesman for his country. Right now, on the world stage, Obama is looking more and more like Jimmy Carter.

I suggest these things because, for all his missteps over the past year, Barack Obama is my president and I want him to succeed. But to do so, first he needs to hit his own reset button – and the sooner the better. Unlike some, I do not believe the Obama presidency is already doomed. Presidents often grow in office: Despite his exceptionalism in other areas, let's hope that Obama proves the norm here.

This article originally appeared at Forbes.com.

Official White House Photo by Pete Souza

A Slow Job Recovery in Silicon Valley

Tamara Carleton — Mon, 09 Nov 2009 01:40:22 -0500

Although job growth is gradually returning to Silicon Valley, don’t break out the champagne quite yet.

Lucia Mokres moved to the area five years ago. Last year, when she was working at a contract engineering and manufacturing firm, she saw several clients lose their jobs, as well as both large and small companies go under in the economic crunch. She remembers one conference vividly. While manning the event booth, instead of seeing people pitch work they had for her firm, they instead passed out resumes, asking her team for work.

Soon after, her job was cut back from 5 days per week to 4 days, which included a 20% pay cut. Mokres said, “That was really hard, as my rent and student loans did not also get cut 20%.”

She persisted over “many months” to find a better position, which ultimately resulted in a higher salary and better benefits as a clinical scientist in a medical device company based in Menlo Park, Calif. Looking ahead now, Mokres feels optimistic about her future in Silicon Valley and said, “I am in the medical industry, and there will always be a demand for medical technology and healthcare.”

“There are worse places to be,” she added. “I’m in one of the top two biotech hotspots in the country. Silicon Valley breeds innovation, and therefore will survive.”

Harold Lee* feels less cheerful. He was the class president at a tier one university several years ago, and since graduating in 2004, he has worked at several of the top companies in Silicon Valley. He is now a product manager at a social networking startup based in Mountain View, Calif. While he couldn’t imagine leaving the area, he summarized his long-term prospects in one word: “limited.”

Lee counts himself lucky to have a job at a popular startup, when the signs around him are still troubling. “There’s definitely a palpable feeling of companies scaling back,” he said. “Free lunches are no longer free, snacks are rationed out a bit more, and there’s a lot more focus on measured productivity.”

Reports from friends and peers, particularly those who have been laid off in the last year, have not lifted the gloom. Said Lee, “Things have settled down to the point where people aren’t frightened, but I doubt anyone would be surprised if they got a pink slip tomorrow.” He added, “Trying to get a job is immensely difficult. I have friends who returned to get their graduate degrees in business, who now can’t land anything.”

The lagging indicator in economics is jobs, which, for the average worker, has the biggest personal impact. Over the last year, California lost 732,700 jobs, the worst hit of all U.S. states, according to the U.S. Bureau of Labor Statistics.

The job situation in Silicon Valley has not rebounded as quickly as hoped. The area’s jobless rate is nearly double what it was a year ago, according to the state’s Employment Development Department. Nearly three times as many people are actively looking for work, versus during the dot-com bust, when the jobless rate peaked at 9.2 percent in early 2003. The recent number of unemployed is 110,900, representing an 87 percent increase from the prior year, according to the EDD.

The technology industry has continued to take a beating in the past six months. Cisco cut 700 local jobs in July, and Lockheed Martin slashed nearly 500 local jobs in August, based on state filings. Most recently in October, Sun Microsystems Inc. announced that it would eliminate up to 3,000 jobs across all sites, or 10 percent of its worldwide work force through the new year, due to the takeover by Oracle Corp.

The larger question is if the recovery in Silicon Valley will be technology-led. Many believe that the tech industry, which dominates local economics, will lead other companies out of the recession. Does a rising tide lift all boats? Due to the slower return of jobs, it will likely take more time for tech companies to generate the tax revenue needed to support the service sector and other programs again.

However, local leaders and economists feel that the worst has passed. The usual suspects are optimistic. Stanford University recently hosted its fourth annual roundtable, and the panel discussion dove immediately into the economic crisis. Moderated by television host Charlie Rose, the panel included Eric Schmidt, chairman of the board and chief executive officer of Google; Penny Pritzker, who serves on President Barack Obama’s Economic Recovery Advisory Board; Guillermo Ortiz, governor of the Bank of Mexico; Stanford Economics Professor Caroline Hoxby; Garth Saloner, dean of the Stanford Graduate School of Business; and Stanford President John Hennessy.

Google’s CEO Schmidt told the audience: “We know that things are improving. We’re seeing everyone come up at the same time, which is a good sign.”

Other experts, who track economic growth, echo similar sentiments. The perennially optimist Stephen Levy of the Center for Continuing Study of the California Economy has told press that, while Silicon Valley will continue to lose some jobs, revival signs are encouraging. He said, “We’re on the road to recovery.”

Not everyone has the same rosy forecast. Job growth in the Valley has not been creating net jobs for over a decade. Some individuals have done well, but the path to upward mobility may not be as cheery as the professional boosters and Valley insiders suggest. While the information sector for the three major Valley cities – specifically the cluster of San Jose, Sunnyvale, and Santa Clara – grew the fastest of all nonfarm sectors at nearly 31 percent since 2003, overall employment has actually dropped by 6 percent over the last 12 years, according to data from the U.S. Bureau of Labor Statistics.

Judy Huang has learned this lesson the hard way. After working nine years with local technology companies, she has returned to job hunting and found that the road to recovery is much rockier up close. After witnessing several friends struggle similarly, she set up a community group called “Yes We All Can” to support other job seekers with emotional support and job tips. Huang explained, “We have more fun doing it with a little help from our friends.” Since she started the group in May, roughly a quarter of group members have found job positions.

Hiring specialists have also seen slow growth. Andrew Adelman has not seen any particular sector bounce back yet in Silicon Valley, although he thinks that the recovery will likely start with companies that focus on efficiencies in operations. Adelman directs CoreTechs, Inc., a temporary contract staffing firm that specializes in technical and accounting positions. He noted, “Most companies we speak to are on freezes until they feel confident in either maintaining their current revenue or some pick up. Until they have that confidence, nothing is going to change.”

He felt that the last economic crash was focused mainly on Internet companies and supporting services. In his view, the current downturn is much more widespread. Many companies outside the tech industry have had to face staff cutbacks and shrinking revenue, and their paranoia feeds a deeper dread. He said, “The fear this time around is much more pervasive and thus much more damaging in the stagnation it causes. Once the fear starts to wane will be when a true recovery starts to take hold.”

Lei Han agrees. Based in San Francisco, she started a blog, “Career Coach – I am in your corner,” in February, which allows her to mentor and encourage individuals on a broader scale. From the worker’s perspective, she said, “They are all worrying more about their careers and jobs. Almost everyone I know knows someone who has been laid off.”

She added, “Ironically, people who have a job are also worried. There is a bit of survivor guilt, as well as survivor nonchalance.”

Despite recent challenges, there are several reasons for workers to be optimistic. At the top of the list, Silicon Valley still remains the world’s hotbed of innovation.

John Lekashman, an engineering executive who has lived in Silicon Valley since 1983, has seen the region survive many downturns. He laughed, “We have been iron oxide valley, and silicon valley, and software valley, and social media valley and biotech valley, and solar valley, and nanotech valley, and any of a bunch of other random new ideas that fly.”

From his experience, workers in Silicon Valley persevere. The region fosters a culture of renewal and failure, which will provide an economic buffer until the jobs become plentiful again.

* Not his real name

Tamara Carleton is a doctoral student at Stanford University, studying innovation culture and technology visions. She is also a Fellow of the Foundation for Enterprise Development and the Bay Area Science and Innovation Consortium.