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Intercity Buses: 2015 Was A Smooth Ride

2 hours 53 min ago

As a former airline pricing analyst who once viewed the intercity bus as an inconsequential player in major markets, I am perhaps an unlikely champion of this mode’s potential. But since Megabus made its US debut just blocks from my Chicago office in 2006, I have become intrigued with this increasingly popular mode of intercity transportation. I now collect data and write a year-in-review report that summarizes the notable happenings in the sector.

Ever since I began this research, there have been remarkable developments. In 2015, the trend was for fast-growing brands such as BoltBus, Greyhound Express, and megabus.com to pivot from investing in new routes to investing in conveniences for quality-minded travelers, in a bid to woo them from cars and planes. Another major surprise has been the resurgence of Chinatown lines, some of which had been written off as dead after federal safety crackdowns several years ago.

The intercity bus industry’s shift from added routes to investments that improve passenger experience stems from three factors.

First, major lines need to allow consumer markets to catch up with previous expansion, which has pushed bus service to regions in which product awareness is relatively low (it often takes three to five years for new service to achieve financial self-sufficiency). The map below illustrates the expansion of hubs by Megabus since it began its US service in 2006 and continued with Florida additions in 2014.


Development of hubs by Megabus with approximate geographic range of service. Chaddick Institute

Secondly, as the map shows, many of the most lucrative markets have already been tapped, giving carriers little choice but to focus their efforts on broadening their appeal among the large segment of the public that has been reluctant to give bus travel a try.

Third, plummeting fuel prices have greatly intensified competition from private vehicles. Average gasoline prices across the US fell from $3.68 a gallon in July 2014 to just over $2 last month, negating some advantages of fuel-efficient modes. Double-decker buses with heavy loads can easily achieve 200 passenger miles per gallon. On a 250 mile round-trip, these falling prices have reduced the relative cost of driving by about $25 per passenger. That’s a big change to overcome!

Carriers retained momentum by working to make coach travel more appealing. Greyhound introduced OnTouch©, allowing passengers to surf for information about tourist attractions, theatrical events, and ridesharing services at their destination using the bus’ Wi-Fi system. The carrier also launched BusTracker, which provides updates every one to four minutes on a bus’s location and expected arrival time.

Megabus created a reserved seating program that allows passengers to select particular seats — including table spots — when buying tickets, generally for $5 or less. As recently as a decade ago, almost all US bus passengers were denied even having a guaranteed seat, much less a particular seat, on a selected departure. This uncertainty compelled many to arrive at the station at least an hour ahead to stand in line. Now, passengers can arrive at the last moment with their preferred seat awaiting them.

New business-class services, meanwhile, popped up, linking New York City to Ithaca (on both ">Coach USA and the new Big Red Bullet), Maine (C&J), Massachusetts (Concord Coach), and Virginia (Vamoose). Luxury operators like Royal Traveler (New York–Washington) and Vonlane (Texas), that offer posh amenities, also expanded.

Discounters are also growing. A revived Chinatown bus sector now accounts for more than 600 daily schedules and handles upwards of five million annual riders. These carriers, generally Asian- or Asian American-owned lines, operate primarily from Chinatown districts in major cities. There have been concerns over the years that their drivers do not have adequate training and fail to observe regulations on the maximum number of hours behind the wheel. Allegations of improperly maintained buses and threadbare tires also recently attracted attention. These carriers often do not invest in clearly identifiable brand names, and do not interline with major bus companies.

Chinatown operators have apparently found ways to more effectively comply with safety rules following stepped-up federal enforcement in 2012-13 that shut down many of them. These lines are now diversifying into longer-distance routes, including overnight runs from New York to the Midwest and the South, in part due to intense competition from “corporate carriers” in the Northeast. Go Buses, for example, is expanding rapidly in New England, taking on giants like BoltBus and Megabus.

In the South and South Central regions, Latino carriers are adding buses at a rapid pace. We estimate that these services handle more than five million passengers annually, up from about two million five years ago. To defend its turf, Greyhound launched cross-border service from Texan cities to Mexico in 2015.

So how large has the intercity system actually gotten? The truth is, nobody knows for sure, as federal data has not been collected for a generation. We have been able to identify 155 operators and estimate, making a reasonable assumption that they handled 62 million passengers for the year in 2015 — about 35 percent more than in 2008.

Considering all the buzz surrounding bus travel, some are surprised that the number isn’t higher. Intercity bus travel is nowhere as large as air travel. But scheduled buses see about twice as many trips as Amtrak, and expansion is occurring with no federal funding on all but a few routes. Moreover, the renaissance is still less than a decade old and our estimates don’t include the growing airport shuttle, commuter bus, or charter segments.

In addition, travel and technology companies are taking notice. Wanderu.com and Busbud.com, websites specializing in bus travel, gained nationwide coverage last year. Both have created powerful apps catering to mobile bookings. BoltBus launched an app with Uber, which in turn has applied for a patent to get into the intercity travel business.

Could seamless connections with a single click between ridesharing, intercity buses, and other surface modes be around the corner? That could be a game-changer for a mode considered a last resort only a few years ago.

Joseph P. Schwieterman is director of the Chaddick Institute for Metropolitan Development and Professor of Public Service at DePaul University in Chicago.

Flickr Photo by Richard Masoner / Cyclelicious

This Is Why You Can’t Afford a House

Mon, 02/08/2016 - 21:38

The rising cost of housing is one of the greatest burdens on the American middle class. So why hasn’t it become a key issue in the presidential primaries?

There’s little argument that inequality, and the depressed prospects for the middle class, will be a dominant issue this year’s election. Yet the most powerful force shaping this reality—the rising cost of housing—has barely emerged as political issue.

As demonstrated in a recent report (PDF) from Chapman University’s Center for Demographics and Policy, housing now takes the largest share of family costs, while expenditures on food, apparel, and transportation have dropped or stayed about the same. In 2015, the rise in housing costs essentially swallowed savings gains made elsewhere, notably, savings on the cost of energy. The real estate consultancy Zillow predicts housing inflation will only worsen this year.

Driven in part by potential buyers being forced into the apartment market, rents have risen to a point that they now compose the largest share of income in modern U.S. history. Since 1990, renters’ income has been stagnant, while inflation-adjusted rents have soared 14.7 percent. Given the large shortfall in housing production—down not only since the 2007 recession but also by almost a quarter between 2011 and 2015—the trend toward ever higher prices and greater levels of unaffordability seems all but inevitable.

The connection between growing inequality and rising property prices is fairly direct. Thomas Piketty, the French economist, recently described the extent to which inequality in 20 nations has ramped up in recent decades, erasing the hard-earned progress of previous years in the earlier part of the 20th century. After examining Piketty’s groundbreaking research, Matthew Rognlie of MIT concluded (PDF) that much of the observed inequality is from redistribution of housing wealth away from the middle class.

Rognlie concluded that much of this was due to land regulation, and suggested the need to expand the housing supply and reexamine the land-use regulation that he associates with the loss of middle-class wealth. Yet in much of the country, housing has become so expensive as to cap upward mobility, forcing many people to give up on buying a house and driving many—particularly young families—to leave high-priced coastal regions for less expensive, usually less regulated markets in the country’s interior.

The Rise of the Exclusionary Region

The regions with the deepest declines in housing affordability, notes William Fischel, an economist at Dartmouth College, tend to employ stringent land-use regulations, a notion recently seconded by Jason Furman, chairman of President Obama’s Council of Economic Advisors. In 1970, for example, housing costs adjusted for income were similar in coastal California and the rest of the country. Today house prices in places like San Francisco and Los Angeles are three or more times higher, when adjusted for income, than most other metropolitan areas. For most new buyers, such areas are becoming what Fischel calls “exclusionary regions” for all but the most well-heeled new buyers.

The biggest impact from regulation has been to diminish the supply of housing, particularly single-family homes. In a recent examination of permits across the nation from 2011 to 2014 for Forbes, we found that California regions lag well behind the national average in terms of new housing production, both multi-family and single family. Houston and Dallas-Fort Worth, areas with less draconian regulations, have issued three times as many permits per capita last year. Overall California’s rate of new permits is 2.2 per 1000 while across the Lone Star state the rate was nearly three times higher.

In the “exclusionary regions” along both coasts, high land prices have made it all but impossible to build much of anything except luxury units. In Manhattan this has taken the form of high-rise towers that have been gobbled by the rich, including many foreigners, but this new construction has done little to make New York affordable for most residents. Between 2010 and 2015, Gotham rents increased 50 percent, while incomes for renters between ages 25 and 44 grew by just 8 percent.

Making of Two Americas

Real estate inflation is redefining American politics and could eventually transform the nature of our society. In the dense, increasingly “kiddie-free zones” around our Central Business Districts (CBDs), according to 2011 Census figures, children between ages 5 and 14 constituted about 7 percent of the population, less than half the level seen in newer suburbs and exurbs. The common habitués of these high-cost, high-density urban areas—singles and childless couples—have emerged, according to Democratic pollster Stan Greenberg, as key elements of the progressive coalition.

The bluer the city, generally, the fewer the children. For example, the highest percentage of U.S. women over age 40 without children—a remarkable 70 percent—can be found in Washington, D.C. In Manhattan, singles make up half of all households. In some central neighborhoods of major metropolitan areas such as New York, San Francisco, and Seattle, less than 10 percent of the population is made up of children under 18.Perhaps the ultimate primary example of the new child-free city is San Francisco, home now to 80,000 more dogs than children, and where the percentage of children has dropped 40 percent since 1970.

In contrast, familial America clusters largely in newer suburbs and exurbs, and increasingly in the lower-cost cities in the South, the Intermountain West, and especially in Texas. Overall—and contrary to the bold predictions of many urbanists—suburban areas are once again, after a brief slowdown, growing faster than the urban cores.

America remains a suburban nation. Overall, 44 million Americans live in the core cities of America’s 51 major metropolitan areas, while nearly 122 million Americans live in the suburbs. And this does not include the more than half of the core city population that live in districts, particularly in the Sunbelt, that are functionally suburban or exurban, with low density and high automobile use.

The Geography of Inequality

Inequality may be a big issue among urban pundits, but, ironically, inequality is consistently more pronounced in larger, denser cities, including New York, Los Angeles, and San Francisco. Manhattan, the densest and most influential urban environment in North America, exhibits the most profound level of inequality and the most bifurcated class structure in the U.S. If it were a country, New York City overall would have the 15th-highest inequality level of 134 countries, according to James Parrott of the Fiscal Policy Institute, landing between Chile and Honduras.

In our core cities in particular, we are seeing something reminiscent of the Victorian era, when a huge proportion of workers labored in the servile class. Social historian Pamela Cox has explained that in 1901 one in four people, mostly women, were domestic servants. But is this—the world portrayed in shows such as Downton Abbey and Upstairs Downstairs—the social norm we wish most to promote?

In contrast, research by the University of Washington’s Richard Morrill shows that suburban areas tend to have “generally less inequality” than the denser areas. For example, in California, Riverside-San Bernardino is far less unequal than Los Angeles, and Sacramento less so than San Francisco. Within the 51 metropolitan areas with more than 1 million in population, notes demographer Wendell Cox, suburban areas were less unequal (measured by the Gini coefficient) than the core cities in 46 cases. And overall the poverty rate for cities is close to 20 percent, almost twice that of suburban areas.

The differential of housing cost accounts for much of this disparity. High housing prices tend to stunt upward mobility, particularly for minorities. One reason: The house remains the last great asset of the middle class. Homes represent only 9.4 percent of the wealth of the top 1 percent, but 30 percent for those in the upper 20 percent and, for the 60 percent of the population in the middle, roughly 60 percent. The decline in property ownership threatens to turn much of the middle class into a class of rental serfs, effectively wiping out the social gains of the past half-century.

The Geographic Shift

High housing prices are also rapidly remaking America’s regional geography. Even areas with strong economies but ultra-high prices are not attracting new domestic migrants. One reason is soaring rents: According to Zillow, for workers between 22 and 34, rent costs claim upwards of 45 percent of income in Los Angeles, San Francisco, New York, and Miami compared to less than 30 percent of income in cities like Dallas and Houston. The costs of purchasing a house are even more lopsided: In Los Angeles and the Bay Area, a monthly mortgage takes, on average, close to 40 percent of income, compared to 15 percent nationally.

This is leading to a renewed shift even among educated millennials to such lower-cost regions as Atlanta, Orlando, New Orleans, Houston, Dallas-Fort Worth, Pittsburgh, Columbus, and even Cleveland. As millennials enter their 30s and seek to buy houses, these changes are likely to accelerate.

Millennials may be staying in the city longer than previous generations, but their long-term aspirations remain fixed on buying a single-family house. This trend will accelerate in the next few years, suggests economist Jed Kolko, as the peak of the millennial population turns 30. Faced with a huge student debt load, a weaker job market, and often high housing prices, millennials face tougher challenges than some previous generations, but retain remarkably similar aspirations.

Bringing Back Levittown

Clearly America needs a new approach to housing. Democrats may enjoy their strongest base in the cities, but many of their young constituents likely will end up in the suburbs, or will continue to move to smaller, less reflexively progressive cities. Finding ways to make suburbs more sustainable, both environmentally and for families, will have more long-term appeal than trying to eliminate their preferred way of life.

Some attempts to force developers to build low-income units have, if anything, worsened the situation by discouraging new production while actually boosting prices for the vast majority. In some cases, as in New York City, the forced construction of low-income units in otherwise market-rate buildings has resulted in such absurdities as the so-called “poor door,” through which low-income residents, who are denied most of the amenities offered to wealthier residents, must enter.

Republicans too may need to change their tune. As suburbs become more multi-cultural, and dominated by millennials, the GOP will have to embrace some of the environmental and social priorities of the new residents. They also have to realize that middle-class homeowners do not always share the same interests as Wall Street investors. Under the current regulatory regime, slavish adherence to the ambitions of big investors could undermine the dispersed ownership culture, replacing it with one primarily rental-based, even in single-family homes. Essentially this could transform large areas, including suburbs, into far less socially stable areas, particularly for families.

One potential solution would be to draw on the successful policies enacted after World War II. At that time, the nation suffered a severe housing crisis as servicemen returned from the war. The solution combined governmental activism—through such things as the GI Bill and mortgage interest deductions—with less regulatory control over development. The result was a massive expansion of the country’s housing stock, and a dramatic increase in the level of homeownership.

Bringing back the Levittown approach would require jettisoning ideological baggage that now accompanies the contemporary discussion about housing. Libertarians tend to favor loosened regulations—something welcome indeed—but seem to have less than passionate interest in addressing the housing interests of working- and middle-class Americans. As we saw in the late ’40s, at least some government support for affordable housing is critical to expanding ownership.

But increasingly the worst influence on housing stems from the proclivities of contemporary progressivism. Whereas earlier Democratic presidents, from Roosevelt and Truman to Johnson and Clinton, strongly supported suburban single-family growth, contemporary progressives display an almost cultish bias toward the very dense, urban environment. The fact that perhaps at most 10 to 20 percent of Americans prefer this option almost guarantees that this approach would be unacceptable to the vast majority.

How we deal with the housing crisis will shape our future, and will largely determine what kind of nation we will become. Although some developers outside the coastal areas are trying to revive smaller “starter homes,” at least in more reasonably priced markets, this may prove all but impossible to accomplish in “exclusionary regions” unless there is serious change.

Following our current path, we can expect our society—particularly in deep blue states—to move ever more toward a kind of feudalism where only a few own property while everyone else devolves into rent serfs. The middle class will have little chance to acquire any assets for their retirement and increasingly few will choose to have children. Imagine, then, a high-tech Middle Ages with vast chasms between the upper classes and the poor, with growing dependence—even among what once would have been middle-class households—on handouts to pay rent. Imagine too, over time, Japanese-style depopulation and an ever more rapidly aging society.

Yet none of this is necessary. This is not a small country with limited land and meager prospects. A bold new approach to housing, including the reform of out of control regulations, could restore the fading American dream for tens of millions of families. It would provide the basis for a greater spread of assets and perhaps a less divided—and less angry—country. Rather than waste their time on symbolic issues or serving their financial overlords, candidates in both parties need to address policies that are now undermining the very basis of middle-class democracy.

This piece originally appeared at The Daily Beast.

Joel Kotkin is executive editor of NewGeography.com. He is the Roger Hobbs Distinguished Fellow in Urban Studies at Chapman University and executive director of the Houston-based Center for Opportunity Urbanism. His newest book, The Human City: Urbanism for the rest of us, will be published in April by Agate. He is also author of The New Class Conflict, The City: A Global History,
and The Next Hundred Million: America in 2050. He lives in Orange County, CA.

Photo by cinderellasg.

Millennials Heed the Siren Call of Socialism

Sun, 02/07/2016 - 21:00

The biggest story this election season is not Donald Trump or the fortunes of the two winners in Iowa, the unattractive tag team of Ted Cruz and Hillary Clinton. For all their attempts to seem current and contemporary, these candidates – and Trump as well – represent older, more established elements in American life, such as evangelicals, nativists and, in Hillary’s case, the ranks of middle-age women, seniors and public-sector unions.

The biggest and most important development has been the massive support among the new generation of voters for Vermont Sen. Bernie Sanders and his open embrace of socialism. In Iowa’s Democratic caucuses, which ended with Clinton and Sanders in a virtual tie, young people opted for Sanders at an almost inconceivable rate of 84-14. In 2008, Barack Obama won this segment, claiming only a 57 percent majority.

So we are seeing the embrace of an openly socialist septuagenarian by a generation that, within a decade, will dominate our electorate and outnumber baby boomers as soon as 2020. That should put more conventional politicians, and business, on notice. Whether you are a Republican, a free-marketer or, even a Democratic-leaning crony capitalist, be afraid – be very afraid.

Timing right?

For the first time since labor leader and presidential candidate Eugene Debs in the early 20th century, Americans are flocking in big numbers to a politician who rejects the efficacy of capitalism and seeks to create a new, notionally fairer, system. Now, as then, the reason to support socialist ideas – some of which were implemented during the New Deal – lies with the palpable failures of capitalism. Polls of millennials show consistently that economic issues, such as jobs and college debt, are their dominant concerns.

Read the entire piece at The Orange County Register.

Joel Kotkin is executive editor of NewGeography.com and Roger Hobbs Distinguished Fellow in Urban Studies at Chapman University, and a member of the editorial board of the Orange County Register. He is also executive director of the Houston-based Center for Opportunity Urbanism. His newest book, The New Class Conflict is now available at Amazon and Telos Press. He is also author of The City: A Global History and The Next Hundred Million: America in 2050. He lives in Orange County, CA.

Bernie Sanders photo by Michael Vadon [CC BY-SA 2.0], via Wikimedia Commons.

 

Super Bowl: Super Subsidy Sunday

Sat, 02/06/2016 - 11:43

Imagine what it would cost to fly from New York to Los Angeles if the country tolerated a National Airline League? Answer: about what a “personal seat license” will cost at the new City of Champions Stadium in Los Angeles, say $28,000.

In the latest shifting of NFL deckchairs, the League raided St. Louis, San Diego, and Oakland — cities that need things to cheer about — and told team owners that they are free to move to Los Angeles, the city of tomorrow, because of its willingness, today, to chip in on the construction of a $2.66 billion stadium in Inglewood, a city within Los Angeles, for the Rams and possibly the Chargers. Around the opulent new stadium the league will even have an NFL campus, maybe for all those 'communications majors' who play in the game?

Rather than take subsides on its construction bonds, the new LA stadium prefers to limit its local taxes until “costs are amortized.” That way it can boast: “No tax dollars or public funding will be used for the construction of the City of Champions Revitalization Project, including the new stadium.” The operative phrase is “for the construction.” Afterwards, the football depletion allowance will kick in, big-time.

The reason that the National Football League can move around its franchises is because Congress, in the Sports Broadcasting Act of 1961, deemed professional football a sacred national resource and conferred an exemption from anti-trust rules on the manufacturers of professional football.

Instead of running a sport where there is no limit on teams or competition, the NFL is the pigskin equivalent of OPEC, and its main function isn’t to govern a league of competitive teams, but to protect monopoly pricing and practices.

The National Football League runs on backhand payments to athletic organizations, sweetheart contracts, and monopoly pricing, in addition to screwing over its fan base by moving teams around. Its reward for urban price fixing isn’t prosecution for collusion under antitrust laws (it is exempt). Instead, it is awarded a national day of reverence, Super Sunday, during which 30 seconds of ad time costs $5 million, and the strategic national stockpile of guacamole is severely threatened.

The owners don’t actually own teams, but are general partners in a football trust, which allows them to share equally in all television revenues and collectively 'bargain' with concussed players, who are only free agents after five years of indentured service. By then, most are broken men. The league's attitude toward the declining mental of health of its retired players could be summarized as “So sue me”.

Yes, a few stars make big money, for a while, but teams are rarely on the hook for long-term guaranteed contracts and salaries are “capped,” they say, “in the interest of competition.”

Although NFL teams wave the flags of their home cities (best understood as their allocated captive markets), hometown fans have no sway over their local teams, which can pack up their pads in the night and move, as long as the new location is authorized by the League.

Nevertheless, St. Louis will still get the pleasure of paying off $100 million in outstanding debt on the Rams’ Edward Jones stadium, even though the team will be playing in LA.

What keeps NFL teams constantly on the move? Promises of state and city subsidies for new, multibillion stadiums, and then the granting of nearly all local revenues to the owner.

The new Santa Clara stadium, home to the hype of Super Bowl 50, has $950 million in hidden public finance, even though while the deal was being made the city was laying off teachers and firefighters.

According to Stadium Subsidy Trickle-Down Economic Theory, a new NFL stadium helps to 'revitalize' some downtrodden city. In reality, stadiums add little to urban life other than mountains of debt and part-time jobs for Sunday ushers and parking lot attendants.

The reason that NFL teams do little for their home cities is that the league’s economic model is akin to strip mining or wildcat drilling. Unlike coal or natural gas, though, the price of the harvested commodity is controlled at the league’s head office, although still for the benefit of absentee landlords. National revenues are shared, while local revenues flow into the pockets of the team’s owner, often a billionaire.

If, instead of a football trust, the US had an open market for gridiron services, when there was a demand in a growing city for a pro team tryouts would be held for players, and shareholders would gather to invest in the new franchise. Maybe when the franchise got good enough, it could compete with more established teams.

Think about it: if the city of Green Bay (population about 104,000) can support a championship team which is owned by the fans, it means that there are 278 larger cities in the country that could well duplicate its model and host professional football. Instead, only 31 other cities have pro teams, thanks to the league’s attitude toward parity and level playing fields. Metropolitan areas with populations greater than two million that don’t have a team include San Antonio, Las Vegas, Portland (Oregon), and Orlando, St. Louis and, possibly soon, San Diego and Oakland. Many other large American cities could easily support three or four professional teams.

All that these outlier cities can do to get a franchise is to promise the NFL ownership monopoly stadium subsidies and political tolerance for continuing the anti-trust exemption. Cities that want to keep their teams (such as San Diego) can pay ransom money in the form of a new, subsidized stadium and other favors. Challenge this payoff system and the league will vote away your team faster than you can say antidisestablishmentarianism.

The irony of Los Angeles now becoming the holy grail of two, or even three football teams is that, in the past, the city has had several franchises —ironically, the Rams, Chargers, and Raiders — and all left because the fan base preferred the beach and the Lakers to Sunday afternoons in the archaic LA Memorial Coliseum.

What has changed since Sid Gilman coached the Los Angeles Chargers in 1960 is that shared NFL television contracts make it irrelevant whether fans show up or not for the in-studio fan game experience, although generally most stadiums sell out.

What of the cities that have ransomed their future to an NFL team? How have they fared? Just because Forbes Magazine values pro football franchises at between $2 and $3 billion does not mean that the citizenry sees much benefit from having a team.

For example, the Hackensack Meadowlands Giants are now said to be worth $2.8 billion, but New Jersey taxpayers are still paying interest on the old Giants Stadium, where the end zone was rumored to be Jimmy Hoffa's resting place, and which was torn down so that a new stadium could be built in its place (“without public money”).

Most cities get a paltry rental stream from their subsidized ballparks, and that’s it. From the Seahawks, owned by Microsoft bigwig Paul Allen, Seattle gets $1 million a year in stadium rental income, while the team rakes in more than $200 million. And state taxpayers are on the hook for some $300 million in outstanding CenturyLink stadium bonds. (The 12th man abides.)

No wonder Allen’s $160 million yacht has been out tearing up the coral reefs of the Caribbean. Even to Hoffa, that red zone opportunity would be worth some dabbin’.

Matthew Stevenson, a contributing editor of Harper’s Magazine, is the author most recently of Remembering the Twentieth Century Limited, a collection of historical travel essays, and Whistle-Stopping America. His next book, Reading the Rails, will be published in 2016. He went to his first professional football game in 1960, and saw the New York Titans plays the Dallas Texans. He lives in Switzerland.

Flickr photo by Mike Morbeck: Cam Newton of the Carolina Panthers

Demographics and Commodities Crash Slowing Growth of Poorer Countries

Wed, 02/03/2016 - 21:38

Changing demographics and the commodities crash have slowed down the development of poorer countries.

Perhaps it all started with a turn in China’s demographics. Demand growth for commodities has declined sharply from recent years and has resulted in a crash of global prices. Copper is down 54% from its post 2008 peak and down 25% this year alone. Crude oil is down 67% and 39% in the same time spans. In addition to softer demand, prices were negatively impacted by jumps in supply, most notably from shale energy producers in the United States.

Impact of the 2011-15 Commodities Crash

If this massive price correction tells us anything, it is that the world is looking more vertical again. Aspiring economic powers of two or five years ago are grappling with the recessionary effects of lower prices for oil, natural gas, copper, iron ore and nearly every other commodity. If, per Warren Buffett’s impeccable quip, “you don’t know who is swimming naked until the tide goes out”, the commodities tide has gone out of the emerging markets boom and many were haplessly exposed in the raw.

Swimming naked in this context means an economy that was overly dependent on one or two drivers of growth. In the case of Russia, it was too dependent on energy. Brazil, too dependent on copper, iron ore and other commodities. And in both cases, not enough effort was made to diversify the economy and to implement needed reforms during the good times. The curse of cyclical wealth is that in good times, there seems to be no compelling reason for reforms. Why tinker with something that appears to be working? And in bad times, it is more difficult to implement those same reforms. Why create even more uncertainty in a time of uncertainty?

(click table to enlarge)

Leo Abruzzese of the Economist Intelligence Unit writes that “in 2016 rich countries will account for their largest share of global growth in this decade.” The EIU estimates that the eight largest rich economies will contribute 43% of global growth, while the eight largest emerging markets contribute 34%. These are respectively the highest and lowest shares in several years and they represent a big reversal from 2013 when the rich eight contributed 31% of global growth and the emerging eight as much as 47%. See chart in this article.

Among the flag bearers of emerging markets, Russia has suffered a crisis and a recession caused by the decline of energy prices and some foreign sanctions imposed during the Ukraine conflict. As shown in the table, Russia’s compound average real GDP growth has slowed from 6.1% in 2001-05, to 3.5% in 2006-10 and to 1.4% in 2011-15. The more recent two five-year periods both include a crash in the price of oil from over $100 to less than $40. The economy is expected to contract 2.7% this year. Russia’s problems are partly due to demographics because its population is shrinking and its dependency ratio is rising. But other reasons for the slowdown include a dearth of innovation and a business climate which discourages inward investment.

China’s impressive real GDP growth printed at or near double digit annual rates for the entire decade 2002-11 but this growth has tapered starting in 2012 to an estimated 7.1% in 2015 and probably lower next year. As discussed here, China managed to capture a very large demographic dividend thanks to sound policymaking that encouraged trade and investment. But its dependency ratio has now bottomed and started to climb. In response, China can avoid a prolonged decline by adopting reforms that encourage innovation and investment.

Brazil is in the midst of a contraction made worse by corruption scandals at leading companies such as Petrobras and BTG Pactual. The demographic picture is mixed but there will be little to cheer about before reforms are enacted to reduce corruption and encourage investment. The alternative is to wait for the next commodity bull market but this could take years to materialize.

India looks best among the BRIC countries in part due to its more favorable demographics and to the promise of accelerated reforms under prime minister Modi. We discussed India’s demographics and the prospects for investments and legislative reforms in previous posts here and here.

Outside of the BRIC countries, countries with favorable demographics could over time pick up the torch and lead a revival of emerging markets. These include Pakistan, Indonesia, the Philippines, Nigeria and other countries of sub-Saharan Africa. Because of its booming working-age population, Africa holds the most promise but also presents the biggest challenge. See previous posts on Africa discussing policymakingeducationdemographicstrade and infrastructure.

“Science is the Cause”

Meanwhile, the immediate result of the emerging market slowdown is that we are now at some distance from the optimistic visions put forth by, among others, Thomas Friedman in The World is Flat: A Brief History of the Twenty-First Century (2007) and Fareed Zakaria in The Post-American World and the Rise of the Rest (2009), books that trumpeted the rise of emerging markets economies in the 21st century. Zakaria summed it up in a supporting Newsweek article:

It is an accident of history that for the last several centuries, the richest countries in the world have all been very small in terms of population. Denmark has 5.5 million people, the Netherlands has 16.6 million. The United States is the biggest of the bunch and has dominated the advanced industrial world. But the real giants—China, India, Brazil—have been sleeping, unable or unwilling to join the world of functioning economies. Now they are on the move and naturally, given their size, they will have a large footprint on the map of the future.

This quote is full of peremptory élan but it deserves to be examined in some detail because in my view, it reveals the main error in the author’s thesis and blurs the corrective factors that now require our attention. After all, how robust was this vision of the “Post-American world” if a very predictable cyclical downturn in commodity prices is sufficient to put it on hold and defer it for years? Contrast Zakaria’s thought with the following excerpt from Winston Churchill’s speech Fifty Years Hence in 1931:

When we look back beyond a hundred years over the long trails of history, we see immediately why the age we live in differs from all other ages in human annals. Mankind has sometimes travelled forwards and sometimes backwards, or has stood still even for hundreds of years. It remained stationary in India and in China for thousands of years. What is it that has produced this new prodigious speed of man? Science is the cause. Her once feeble vanguards, often trampled down, often perishing in isolation, have now become a vast organized united class-conscious army marching forward upon all the fronts towards objectives none may measure or define. It is a proud, ambitious army which cares nothing for all the laws that men have made; nothing for their most timehonoured customs, or most dearly cherished beliefs, or deepest instincts. It is this power called Science which has laid hold of us, conscripted us into its regiments and batteries, set us to work upon its highways and in its arsenals; rewarded us for our services, healed us when we were wounded, trained us when we were young, pensioned us when we were worn out. None of the generations of men before the last two or three were ever gripped for good or ill and handled like this.

Zakaria emphasized demographics while Churchill focused on the importance of science and innovation. Both are key components of growth. Some European countries such as Denmark and the Netherlands may not weigh much demographically but their contributions to the advancement of science and philosophy easily exceed those emanating from many populous nations.

As often discussed on this page, demographics are an important driver of the economy, but they are only one of several important drivers, the others being innovation, productivity, health, governance and institutional strength. Demography is not destiny but it is a part of destiny. It cannot alone deliver sustainable economic growth and it can at times impact the economy adversely. In the present case, a turn in demographics is one of the reasons for China’s slowdown and the resulting fall in commodity prices.

It is true that China, India and to a lesser extent Brazil are demographic giants. But it does not follow that their economic progress was unnaturally held back for centuries, while diminutive populations raced ahead due to a temporary fluke of history. Those smaller populations had innovation and a conducive context going for them. In order to be sustainable beyond one economic cycle, or even one economic super cycle, strong growth requires innovation, reliable institutions, good governance, political plurality and low corruption.

It is still early in the century, but for now, the rise of the rest seems to have stalled. The questions going forward are: is this merely a pause in the development of poorer nations or is it the beginning of an unfortunate reversal? What can be done to build upon the past boom and to put these nations and others back on the growth trajectory?

Sami Karam is the founder and editor of populyst.net and the creator of the populyst index™. populyst is about innovation, demography and society. Before populyst, he was the founder and manager of the Seven Global funds and a fund manager at leading asset managers in Boston and New York. In addition to a finance MBA from the Wharton School, he holds a Master's in Civil Engineering from Cornell and a Bachelor of Architecture from UT Austin.

Shanghai photo by flickr user Sprengben.

Chicago Is Winning the Battle for the Executive Headquarters

Tue, 02/02/2016 - 21:38

The corporate headquarters used to be the primary measure of a city’s economic clout. Saskia Sassen, while not ignoring headquarters, documented how in the age of globalization, the resurgence of the global city was driven by demand for financial and producer services, not more and bigger HQs. As she pointed out in her seminal book The Global City, “Major cities such as London, New York, and Chicago have been losing top ranked headquarters for at least three decades.” Yet despite this they were coming back strong.

Back in 2008, I started observing a shift in the marketplace in which corporate HQs were relocating back to the city. But this wasn’t a traditional monolithic HQ, but rather a reconstituted, smaller version consisting of only the most senior people that I call the “executive headquarters.”

Crain’s Chicago Business has a major feature this week investigating the executive headquarters trend as it is playing out there. They point out that these HQs make for great headlines, but they don’t necessarily result in that many jobs.

ADM is Exhibit A in the rise of a new type of corporate headquarters, one that arrives from afar but packs light. These headquarters represent the pinnacle of the corporate pyramid, snapped off and relocated, free of jobs tied to operations and often midlevel HQ functions such as payroll, human resources or purchasing. To be sure, migrating headquarters offer benefits to the city: They boost demand for business services, their executives join the philanthropic scene and, of course, they confer bragging rights. But in terms of jobs, the farther a company travels to set up shop in Chicago, the fewer people come with it.

“The notion of the corporate headquarters in the ‘Mad Men’ world when there were hundreds or thousands of people in a building with the company logo . . . those days are gone,” says David Collis, a professor at Harvard Business School who studies corporate headquarters.

Click through to read the whole thing, which features me and my work on the topic. This is an important trend to grapple with.

The bad news, which the Crain’s piece highlights, is that the headquarters ain’t what it used to be. On the other hand, Chicago is winning the battle for them.  These smaller executive headquarters, particularly for major global businesses, benefit from being in a global city. Chicago has lured a number of these from out of town. In line with Sassen’s findings that the “deep economic history of a place” matters, note that we see a lot of agro-industrial firms choosing Chicago: ADM, Con Agra, Mead Johnson Nutrionals, Oscar Mayer.  This industry space is where Chicago has a major advantage over New York and other coastal cities.

A trend I see playing out, and which I am currently researching in more detail, is the bifurcation of HQ attraction. For executive headquarters of global firms, and for companies that are looking for an urban location, Chicago is reasserting its dominance as the interior business capital. But for those who prefer a suburban environment, or which maintain a mass employment HQ, the Sunbelt remains strong, especially Dallas, where Toyota is a building its North American campus. Dallas replicates many of Chicago’s non-urban advantages at lower cost and with a more suburban feel: central location and time zone, a major airport, a diverse economy, and scale. Increasingly it looks like Chicago is the urban interior capital, Dallas the suburban interior one. Stay tuned for more on this in the future.

Aaron M. Renn is a senior fellow at the Manhattan Institute and a Contributing Editor at City Journal. He writes at The Urbanophile, where this piece originally appeared.

Chicago photo by Bigstock.

Serfs Up with California's New Feudalism

Mon, 02/01/2016 - 21:38

Is California the most conservative state?

Now that I have your attention, just how would California qualify as a beacon of conservatism? It depends how you define the term.

Since the rise of Ronald Reagan, most conservatives have defined themselves by pledging loyalty to market capitalism, supporting national defense and defending sometimes vague “traditional” social values. Yet in the Middle Ages, and throughout much of Europe, conservatism meant something very different: a focus primarily on maintaining comfortable places for the gentry, built around a strong commitment to hierarchy, authority and a singular moral order.

Until recently, modern California has not embraced this static form of conservatism. The biggest difference between a Pat Brown or a Reagan was not their goals – greater upward mobility and technical progress – but how they might be best advanced, whether through the state, the private sector or something in-between. Under both leaders, California evolved into a remarkable geography of opportunity.

In contrast, California’s new conservatism, often misleadingly called progressivism, seeks to prevent change by discouraging everything – from the construction of new job-generating infrastructure to virtually any kind of family-friendly housing. The resulting ill-effects on the state’s enormous population of poor and near-poor – roughly-one third of households – have been profound, although widely celebrated by the state’s gentry class.

Read the entire piece at The Orange County Register.

Joel Kotkin is executive editor of NewGeography.com and Roger Hobbs Distinguished Fellow in Urban Studies at Chapman University, and a member of the editorial board of the Orange County Register. He is also executive director of the Houston-based Center for Opportunity Urbanism. His newest book, The New Class Conflict is now available at Amazon and Telos Press. He is also author of The City: A Global History and The Next Hundred Million: America in 2050. He lives in Orange County, CA.

Photograph: Great Seal of the State of California by Zscout370 at en.wikipedia [CC BY-SA 3.0],from Wikimedia Commons

Discount Airlines: The Cheap Seats Challenge

Sun, 01/31/2016 - 21:08

Market forces in the airline business are, for the moment, a battle between state-owned carriers like Alitalia and Aeroflot, and start-up discounters like Ryanair and AirAsia. The conflict between state monopolies and under-capitalized start-ups is a perfect metaphor for the economic debates over subsidies and competition that divide much of the industrial world in America, Europe, and Asia. When my dreams come true, carriers like these will encircle the globe with two-hour, $49 short-hop flights.

With the Internet marketing sky-high seats in real time, travel pricing has become an endless bazaar. Airborne seats are one futures market that everyone understands. For the moment, there’s no clear winner in these fare/service battles, although many state airline companies are functionally bankrupt. The monopolists fly the latest jets and check bags without ransom payments, while the discounters, going nearly everywhere (Pristina, Erbil, Kochi, and Perth are among their many stops), find leg room, hungry passengers, and reclining seats annoying.

For now, don’t expect the large airlines to cave in to the budget carriers. Competitive round-the-world tickets, using established airlines, can be found for about $1500-2000, although only for about $3000 can you visit all the places that may interest you and still move around the world.

Is it possible to travel around the world using only one-way, discount airlines? To try, I would start by heading east — from my home in Switzerland — to Dubai or its suburb, Sharjah, a hub of low-cost carriers. Wizz Airlines, an Eastern European carrier, can get me there for less than $100, although it means a connection in Cluj-Napoca, the capital of Transylvania.

For a little more money, I could trade my Romania stopover for Istanbul’s Sabiha Gökçen International Airport (way out of town), and get to the Persian Gulf on Pegasus, a Turkish low-cost airline that links Europe to the Middle East; use it to get to Baku, Tehran or Turkish Cyprus.

From Dubai, the trick is to find a Middle Eastern budget airline — Air Arabia and flydubai are two of my preferred magic carpets — that overlaps with the vast network of Asian low-cost carriers, which include, among many others, Air Asia, Cebu Pacific, and Jetstar.

India and Sri Lanka offer a few of the “crossover airports,” where I could change, say, from flydubai ($120 to Colombo) and enter Air Asia’s low-cost paradise ($80 to go on to Kuala Lumpur).

Fortunately, nearly every Asian country — especially India, Malaysia, Singapore, Hong Kong, South Korea, Australia, and the Philippines — is a discount hub. For less than $300 it is easy to go from Delhi to Japan on lines such as Tiger, Vanilla, IndiGo, and Lion. You will have to change somewhere, but that provides a chance to stretch cramped legs or visit Chittagong.

It is somewhere way east of Suez that my round-the-world discount dreams start to blur.

The Pacific Ocean does not lend itself to puddle-jumping airlines. The only 'local' among the long-haul trans-Pacific flights is United Airlines #155, which in leisurely fashion connects Guam (get there on Cebu Pacific for pocket change) to Honolulu, with stops in Truk, Pohnpei, Kosrae, Kwajalein, and Majuro, atolls that the Marines liberated in World War II.

Air Micronesia (affectionately “Air Mike”) used to fly this mail run across the central Pacific, but that carrier became Continental and now is part of United, which no one will ever confuse with a low-cost carrier. As best as I can determine, just to fly from Guam to Honolulu on the island hopper would cost about $1500, which is a lesson in monopoly pricing.

Without a discount airline to get across the Pacific, the only option is to search for one-way tickets on established airlines, which sometimes offer fares for about $400 to $500.

Technically, these airlines are not discounters and many of the cheap trans-Pacific fares involve cumbersome changes en route; low-fare-paying customers are routed on emptier flights. Some Pacific layovers are for about nineteen hours in places like Wuhan or Incheon.

Once you are in Los Angeles or San Francisco (LAX is the cheaper option), it’s easy to embrace the discount networks of JetBlue ($159 in mid-January) or Southwest ($147) to hop across the United States.

One-way trans-Atlantic plane tickets are expensive. Generally, on the big carriers they cost the same as a round-trip tickets, sometimes more. To get home to Europe on a budget, my two best choices involve Scandinavia and Iceland.

Norwegian is a low-cost airline that has one-way flights for about $300 from New York to London Gatwick, Oslo and Copenhagen, and then connections into a wide European network.

The cheaper option is WOW, an Icelandic discounter that flies from Boston to the continent with a stop in Reykjavik (okay, you purists, Keflavik).

In mid-winter, WOW can take me across the Atlantic, although not back home to Geneva, for less than $200. To get home I would then be at the mercy of EasyJet, which is technically a low-cost airline but, to my mind, a full-cost baggage hauler, which charges crazy prices for checked luggage, with its rudeness toward paying customers thrown in for free.

On a direct line north of the equator, this trip might have cost me $1500, and would have taken me, depending on a few choices, through Romania (Cluj-Napoca), Dubai, Colombo (Sri Lanka), Malaysia (Kuala Lumpur), Seoul, Wuhan (China), Los Angeles, New York, Boston, Reykjavik, and Copenhagen. The total time in the air would have been about fifty hours.

For most of us it would be the trip of a lifetime, and it can be done for less than $1500, provided you are not checking a bag.

What could go wrong? The exposed flank in my travel plans is the Pacific Ocean. Only by plugging and playing with a lot of combinations of cities and dates can I find those one-way $400-500 fares. They only show up briefly on carriers such as Evergreen, Korean, or Air China, and just as quickly vanish.

Try as hard as I have, I cannot find a discount Russian airline, not even the alluring S7 or Yakutia, to make the land bridge from Siberia across the Bering Strait to Alaska. Even if I did get to Anchorage I would be out of luck finding a cheap airline to the lower forty-eight, except to Minnesota in mid-summer, on something called Sun Country.

Nor have I been able to find local airlines to take me across the South Pacific on, say, the path Ahab took in Moby-Dick. Fiji Airlines has some promise, but gouges whenever the opportunity arises. Jetstar, owned by Qantas, does make it possible to fly for relatively low cost between Cambodia and New Zealand. So, for now, the trans-Pacific discount trail grows cold after Fiji. Although I can think of worse places, including Cluj-Napoca, to run out of gas.

Matthew Stevenson, a contributing editor of Harper’s Magazine, is the author most recently of Remembering the Twentieth Century Limited, a collection of historical travel essays, and Whistle-Stopping America. His next book, Reading the Rails, will be published in 2016. He lives in Switzerland.

Flickr Photo by dreamcatcher-68: Wizz Air HA-LWF Airbus Z320-232.

The Politics Of The Next Recession: How A Bust Could Impact The 2016 Elections

Fri, 01/29/2016 - 21:38

In this hyper-political age, perceptions about virtually everything from the weather to the Academy Awards are shaped by ideology. No surprise then that views on the economy and its trajectory also divide to a certain extent along partisan lines.

How the public perceives the economy will have a major impact on this year’s elections. That most are already discouraged cannot be denied;  the negative sentiment has propelled the rise of such seemingly marginal political figures as Donald Trump and Bernie Sanders. But will the economy prove a bother to the Democrats?

A lot depends on where you live and what you do. Much of the country is not doing so well; despite a strong two-year run in job creation, some 93 percent of U.S. counties still have not gained back all the jobs that they lost in the Great Recession, according to the National Association of Counties.

Yet many liberals believe the economy is shipshape. Paul Krugman, the progressive economist, hails the “Obama boom,” citing rising employment, some slight income gains and, at least until recently, a soaring stock market.

Krugman and others point to California, the epitome of true-blue virtues, as having what one progressive journalist calls a simply “swell” economy. Rarely mentioned is the fact that, for the past two decades, the state’s economy has more often underperformed national averages.

More serious still, the same state that boasts Silicon Valley also suffers the highest poverty rate in the nation. Overall nearly a quarter of Californians live in poverty, the highest percentage of any state, including Mississippi. According to a recent United Way study, close to one in three is barely able to pay their bills.

A slowing economy and weak stock market, in contrast, does offer some solace to Republicans, who clearly see a political opportunity. Even at its best, this has been a slow growth recovery and while the official unemployment rate has improved sharply, labor participation rates remain depressed by historical standards. Millions of young people remain in their parent’s homes as opposed to engaging the economy, buying homes, and getting onto adulthood.

The End Of The Asset Boom

America may not be in as bad shape as Republicans and conservatives like to insist. Certainly compared to Europe or Japan, we’re in great shape. While some doubt weakness in China really poses a danger to the U.S. – exports account for only 13% of U.S. GDP, after all, and China is not one of the largest markets for U.S. goods — David Stockman, among others, argues that China’s slowdown is due to a dangerous phenomenon that is present in the U.S. as well: a disastrous level of debt. Some Democratic economists like Larry Summers, as well as economic gurus such as Mohammed el-Erian, warn that we should at least prepare for the possibility of recession.

Certainly the China crisis threatens the trajectory of certain blue cities. Money from China and other parts of Asia has helped propel real estate markets in places like coastal California, New York and San Francisco. China has also been a major source of tourists and consumers for high-end electronic products that are at least designed and marketed here.

Similarly California’s tech boom also seems to have reached its apogee. The fact that Silicon Valley types have gotten rich appears to have done little for the average American, and done very little to improve productivity. With the market looking on with greater skepticism, several major players — Groupon, Yahoo, Twitter, for example — seem vulnerable. If a full scale bust is not imminent, a downturn in valuations, and likely employment, seems inevitable.

A slowdown in the Valley could place the blue bastions in an uncomfortable situation, exacerbating splits already evident in the Clinton-Sanders clash. The mega-profits enjoyed by sectors close to the Democrats, notably Silicon Valley, media and a large part of finance, have encouraged progressives to advance an ever more expansive, and expensive, liberal agenda. With billionaires stalking the streets of San Francisco, who could possible oppose a big boost in the minimum wage, family leave, massive transit projects and the provision of subsidized housing.

Progressives may detest the investor class that has gotten rich in the “Obama boom,” but they remain deeply dependent on them to finance their green and social agendas. California’s coffers have been filled in recent years largely by the huge rises in income and capital gains among the investor class, who are well represented in the Golden State. Similarly New York Mayor Bill de Blasio’s aggressive agenda for new housing and expansion of social programs depends largely on the continued looting of the economy by Wall Street.

The developing decline in asset values threatens the progressive agenda, and could set up a major battle between key progressive constituencies — rich liberals and those dependent on public sector spending. The fundamental incompatibility of ever-expanding pension liabilities and the provision of basic public services is becoming painfully clear in places like Chicago and Detroit, and smaller cities like San Bernardino and Stockton. More of blue America could join them if asset values continue to drop.

A nascent recession would almost certainly spark something of a civil war between the traditional left constituencies and the kind of business progressives one finds in Silicon Valley, Wall Street and the media industry. A first stage of this conflict is already emerging in California, where former San Jose Mayor Chuck Reed has been seeking to rein in the state’s unfunded $350 billion pension liability. Silicon Valley largely has backed Reed’s past efforts, which has elicited a fierce blow-back by the public employee unions and their political allies.

Blue And Red, Reinforced

A recession would change many things, but not enough to challenge Democratic dominance in California, New York and other parts of the “blue wall.” Unemployment could double and Hillary Clinton — perhaps even Bernie Sanders — could win these places in a walk. After all, Jerry Brown was elected and then re-elected when California’s economy was still struggling to recover. Theoretically, the cost of energy, the lack of water for farms, and a decaying infrastructure should provide an opening for Republicans, but as middle income families continue to move elsewhere, the shift to a single, childless, minority and immigrant demographic makes any successful GOP makeover all but impossible.

Instead of pushing them to the GOP, a recession could further radicalize the Democrats but not upset their control of dark blue states. But the deepening decline in the real tangible economy — energy, manufacturing, agriculture — could prove a boon to the GOP in much of the rest of the country.

Before the decline in oil prices many areas in the middle of the country enjoyed a gusher in energy jobs, providing high wage employment (roughly $100,000 annually, exceeding compensation for information, professional services, or manufacturing). Due largely to energy, states such as Texas, Oklahoma, North Dakota have enjoyed consistently the highest jobs growth since 2007, and were among the first states to gain back all the jobs lost in the recession.

Of course, tough times in red states like Texas, Oklahoma, Louisiana and North Dakota will only pad Republican gains. But there are other, contestable heartland states — Ohio and Pennsylvania, in particular — that also benefited from the expansion of fracking, which created whole new markets for manufactured products like pipes and compressors. Similarly, the administration’s directive to crack down on coal plants could be problematic for Iowa, Kansas, Ohio, Illinois, Minnesota and Indiana, which rank among those most reliant on coal for electricity. Not surprisingly much of the oppositionto the EPA’s decrees come from heartland states.

Right now virtually every Great Lakes state, except Illinois, enjoys unemployment rates below the national average and several, led by the Dakotas, Minnesota, Nebraska and Iowa, boast among the lowest in the nation.

But with energy, agriculture and manufacturing slowing down, the prospects for the middle of the country have turned increasingly sour. A manufacturing decline might not matter much to New York, where the sector accounts for barely 5 percent of state domestic product but industry accounts for 30 percent of the economy in Indiana, 19 percent in Michigan. If the current trends hold, the case for the “Obama boom” in this vast swath of America may be further weakened.

To the problems of regulation and market turbulence, manufacturing economies are also threatened by the rising value of the dollar, which threatens the Rust Belt’s prime exports and bolsters competitors, both in Europe and Asia. After all, manufactured goods are the leading export in much of the upper Midwest while food exports, also hard-hit by the hard dollar, dominate many Great Plains economies. In 2012, a recovering Rust Belt was critical to President Obama’s victory; a weakened industrial economy could make Republicans more competitive in the region, particularly if they nominate an electable candidate.

Will A Recession Create A New Politics?

Until the stock swoon, few commentators focused on the political implications of what very well may be an emerging recession. After all, if coal miners in West Virginia lose their livelihoods, it hardly effects the lifestyle of Capitol bandits a couple of hours away, and eliminating oil jobs in Bakersfield doesn’t cramp the style of tech moguls who don’t ever get their hands dirty. But with the stock market in sharp decline, the affluent may soon be feeling some of the angst felt by many middle and working class people during the “Obama boom.”

Indeed because President Obama’s policies are so identified with progressivism, a recession now could undermine support for his bank-friendly, super-green policies. The chimera of green jobs never had much reality, but low energy prices inevitably weaken the renewable sector. In times of asset inflation, losses on the farm, the factory, the mine or the drilling platform can be dismissed as part of “disruption” and progress, but what happens if other linchpins of the economy, notably tech and finance, begin to wobble as well?

If nothing else, a weaker economy will accelerate the increasingly populist tone of the Democratic Party, as epitomized by Senator Bernie Sanders’ remarkable rise. The kind of neo-liberalism epitomized by the Clintons rested on financial support from Wall Street, Silicon Valley and media companies. This support has become something of a liability for the former Secretary of State.

But the most important political impact of a slowdown or new recession, will be in the heartland, where elections are often won. Yet logic seems on a holiday in a Republican Party which seems to feed on resentment but produce little in the way of practical solutions. Indeed front-runners like Donald Trump and Ted Cruz thrive not by addressing economic growth but focusing instead on anxieties relating to immigration, Islamic terrorism and cultural change. Amidst an incipient recession, or at least a serious slowdown, after a weak recovery, Republicans should be able to make some gains, but to do so they have to give some glimmer of having the chops to turn the economy around.

Joel Kotkin is executive editor of NewGeography.com and Roger Hobbs Distinguished Fellow in Urban Studies at Chapman University, and a member of the editorial board of the Orange County Register. He is also executive director of the Houston-based Center for Opportunity Urbanism. His newest book, The New Class Conflict is now available at Amazon and Telos Press. He is also author of The City: A Global History and The Next Hundred Million: America in 2050. He lives in Orange County, CA.

Photo by Gage Skidmore [CC BY-SA 3.0], via Wikimedia Commons

 

The Digitally Connected City

Thu, 01/28/2016 - 21:38

We are witnessing an explosion in digital technology that is reshaping cities… and resulting in a fundamental shift in the way people move and interact within the built environment.

New innovations have always had a profound impact on the evolution of cities, supporting commerce as well as addressing lifestyles. Making sense of the prevailing trajectory requires a new paradigm for city residents, visitors and those who govern.

In recent times, computers and phones have become a must for navigating the vast ecosystem of urban options. New digital technologies support activities such as the ability to use forms of mobility other than cars. From digital apps such as RideScoutApp.com to local amenity rating services like Yelp.com, digital tools abound to guide both local residents and city visitors to where they want to go. These developments provide the backbone of sustainable economic development.

Public and private initiatives are deploying tech solutions to interests and demands. The AT&T Smart Cities Initiative, which is being rolled out in urban centers like Chicago, Atlanta and Dallas, is just one example of a tool for citizens to stay abreast of developments locally and regionally. For example, consumers can receive live updates on their phones if a traffic signal isn’t working. And they can remotely access information on parking meters to reserve a space in advance. In addition, transportation updates in the form of digital signage allow commuters to be advised in real-time of arrival and departure schedules. These digital tools also allow them to rent electric bikes at stations populated throughout these host cities.

The fuel for this movement? Rapid momentum in the deployment of high-speed Internet technology in cities and regions. This is the “juice” that fuels mobile technology adoption and the use of city-based apps, providing consumers with connectivity and the ability to have their data delivered fast. Leading the race in this push is Google Fiber, which is on board to offer warp speed Internet to a growing number of cities across the U.S., including Charlotte, Kansas City, Provo, Raleigh-Durham, Salt Lake City and San Antonio. While the full implications are still a ways off, it promises to serve as a lightening-rod of possibilities for igniting the new digital economy.

Google’s catalytic spark has created a groundswell of public/private interest in boosting the gigabit landscape of cities and regions. A prime example of this is in Longmont, Colorado which has created an experimental laboratory of sorts around what they have coined the GigaBit City. Called NextLight, this venture is a plan to deliver warp-speed broadband to local residents and business. Seen as an economic development game-changer for this city of nearly 90,000, located about 45 minutes northwest of Denver, it is scheduled to be available by 2016. And the monthly price, which is reported to be around $49, is destined to raise some eyebrows among intrigued city planners. Viewed as a quasi-public utility, the ultimate goal of the city is to provide the fastest-speed at the most affordable price of any city in the nation.

Greater access to reliable and fast Internet services allows city locals and visitors to efficiently navigate business and lifestyle options. It also helps citizens to engage more deeply with their communities and provide data-driven feedback on ways in which improvement can take place. Growing numbers of city governments are embracing the benefits as they bring more people online, which helps bridge the digital divide that often exists in their locales. While laws and compliance will always be the primary raison d'etre for public entities, there is a reason for optimism in their willingness to acknowledge and celebrate new technologies.

The key drivers of citizen engagement are phones and other mobile tools. Anthony M Townsend expresses this theme eloquently in his book, Smart Cities: Big Data, Civic Hackers, and the Quest for a New Utopia. He writes:

“We are witnessing the birth of a new civic movement, as the smartphone becomes a platform for reinventing cities from the bottom up. Every day, all across the globe, people are solving local problems by this increasingly cheap consumer technology… And smartphones are just the start - open government data, open-source hardware, cities of the future that are far smarter than any industry mainframe. And so, just as corporate engineers fan out to redesign the innards of the world’s great cities, they’re finding a grassroots transformation already at work. People are building smart cities much as we built the Web - one site, one app, and one click at a time."

The proliferation of phones and other mobile devices are the tipping point of a new digital normal for cities. Ridesharing tools like Uber and Lyft, community building sites like Meetup.com, dining apps like OpenTable.com, and even new digital currency apps like Airbitz.com open the door for civic engagement and local economic activity.

And what about access to power sources for these mobile devices? We’ve all had times when our phone batteries have gone dead, leading us to a frantic search and rescue mission for an electrical outlet. This is the reason why ChargeIt (chargeitspot.com) stations are becoming available in growing numbers of cities.

In the end, this mashup of tech infrastructure, consumer tools, and government engagement are fostering an exciting evolution in how we interact with our built environments. It signals the next wave of innovative solutions driving the connection between technology and the economic development of cities and regions.

Michael Scott is a Denver-based journalist specializing in disruptive themes fueling today’s emerging digital economy. More on his work can be found on his blog site, BITDisrupt.

Flickr photo by Adam Fagen: Texting Congress in support of medical research; Washington, D.C.

Live from Honolulu: HART Rail, a Megaproject Failure in the Making

Wed, 01/27/2016 - 12:15

Typically very few people pay attention to the goings on in the small state of Hawaii. How bad can possibly things get there? Well, a lot of people recall Boston’s Big Dig, the nation’s largest infrastructure fiasco with a final price tag of about $15 billion. What if I tell you that tiny Honolulu is building a rail system that’s expected to cost at least one-half the cost of the Big Dig? On a per-capita basis it would be the nation’s largest infrastructure fiasco by far.

Honolulu rail, managed by Honolulu Area Rapid Transit (HART), is a 1970s style 20 mile, all-elevated heavy-rail guideway with third rail power delivery and light rail-sized cars limited to about 650 passengers per two-car combination; it has an ability to run only up to four cars for peak period service. It is the worst design possible because it combines an intrusive and expensive infrastructure including 21 elevated stations, and a low passenger carrying capacity with over 60% of it as standing passengers.

Despite the preponderance of evidence that Honolulu’s rail will do little to mitigate the severe congestion on the island of Oahu, the project did garner marginal (50.6%) public support on a 2008 referendum. Despite a couple major lawsuits, it completed the Federal Full Funding Grant Agreement process in 2012.  Local political preference (e.g., why build a $1 Billion taxpayer project when you can get away with a $5 Billion project? … also known as “the gravy train”) stands among the major causes of this megaproject failure in progress.

What’s a megaproject failure? An infrastructure project that exhibits at least two out of three bad outcomes: 1) Large cost overruns, 2) Long project delivery delays, and 3) Much lower usage than forecast.  Well known megaproject failures include the Chunnel Tunnel/Eurotunnel that suffered all three failures, and Boston’s Big Dig that suffered failures 1 and 2 in a big way. Tren Urbano in San Juan, Puerto Rico is a peer project that HART rail will likely match in failure-to-meet-targets. Tren Urbano’s actual construction cost was 80% over the planned estimate, and its ridership has been only one quarter of what was projected! HART rail and Tren Urbano were planned by the same consultant (PB) and had the same oversight (FTA.)

At the end of 2015, five miles of the HART guideway, and the rail yard appear to be substantially complete. HART, the voter approved “independent authority” that runs the project with many of its budget strings controlled by the city council, claimed a 25% project completion in December 2015, although 15% is a more realistic estimate based on what has been physically constructed so far. Several segments and columns have suffered large cracks, concrete delamination and segment misalignment [1], and safety lapses were alleged at the Ansaldo rail yard [2]. In less than two years, the guideway construction company (Kiewit) submitted 40 work change orders and recently demanded a $20 million price adjustment. But this is nothing compared to the total escalation of cost figures.

First, let’s review some highlights of the project’s development between 2004 and 2015.

  • 2004: Newly elected mayor Hannemann asserts that 34 miles of rail will cost $2.7 Billion.
  • Mid-2006: Hannemann switches to the Minimum Operating Segment: 20 miles will cost about $3 B.
  • Late-2006: Alternatives Analysis sets the cost at $4.6 B (this figure and all figures below include FTA-mandated contingency funds).
  • Spring 2008: Hawaii legislature approves a 0.5% tack-on to Hawaii’s GET tax that applies to every transaction. Against expectations, Republican Governor Linda Lingle opted to save her political career and let the tax stand without a veto. The rail tax is expected to generate about $2 B. The gravy train has thus been established.
  • Summer 2008: Mayor Hannemann up for reelection gives a helicopter ride to Senator Oberstar who then says that the Feds will give Honolulu $900 M. Hannemann declares that “the train has left the station.”
  • 2009: President pro tempore Senator Inouye of Hawaii joins the rail party. FTA is strong-armed to pay $1.55 B.
  • 2010: The cost is up to $5.4 Billion not counting the error of locating an insufficient distance from an airport runway. A $150 M realignment is necessary to reroute the guideway one block over.
  • 2010: Outgoing Governor Linda Lingle releases an independent financial analysis of the project by IMG and Thomas Rubin which concluded that construction cost will likely be more than the $5.4 B projection, ridership projections were both very high and would require passenger loads significantly higher than that of any U.S. transit operator, future rail renewal and replacement costs were ignored, operating subsidies were significantly understated, and many projected revenues were significantly overstated.  Mayor Carlisle dismissed the report as “a product of rail opponents.”
  • 2011: Mayor Carlisle performs a “ceremonial groundbreaking” but only utility relocation occurs afterwards. The project still aims for a 2019 completion.
  • 2012: Both a National Environmental Policy Act (NEPA) and a Hawaiian burial ground desecration lawsuit are filed, the former in federal court the latter in state court. Only the second lawsuit causes minor construction restrictions in areas where archeological surveys had not been done.
  • 2012: Construction accelerates at the casting yard and the first piers appear in the middle of prime agricultural land. The first four miles of the project are on agricultural land. Carlisle loses in the primary. Two Democrats, Kirk Caldwell (pro rail) wins the mayor race over past governor Ben Cayetano (anti rail.) Although some frame it as another victory for the rail project, Cayetano’s battles with unions during his eight years in the governor’s office were a major cause of his loss.
  • Mid-2014: 9th Circuit court appeal ends unsuccessfully for the plaintiffs of a NEPA-based suit.
  • December 2014: HART reveals a $910 projected deficit and asks for more tax monies.
  • December 2015: HART proposes to open 10 miles of service in 2018.

One of the flaws in megaproject development is strategic misrepresentation, or cleverly worded lying to the public and decision makers such as the HART board members and the Honolulu city council members, none of whom have any expertise in large infrastructure projects and rail in particular. Project advocates such as the FTA turned a blind eye to facts and in 2009 they presented to the people of Hawaii Figure 1, a gem of strategic misrepresentation [4] which simply fit the political line that the proposed 20-mile rail will cost $4.6 billion as applicable during the 2008 rail referendum.  Notice that the FTA cost development in Figure 1, line labeled MEAN, goes against decades of real world evidence of a project’s cost escalation as it moves from planning to construction (e.g., Dr. Bent Flybjerg’s summaries of infrastructure megaprojects [3]). This FTA-sponsored report contains one point of truth: There is a 10% chance that HART rail will cost about $10 B.



Figure 1. HART expected cost over time.

One would think that only three years into construction, with only about 15% of the project completed and only about half of the project gone to bid, HART would be sitting comfortably on a pile of money generated by a general excise tax surcharge being collected since 2007 (about $140 M per year) plus $1.55 B from the full funding grant agreement. Nothing could be further from the truth. In late 2014 HART announced a $910 M expected shortfall and successfully lobbied the Hawaii legislature to extend the 0.5% surcharge from end of 2022 to end of 2027.

In another move of strategic misrepresentation, rail planners pretended that the rail is like an electric car, e.g., one buys an EV, then goes homes and plugs it in. Likewise, HART builds rail, which plugs into the city grid for free.  However, rail’s 30 MW to 50 MW power draw is a major requirement. The utility’s reaction was unpleasant for HART [5] which is now negotiating another expensive arrangement. The combined cost of substations, power generation and the (still in limbo) airport utility relocation tasks are likely to cost about $500 M bringing the known total to approximately $7 B with none of the 21 stations constructed nor the second half of the project gone to bid.

HART rail’s cost development is plotted in Figure 2. The second half of the project includes the challenging construction through urban Honolulu which is one of the densest US cities. There are now peripheral discussions to terminate the project at a large transit bus and handicapped van terminal at Middle Street, which is approximately at the 16th mile of the rail route. This is a welcome possibility because Honolulu will be spared of the heavy construction and debilitating lane and road closures at its downtown and near Waikiki which will be deleterious to general economic activity and tourism.



Figure 2. Actual and expected cost plot.

As the project cost creeps above $7 B (for a city of just one million people), with an expected payoff of about 1% in congestion reduction [6], and the dramatic re-arrangement of TheBus as a feeder to the rail [7], one can begin to outline some of the major consequences such as:

  • Minimal ridership like Tren Urbano in San Juan, PR. Furthermore, San Juan’s average income and auto ownership are much lower to those of Honolulu (i.e., Honolulu has far fewer transit dependent commuters than San Juan.)
  • Destruction of prime agricultural land on Oahu. After years in legal battles, the state Supreme Court approved B.R. Horton’s proposed 12,000 suburban Ho’opili development which includes two rail stations. Although HART makes a big deal out of Transit Oriented Development, Horton’s own EIS reveals that each station will generate the equivalent of only two busloads of passengers for the rail in the peak hour. This approval is proof that development that does not pass traffic congestion standards simply gets … a rail pass.
  • The huge opportunity cost. With $7 B and counting, Honolulu could have actually reduced traffic congestion by more than 25% and reduced its dependency on oil by over 40%. Honolulu burns oil to produce electric power and as a result its electricity cost is 300% above US average. Instead of switching power generation and fleet fueling to natural gas, island policies emphasize oil-generated electric cars and electric trains!

Finally, looking at the bigger picture for Honolulu which includes a $5 B consent decree with the EPA for secondary sewer treatment, increasing dependency on imports, including 90% of food, with prices escalated by the Jones Act requirements, and the nation’s fifth worst unfunded pension liability according to The Economist [8], the future is worrisome: At best Honolulu will experience large increases in taxes and congestion, at worst those plus bankruptcy.  One thing is certain.  This textbook megaproject failure orchestrated by business interests and unions, supported by misguided environmentalism and enabled by enterprising politicians got Honolulu railroaded [9].

Panos D. Prevedouros is Professor and Chair, Department of Civil and Environmental Engineering, University of Hawaii at Manoa.

Photo by super-structure (Jason Coleman), "Honolulu Murals".

REFERENCES AND CLARIFICATIONS

[1] HawaiiNewsNow, Large Cracks Develop along Rail Line, http://www.hawaiinewsnow.com/story/28827333/large-cracks-develop-along-rail-line, 2015.

[2] HawaiiNewsNow, Rail Whistleblower Suit Filed, http://www.hawaiinewsnow.com/story/30203942/exclusive-rail-whistleblower..., 2015.

[3] Bent Flyvbjerg, et al. Delusion and Deception in Large Infrastructure Projects: Two Models for Explaining and Preventing Executive Disaster, California Management Review Vol. 51, No. 2 Winter 2009.

[4] FTA, Project Management Oversight Program, Honolulu High-Capacity Transit Corridor Project, July 2009 (Final)

[5] KHON2, Tension Escalates over Rail’s Power Supply and Who Will Pay for It, http://khon2.com/2015/11/11/tension-escalates-over-rails-power-supply-and-who-will-pay-for-it-2/, 2015.

[6] Past mayors and HART have been eager to misuse the EIS statistic that rail is projected to remove 40,000 cars from the streets.  The actual statistic says that rail may reduce car trips by 40,000. Total car trips on Oahu when rail is completed are projected to be four million.  HART rail may provide a 1% reduction.

[7] TheBus is one of America’s best bus transit systems and has a 6% commuting trip share in Honolulu. Many of its routes will be eliminated or terminated at HART stations. According to the EIS, the subject routes are: B, C, E, 3, 9, 11, 20, 43, 53, 73, 81, 90, 91, 92, 93, 94, 96, 97, 98A, 101, 102, 103, 201 and 202 many of them are popular peak hour express routes.

[8] The Economist, Pensioners Are Pushing Many Cities and States towards Financial Crisis, http://www.economist.com/news/united-states/21582282-pensioners-are-pushing-many-cities-and-states-towards-financial-crisis-who-pays-bill, 2013.

[9] Randy T. Simmons, et al., Bootleggers, Baptists, and Political Entrepreneurs: Key Players in the Rational Game and Morality Play of Regulatory Politics, The Independent Review, v. 15, n. 3, Winter 2011.

Cleveland Renaissance Fair

Mon, 01/25/2016 - 21:38

So much talk of the Cleveland comeback with our downtown building boom and Republican National Convention-fueled makeover makes it difficult not to think about our mid-1990s civic renaissance. In 1995, The New York Times headline proclaimed " 'Mistake by the Lake' Wakes Up, Roaring" as downtown's stadiums and lakefront development created a "new face and new style of a city that for a long time had little panache."

But it wasn't just the media who became enchanted with our freshly minted charms — even the scholars were feeling it. The academics, however, had a Lake Erie-sized caveat. There was a divide in the region's comeback, noted the authors of the 1997 study "The Rise and Fall and Rise of Cleveland," with areas separated by characteristics of "capital investment and disinvestment, industrialization and deindustrialization, suburbanization and ghettoization, white flight and a black underclass, the growth of services, and a [high-skill and low-skill] dual economy."

Prophetic then, those words serve as a warning now. The paradox of Cleveland's comeback, if not an urban American comeback, is that the more a city returns, the greater the number who get left behind.

Rob English splits his time between Baltimore and Cleveland. He has been doing so for nearly three years.

A former Army infantryman, he serves as supervising organizer for the Greater Cleveland Congregations, a network of local faith and community-based organizations working for social justice. His experience in Baltimore since 1997 gives him a different perspective on his work in Cleveland today. "You have to meet people where they're at, listen to them, and find ways to act in their mutual interest," he says.

English marched with the Cleveland group in late May after the Michael Brelo trial verdict to demand comprehensive criminal justice reform. As the demonstrators from about 40 religious congregations walked arm-in-arm along downtown streets to City Hall and the Justice Center, it was peaceful — unlike what happened in Baltimore a month earlier. There, the death of 25-year-old Freddie Gray in police custody prompted violent social unrest.

"Baltimore is about seven to 10 years ahead of Cleveland," says English.

Odd as it sounds, what English means is that Baltimore's economic resurgence has been longer in the making — and that may be a good thing for Cleveland.

Baltimore's signature project, the cleanup and rehabilitation of Baltimore's Inner Harbor with its world-class aquarium and science center, began in the 1980s. Oriole Park at Camden Yards, an architectural model for Progressive Field, opened in 1992.

With the beautification came a change in the city's demographics. Today, nearly 27 percent of Baltimore residents have college degrees, compared to 16 percent in Cleveland. Baltimore's median income ($41,385) is $15,000 higher than here. Cleveland's poverty rate sits at 35 percent, 12 percentage points more than Baltimore.

But the benefits in Charm City are not evenly distributed. White city residents earn nearly double that of black city residents. Baltimore also had the ninth worst wage disparity between high- and low-income workers in the nation, according to the Martin Prosperity Institute. So, while the physical redevelopment is apparent in the eyes of all Baltimoreans, the effect is uneven in their temperaments.

English, 46, recalls a talk he had with an African-American woman from East Baltimore several years back. She could see the Inner Harbor off in the distance from her neighborhood.

"Let me tell you about my anger," she told him. "Every morning when I wake up and take the kids to the bus stop, every morning I look down and see the harbor, and every morning I get angrier."

Her experience is more than an isolated one, says English. In Baltimore, people saw aspects of the city improve year after year. Yet so many weren't a part of it. Eventually tensions built, and the Freddie Gray incident ignited it.

"Now, Cleveland is beginning a renaissance," English says. "But there is room to come together so you're not two cities."

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Thomas P.M. Barnett's book The Pentagon's New Map is more than a decade old. But its message is no less relevant.

"Disconnectedness defines danger," he argues.

For the expert geostrategist, the world is split between two types of geographies: the Core, where "globalization is thick with network connectivity, financial transactions, liberal media flows, and collective security," and the Gap, or areas disconnected from globalization and defined by poverty, low education rates and "the chronic conflicts that incubate the next generation" of instability.

"We ignore the Gap's existence at our own peril," concludes Barnett.

It is a useful model in understanding what's occurring in Northeast Ohio.

Consider that, according to a Brookings Institution study, Cleveland and Seattle led the nation with the biggest percentage increases in high-income households from 2012 to 2013. Yet, research from Rutgers University revealed Cleveland also has one of the largest increases in neighborhoods with concentrated poverty since 2000.

This division is further evident when mapping the concentration of Northeast Ohio residents with college degrees. Higher educated areas are centered in downtown, Ohio City, Tremont, Detroit Shoreway and AsiaTown, which have each seen double-digit percentage increases in residents with college degrees since 2000, as well as along the lakeshore, near University Circle and in various suburban and exurban clusters. Meanwhile less educated areas are grouped in the city of Cleveland outside the urban core and in the rural exurbs.

Simply, areas of Cleveland that are revitalizing are part of the globalizing Core. The isolate neighborhoods, or those experiencing higher levels of violence and poverty, comprise the Gap.

In fact, for a number of quality of life indicators, outcomes in various East Side neighborhoods are below that of developing nations. A recent PolitiFact article showed that infant mortality rates were worse in select East Cleveland neighborhoods than in North Korea, Uzbekistan, Zimbabwe and the Gaza Strip.

According to data by Case Western Reserve University, homicide rates for sections of the city are similarly comparable. In 2010, homicide rates in Ward 1, comprising parts of the southeast side, and Ward 9, which entails Glenville, are similar to Guatemala and El Salvador.

What's happening here is not unlike cities such as Chicago, Baltimore, Miami and Brooklyn, New York, where the spatial patterns of having and not having mean poverty gets pushed together, not alleviated. When cities evolve as separate and unequal, they create a deepening sense of alienation and marginalization.

"The economic and social frustration could be expressed in more recourse to violence," says Mark Joseph, director of the National Initiative on Mixed-Income Communities at Case Western Reserve University.

Revitalizing neighborhoods have more "eyes on the street," says Joseph, who examined the effect in the Second City while at the University of Chicago. And more vigilant policing can "push gangs into more constrained areas of the city and into more conflict with each other."

In the first nine months of 2015, for example, there was a 40 percent increase in gun homicides compared to 2014.

"As we are seeing in our city, innocent bystanders suffer the consequences as well as those directly targeted," Joseph says.

In a span of a month, a 5-year-old, a 3-year-old and a 5-month-old were all victims of drive by shootings from gang violence that has boiled over in various East Side neighborhoods.

After the youngest, Aavielle Wakefield, was killed, Cleveland police chief Calvin Williams stood at the crime scene on East 143rd Street in Cleveland's Mount Pleasant neighborhood. It was night. The street was lit by the television crews. With Mayor Frank Jackson by his side, the chief demurred about the senseless tit for tat, the need to catch the perpetrators.

Suddenly, his face went from firm to fragile. "To the family ... it's tough ... it's tough," he said in tears. "This should not be happening to our city. And we got to do something about it."

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"I have looked into the eyes of children soldiers overseas," says English, who served a platoon leader stationed in Somalia. "I see the same look in Cleveland and Baltimore. That is what decades of disinvestment has created in our urban areas. It's got to stop."

Click to Enlarge

English was in Baltimore in April when the riots erupted about 20 miles away from the harbor. The city was on needles. English and a few co-workers received alerts about young people near Mondawmin Mall turning violent.

The message was to go where the rioting was occurring, with the intent to stem the unrest.

When English arrived, a CVS was being looted and burned. As a community organizer, English attempted to do what organizers do: connect to the disconnected. But he wasn't succeeding.

"I looked at the young people in the eyes," he recalls. "I lost my soul. I couldn't connect with them."

Anthony Body, a 29-year-old Glenville resident and member of the Cleveland Community Police Commission, sees similarities here.

"There is a sense of hopelessness," he says.

Isolation fuels the cycle of disenfranchisement. Without exposure to positive outcomes, there can only be so much progress. Body says due to the lack of role models in his neighborhood people were influenced by the lifestyle of rappers, drug dealers and the garbage man.

"There is nothing wrong with being a garbage man," he says. "But in order to choose Option B, you had to be exposed to Option B."

The realities of his neighborhood have taken a personal toll. Body has lost at least one family member or friend to violence every year since 2006.

"All the trauma. The trauma of no job, the trauma of violence — the lack of family or social support — the schools," he says, "it all drags on you when you try to better your life, so that when difficulty hits, you just go back to what you know."

No doubt, the persistence of violence is not just a Cleveland problem, but a national one. Homicides are up sharply in Washington, D.C., Milwaukee, St. Louis and Baltimore.

On a mid-October trip to Ohio, FBI director James B. Comey wondered aloud: After years of declining violent crime in cities, why the uptick? "I'm not here announcing any big initiative or program," Comey said, "but we have a lot of smart people who we brought on board after 9/11 who may be able to help look at the issue differently."

Cheap heroin from Mexico and the turf battles to supply what has become a nationwide heroin epidemic was one likely scenario, he offered.

"What we're in the midst of is a drug war," says Hough resident and writer Mansfield Frazier, who likens today's violence to the St. Valentine's Day Massacre that left seven men dead in Prohibition-era Chicago.

For Khrystalynn Shefton, a housing development manager at the Famicos Foundation — a community development corporation in Glenville and Hough — this drug war is not just an urban problem, but an everyone problem. It's limiting the potential for struggling neighborhoods to appreciate.

Shefton tells the story of a friend who lives off Rockefeller Park in a beautifully renovated home in Glenville. On a recent Sunday, she was enjoying tea in her sunroom. "A guy pulls up, straps up and does heroin in front of her house," Shefton says. When he was done, the man left down Martin Luther King Jr. Boulevard to head toward Interstate 90 and back to the suburbs.

"The pain for me in this renaissance is that as a city we have not figured out that 'I am my brother's keeper,' " she says. "It's all connected — the ills in the suburbs and the city."

The roots of urban violence run deeper than the existence of a drug war. In September, the Cincinnati Enquirer investigated the Queen City's rise in gun violence. What Cincinnati was witnessing ran counter to conventional wisdom that crime goes up in bad economic times and down in good times, offered Mayor John Cranley.

"This is the best economy we've had since the Great Recession and yet crime is up," Cranley explained. "So it's more likely to be linked to social and cultural than economic reasons."

Of course, one could argue that the violence is linked to social and cultural issues stemming from economic reasons. Simply, the economy has changed rapidly since so many worked in the plants. Good economic times have been divorced from so many people, if not a generation of so many people.

The Georgetown Public Policy Institute found that four out of the five jobs lost since the Great Recession required a high school degree or less. "The shift in the workforce from less-educated to more-educated has been a slow and steady process," notes the authors.

In the early 20th century, Cleveland was a magnet for European immigrants, Puerto Ricans and African-Americans because industry needed labor to produce economic growth. Manufacturing built our middle class. It enabled people to move up.

In 1990, for example, more than 50 percent of Cuyahoga County's African-American residents lived in heavily segregated East Side city neighborhoods, while today that number is down to 30 percent.

That said, large-scale launchpad industries for formerly blue-collar communities are now nonexistent. Cleveland lost its old magnetism. But the children and grandchildren of the city's factory-floored forefathers remain.

And they are idle. Thirty-eight percent of Cleveland's males are not in the labor force. In black majority neighborhoods such as Union Miles, Central and Glenville, those numbers approach 50 percent.

When English first began canvassing Rust Belt cities, the Texas native was amazed at the number of black men standing on the corners. In Baltimore, he got to know many of them.

"We have always been on the corners," English recalls one of them telling him. "The difference then is that we had lunch pails, and we were waiting for a ride to the steel mills."

While English has been making that point for years, corporate and civic leadership in Baltimore are just now coming around to it, he says. "The unrest in Baltimore and the day-to-day violence in Cleveland — it's a jobs issue."

Body, a good neighbor ambassador supervisor with the Northeast Ohio Sewer District, echoes the sentiment. "People where I live just want opportunity," he says. "They want to work. Every generation up to recently had [opportunities to work] handed down, somewhere in between it stopped being handed down."

Body, who earned a business degree from Malone University while on a football scholarship, considers himself blessed. His parents and higher education taught him critical-thinking skills. He became better prepared for today's economy. He found his place — and Glenville is a part of it.

"I'm still playing the dozens and breaking bread with my community," he says. "I'm trying to express to folks there is another way."

But too many of them can't see it, he says. "The feeling in most folks is disappointment for not being able to join with it."

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There is an understanding in geopolitics that everything local is global. What you see happening on the corner is tied together, whether that's a vacant house and a skeletal factory or a condo development and state-of-the-art medical research facility.

It is correlated to Cleveland's relationship with and relevance in the world. One set of aesthetics are birthed by severing from our economic past, and the other birthed from ties to our economic future.

In between these aesthetics are people.

Yes, a younger, more educated generation has found aspiration in Cleveland's core. Yet to think Cleveland can come back by deepening the pattern of isolation versus prosperity is to ignore a basic tenant of modernization: With evolution comes progress — not just economically, but humanly.

Cleveland's rebirth is in its infancy. The city is still alive in the shadows of all it has lost, making it possible for a consciousness to be reborn right.

Part of this entails learning from the lessons of Baltimore. There, like in Cleveland, the city's economic transformation is largely spearheaded by the education and medical sectors centered around Johns Hopkins University and Johns Hopkins Hospital in East Baltimore.

Recently, in the face of Baltimore's social unrest, the two institutions joined in an initiative called HopkinsLocal. The point is simple: Tackle social and health issues in Baltimore by engaging the city's poorest residents and preparing the unprepared. By 2018, they plan to fill 40 percent of targeted positions by hiring from within the city's most distressed communities. In all, it is one of the more robust buy local anchor institution policies in the nation.

Locally, programs to do something similar with anchor institutions have been developed, particularly the Evergreen Cooperatives. The worker-owned co-ops based in Cleveland's East Side are contracted out to sell local goods and services to global institutions such as the Cleveland Clinic. While innovative, the efforts need scaling. Discussions are happening in Cleveland to do just that.

For English, the urgency couldn't have come too soon.

"It's a generational moment," he says. "In the future, people will look back to now and ask, 'How did we respond?' "

This piece first appeared in Cleveland Magazine.

Richey Piiparinen is a Senior Research Associate who leads the Center for Population Dynamics at the Levin College of Urban Affairs at Cleveland State University. His work focuses on regional economic development and urban revitalization.

Best and Worst: 2015 International Housing Affordability

Mon, 01/25/2016 - 05:20

Housing affordability and its impact on   middle income households around the world is emerging as a major concern throughout the developed world. The largest element in household budgets is housing, and house prices have skyrocketed relative to incomes in many metropolitan areas, especially those that have adopted strict land use regulation (particularly urban containment, as described below).

The 12th Annual Demographia International Housing Affordability Survey reports that, as of the third quarter of 2015, Hong Kong has the least affordable housing among major markets in 9 nations, followed by Sydney, Vancouver, with Auckland, Melbourne, San Jose, San Francisco, London, Los Angeles and San Diego. In each of these markets, housing costs are now triple or more their  levels before restrictive land use regulation (house prices have tripled compared to incomes).

Ranking Similarities: Demographia and the UBS Real Estate Bubble Index

The Demographia list of least affordable metropolitan areas is largely echoed by UBS, the international financial services company headquartered in Switzerland. The UBS Global Real Estate Bubble Index ranks London, Hong Kong, Sydney and Vancouver as most vulnerable to risk from a real estate bubble. Demographia rates Hong Kong, Sydney and Vancouver as having the least affordable housing. London is ranked 8th in the Demographia Survey. Overall, the five cities rated by UBS as the most vulnerable are included among the eight least affordable in the Demographia Survey. The three other cities ranked in the least affordable eight by Demographia are not considered in the UBS report.

Background on Middle-Income Housing Affordability

In his introduction to the Survey, Senator Bob Day (Australian federal Senate) recalls that: “For more than 100 years the average Australian family was able to buy its first home on one wage. The median house price was around three times the median income allowing young home buyers easy entry into the housing market.”

Senator Day’s description of the experience in Australia tracks with that of other nations. Following World War II and until the early 1970s, virtually all metropolitan areas in Australia, Canada, Ireland, New Zealand, the United Kingdom and the United States had median multiples around 3.0 or below.

Since then far more restrictive land use policies have spread beyond the metropolitan areas to many others in other nations. This has often included urban containment policies (called “urban consolidation in Australia”), which severely limit or even prohibit new housing construction on or beyond the urban fringe. The result, as basic economics predicts, is higher land prices and skyrocketing housing costs, (despite expectations to the contrary by planners).

Rating Housing Affordability

The Demographia International Housing Affordability Survey uses the "median multiple" price-to-income ratio. The median multiple is calculated by dividing the median house price by the median household income.  Housing affordability ratings are indicated in Table 1.

Virtually all of the severely unaffordable major markets in this year’s Survey exercise urban containment policy. Meanwhile, no market without strong land use regulation has ever been rated as severely unaffordable in the 12 years of the Survey.

The Bottom 10: Least Affordable Major Metropolitan Markets

The kinds of restrictions on development that Senator Day outlines are evident in the most unaffordable metropolitan areas.

For the fifth straight year, Hong Kong had the least affordable housing.  Its median multiple was 19.0. Sydney became the second least affordable, at 12.2, leaping by 3.2 points, the largest annual increase ever recorded among major markets in the Survey. Sydney displaced Vancouver, which had the third least affordable housing among the major markets, with a median multiple of 10.8. This is up from 10.6 last year. Each of these is the highest median multiple recorded in these markets in the history of the Survey.

Three metropolitan markets tied in fourth position with a median multiple of 9.7, San Jose, Melbourne and Auckland. San Francisco was the 7th least affordable market, with a median multiple of 9.4, followed by London (8.5). San Diego and Los Angeles, which both had a median multiple of 8.1 (Figure 1).

Urban containment markets clearly and nearly perennially suffer declines in housing affordability. In 2013, the same ten metropolitan markets were the least affordable and had an average median multiple of 9.1. By 2015, their average median multiple had risen to 10.5. Housing affordability deteriorated in all 10 markets (house prices rose faster than incomes). This loss in housing affordability was at least 14 times the loss in the 10 most affordable markets (below).

The Top 10: Most Affordable Major Metropolitan Markets

Again, the United States, with its multiple regulatory variations accounted for all of the top 10 in housing affordability (actually the top 12, because of a four way tie for ninth position). Buffalo, Cincinnati, Cleveland and Rochester had the most affordable housing, with a median multiple of 2.6. Pittsburgh ranked 5th, at 2.7. Detroit, Grand Rapids and St. Louis tied for 6th, at 2.8. The tenth place tie was between Columbus, Indianapolis, Oklahoma City and Kansas City, with a median multiple of 2.9.

By contrast, the top ten markets experienced relatively little deterioration in housing affordability over the past two years. In 2013, their median multiple averaged 2.6, and rose to 2.7 in 2015 (Figure 1). The housing affordability deterioration in the bottom 10 markets (all urban containment markets) was 14 times as high, as noted above.

Among the five megacities (over 10 million population) in the Survey, Osaka-Kobe-Kyoto had the best housing affordability, with a moderately unaffordable median multiple of 3.4.

All Markets

Overall, the Survey included 368 markets. The most favorable housing affordability was in Ireland, with a median multiple among the markets of 2.8. This was the third year in a row that Ireland had the best housing affordability. In the nine prior years of the Survey, the most affordable housing had always been in either Canada or the United States (Figure 2).

The United States was the second most affordable in 2015, with a median multiple of 3.5. Canada and Japan tied for third, with median multiples of 3.9. Four geographies with virtually universal urban containment policy were the least affordable, the United Kingdom (5.1), New Zealand (5.2), Australia (5.6) and Hong Kong (19.0).

Singapore, though seriously unaffordable at 5.0, is far more affordable than its long-time rival,  Hong Kong (19.0). Each has virtually no suburban or rural hinterland and high population density. Yet there is a serious difference in housing policy. In contrast to Hong Kong, Singapore’s e Housing and Development Board, which accounts for approximately 90 percent of housing (which after sale is privately owned) has increased production and reduced new house prices which has led to a lowering of resale house prices as well.

A Wholly Contrived Crisis

Senator Day characterizes the housing affordability crisis “wholly contrived,” and “a matter of political choice… the product of restrictions imposed through planning regulation and zoning.” Senator Day calls the economic consequences of present land use policies “devastating.” He argues that governments and central banks have been too hasty to blame unprecedented housing affordability losses on demand factors, while missing the “real culprit,” which is the “refusal of … governments … to provide an adequate and affordable supply of land for new housing stock to meet demand (typically urban containment policy).

Without reform, prospects for middle income households are grim in the metropolitan areas with urban containment policy. Housing affordability can be expected to deteriorate more, with dire economic and social consequences. According to London School of Economics and Political Science economists Paul C. Cheshire, Max Nathan and Henry G. Overman (see: People Rather than Places, Ends Rather than Means: LSE Economists on Urban Containment).

"The problem is it is utterly unviable in the long term. With every passing decade the problems would get worse, the wider economic costs would become more penalising, the economy and monetary policy more unmanageable and the outcomes – the divide between the property haves and the property have-nots – more unacceptable."

Wendell Cox is Chair, Housing Affordability and Municipal Policy for the Frontier Centre for Public Policy (Canada), is a Senior Fellow of the Center for Opportunity Urbanism (US), a member of the Board of Advisors of the Center for Demographics and Policy at Chapman University (California) and principal of Demographia, an international public policy and demographics firm. He is co-author of the "Demographia International Housing Affordability Survey" and author of "Demographia World Urban Areas" and "War on the Dream: How Anti-Sprawl Policy Threatens the Quality of Life." He was appointed to three terms on the Los Angeles County Transportation Commission, where he served with the leading city and county leadership as the only non-elected member. He served as a visiting professor at the Conservatoire National des Arts et Metiers, a national university in Paris.

Photo: Sign advertising new house and land packages starting in the $170,000s. Suburban St. Louis, third quarter 2015 (photo by author).

Suicide: The New Curse for Boomers?

Sat, 01/23/2016 - 03:38

We often associate suicide with the crises of youth, or the despair of the old. Yet the group that is now experiencing the biggest surge in suicide is in the Baby Boomer Generation; from about 14 percent in the year 2000 to about 19 percent in 2013. Baby boomers rose to 37.5% of all suicides in 2010. That is now the highest suicide rate of any existing age bracket (shown in figure 1). In order to find a way to reduce this percentage, one must understand why this is happening in the first place.  

Before tackling the issue of suicide, it is important to understand what it means to be a baby boomer. Baby boomers were those born in the United States between the years 1945 and 1964. Total births per year during that period “grew from 2.3 million to 4.3 million and then fell to 3.2 million.”  This surge in births was largely due to the rapid expansion of the job market created by World War II. The subsequent financial comfort produced an overall positive attitude towards childbearing, causing what is known as the baby boom. These baby boomers would live to see a time where women were joining the work force in large numbers, automobiles were becoming popular, and the U.S. was in a war with Vietnam.

So why would people born in such an exciting time be committing more suicide today? A study done by Katherine A. Hempstead and Julie A. Phillips tries to decipher whether this sharp increase in Boomer suicide rate is due to personal (e.g. mental and physical health), interpersonal (e.g. divorce), or external circumstances (e.g. economic and political). The data for this study was collected from the National Violent Death Reporting System (NVDRS) and from the CDC. In 2010, suicides from personal circumstances decreased to 79.8%, interpersonal circumstances decreased to 40.4%, and external circumstances increased to 37.5% issue lies in the 4.6% increase in suicides due to external circumstances. This pattern suggests that the large increase in suicides among this generation due to changes in their external circumstances.  



Figure 1: Suicide rates of different age brackets from 2000 to 2013 (afsp)

Most reports of suicide due to external circumstances were related to job, financial, or legal distress. A possible explanation of this reporting is the correlation between these suicides and the effects of the Great Recession. The Great Recession, triggered by the bursting of the 8 trillion dollar housing bubble in 2007, caused the U.S. labor market to lose 8.4 million jobs and reduce wages all across the board.

Although every demographic was hit by the Great Recession, the baby boomer generation was hit the hardest in terms of lost property value, household finances, and lost retirement savings. As one researcher discovered, “27 percent of those aged 50 to 64 experienced reduction in salaries. This was higher than any other age group”   

This downward trajectory was more difficult for baby boomers to deal with for three known reasons. The first is that Boomers were born at a time of economic optimism, so they tend to have had high expectations for their financial futures. Seeing the wealth that they spent their lives accumulating dwindle away because of an economic downturn may have been a large blow to their prides/egos.

The second reason is the feelings of losing power that many baby boomers must be going through. The daily spending of boomers decreased from 114 million in 2008 to 55 million in 2009. Even with the recent 15 million dollar spike, boomer daily spending was still down to 105 million per day as of December, 2015. (Fleming).

The third reason is the current age that baby boomers are currently living through. When hitting the age brackets of 50’s and 60’s, people usually begin considering what they will do to afford retirement. Entering a time of financial instability makes these considerations problematical, especially for those in the middle and lower classes. A study done in 2007 called Money Across Generations shows “51% of boomers reporting being ‘very confident’ of their ability to assure a ‘financially secure life’ for themselves and their children. By 2011, that number had fallen to 33%.”   The combination of financial fear as well as possible mid-life crises makes possible suicide completely understandable.

Fortunately for the baby boomer generation, the economy is slowly growing back to a relatively normal state. At about 2.2 percent GDP growth per year since 2009, America’s financial future seems optimistic. The hope is that this will be enough to reduce the suicide rate of baby boomers.

That outcome seems doubtful, however. In fact, suicide rates of baby boomers are expected to go up in the coming years. Figure two shows suicide rates of different age groups in the years 1999 and 2007. Until recently, suicide rates among those in their 40s and 50s seemed to level out or even decrease. The common explanation for this is the level of contentment some often feel in their middle ages. They are less likely to commit suicide because they are often focused on their careers, their children, and even sometimes their grandchildren. Many of the stresses of youth are gone yet they still have the vitality necessary to chase after the things they want. On top of that, they often have a much healthier diet than other age groups, so their risk for chemical depression is much lower.

This makes the current upsurge in boomer suicides all the more distressing.   At a time when traditionally suicide rates are low, those of boomers are now actually higher than those of any other generation. That includes the 15 to 24, 25 to 44, and the 85 (asfp) and older demographics, all of which traditionally suffer higher suicide rates.   

Baby boomers are headed into a new stage of their lives, which is usually called the golden years. That name is very misleading however, as suicide rates among the elderly are consistently higher than those of other ages. This is because many elderly people live with undiagnosed cases of depression, which are often worsened by the loss of a spouse or the stress of living with a chronic illness. They also tend to lack adequate social interaction, which is important in fighting the loneliness that often exacerbates depression. Lastly, they are much more likely to carefully plan out suicide attempts. That, combined with their more fragile bodies, makes their suicide attempts much more likely to be successful  



Figure 2: Suicide Rates Among Ages, 1999 and 2007 (afsp)

One theory suggests that depression is not decreasing because men are not getting the emotional help that they so desperately need. Figure 3 shows the separated suicide rates of males and females between 1981 and 2013, inclusive (afsp). In that window, the trend stays relatively the same; males are committing suicide more than twice as much as women. Since women are diagnosed with depression twice as much as men, this disparity is surprising. A study by Lisa A. Martin, Harold W. Neighbors, and Derek M. Griffith explores this disparity and finds that men may be equally depressed, but they seem less equipped to handle it.



Figure 3: Suicide Rates by Sex from 1981 to 2013 (Milburn)

Some of this comes from today’s social conditions in which boys have been told that they are not supposed to express sadness, as it can be deemed a “unmasculine.” As a result, they feel less willing to see counselors or get help in dealing with their emotional issues. Instead, they turn to other means of consolation such as bouts of anger or substance abuse. That is why they are less often diagnosed with depression.

One surprising finding is that suicide among boomers is not only a largely male phenomenon, but also largely a white one. Figure 4 shows the suicide rates between 1990 and 2010 by race/ethnicity. According to the data, White people have the highest suicide rate of any ethnicity, followed closely by Native Americans. All minorities, other than Native Americans, have a much lower suicide rate. This trend seems counterintuitive since white people are known to have less financial instability. A theory suggests that white people are less used to adversity, which makes it difficult for them to deal with the difficulties of everyday life. They also may have an unrealistic view of how easy life will be as they grow up, making them more often disappointed with the end result. Other ethnicities may also have a more positive outlook or have stricter religious/moral beliefs on suicide.



Figure 4: Suicide Rates by Race/Ethnicity from 1990 to 2010 (afsp)

Though there have been a lot of generalizations throughout this paper, it is important to note that every individual is unique. Although race, gender, generation and other demographics may tell a lot about a person, there is also much more that can only be found by getting to know a person individually. Helping baby boomers to be happier and commit less suicide is going to take personal care and compassion instead of a single standard approach.  An improved economy may help as well in preventing a tsunami of boomer depression and suicide in the years ahead.

Tyler Hishmeh is a senior business student at Chapman University. When not at school he’s usually training in Muay Thai or hitting balls at the golf range.

American Extremism is a Product of American Apathy

Fri, 01/22/2016 - 06:28

Much research has gone into studying the political polarization that has gripped American politics. Why have the two American parties moved to the extremes? One explanation, championed by MIT Professor Noam Chomsky is that the Republicans have ceased to be a functioning party. Chomsky claims that the GOP has wholly given itself over to the rich, and in order to win elections has been forced to appeal to the radical fringes of American society, who he defines as Evangelicals, nativists, racists and gun fanatics.

Peter Wehner, Senior Fellow at the Ethics and Public Policy Center, argues that rather than the GOP moving to the right, it’s the Democrats who have moved dramatically to the left. Wehner argues that while Bill Clinton revived the Democrats from nearly twenty years of political defeats by abandoning left-wing politics and embracing centrist policies, Obama ran as an unabashed liberal, and today Hillary Clinton and Bernie Sanders have only followed suit. There may be other, less directly political reasons.

A Princeton study claims that political polarization has been a frequent occurrence as inequality has increased in the United States, and extremism has been a regular response to economic woes. Another study by UC Berkeley places the blame not on the parties or society, but on the voters themselves, who political scientist David Broockman argues have spontaneously become fanaticized, even more so than their representatives.

These are all interesting ideas, but most lack hard numbers, and what little numbers are offered come from selective results of specific poll questions asked to a few thousand people at most. If we were to look at the total voting practices of the American people, what insight could we draw? I set about to do just that and have concluded that the driving force of political polarization in America is from profound voter apathy. I am not saying that Chomsky, Wehner, Broockman or any other political theorists are necessarily wrong, but while their arguments seek to explain why the two extremes have become ascendant they fail to address or minimize the shocking disappearance of the moderates in both parties. The disappearance of the center, particularly in the primaries, explains political polarization in America, not the rise of the fringes.

Pundits and political experts have placed far more emphasis on primaries over the past six years due to the rise of the Tea Party. Despite the evident surge in media attention by elites and massive donations by the super-rich on both sides, the presence of voters in the primaries has been collapsing to all-time lows. In 1972, 30.9% of registered voters participated in the primaries. That number has dropped nearly every year, to 21.7% in 1992 at the beginning of the Clinton era, and 19% in 2000. In 2008, in the heavily-contested race between Clinton and Obama, primary turnout hit 30.3%. But that spike proved to be a one-time oddity, as in 2012 the primary voter rate for both parties declined to an all-time low of 15.9%, or nearly half the rate forty years ago.

What makes this even more striking is an accompanying decline in total voter registration. In 1972, 72.3% of Americans eligible to vote were registered. In 2012 that number dropped to 65.1% (in 2014 this declined further to 64.6%) for a 7.9 percentage point difference. The drop in voter registration combined with a drop in primary voter participation of eligible voters has resulted in an overall decline of 54% in primary voter participation from the last generation to the current one. More than half of voters have ceased to engage in the ideological formation of our two parties in any meaningful way, leaving the most die-hard 46% to dominate politics. To put that in perspective, let us hypothesize that 7 out of 10 Republicans and a similar 7 out of 10 Democrats have moderate, mostly rational views. Now imagine that the most moderate 5 of 10 left each party; this would leave a distribution of 3 fringe voters for every 2 moderates. Even if the center had previously been the supermajority a drastic decline of the sort we have witnessed between 1972 and 2012 could easily explain the sudden extremism of the party. This demographic collapse in primary voters may explain the rise of extremism far better than the supposition that the majority of people on the right and left have substantially changed their ideologies and adopted extremist positions.

Any serious conversation on the polarization of American politics cannot ignore the drop in primary voters, though up to this point it mostly has. While the general elections decide whether conservatism or liberalism are dominant at the time, the primaries decide what conservatism and liberalism are. In 1972 when twice as many Republicans participated in the primaries, some of the main points in their platform were nuclear arms reduction, increased government protection for the environment, a 7% tax increase on those making $100,000 or more, and the increase of “trade and cultural exchanges as ways of improving understanding between [the U.S. and China].” In 1972 the DNC supported the Drug War and efforts to maximize coal efficiency. These policies would be unthinkable to GOP and DNC primary voters forty years later. This may have more to do with the fact that the most moderate 60% of voters have disappeared from the political landscape, rather than a change in ideology from the majority of voters.

What effect does the disappearance of the center have on the structure of American politics? To understand this it is necessary to first outline the general election process. Of the 322 million American citizens only 208,012,000 (64.6%) are registered to vote. 32% of Americans identify as Democrats while 23% identify as Republicans or 67 million and 48 million respectively, with the rest identifying as Independent or belonging to third parties. In 2012, Mitt Romney was only able to win 10 million votes out of 19 million primary votes cast on his way to the nomination. Considering that the Republican Party has 48 million members, hardly a third of Republicans showed up to the polls, perhaps fewer due to Independents voting in the twenty-seven open primaries. The Democratic Party appears to have even lower turnout than the Republicans based on the 2004 race, but even if the Democrats exhibit similar voting patterns, one can expect less than 27 million to vote, in a party comprised of 67 million people.

Furthermore, one only needs around 50% of the primary vote to win the nomination, and the last two primary competitions were near that figure (53% for Romney 2012, 47% for Obama in 2008). In order to win the GOP nomination Trump, Cruz, Carson or whoever takes 2016’s trophy will only need to win in the range of 10 million votes, or 3% of the total US population. Meanwhile, in order to win the DNC nomination, Clinton or Sanders will only need to win roughly 14 million votes, or 4% of the total US population, meaning that the ideologies of America’s two ruling political parties are decided by a mere 7% of the total population. To put this in perspective, in 1972, 22.3% of Americans who were eligible to vote participated in the formation of their party’s ideology.

Chomsky and Wehner are not necessarily wrong. Perhaps the GOP has become too dependent on rich donors to connect with the average voter, while the Democrats have moved too far to the left for many who constituted Bill Clinton’s former base. But what is clear is that forty years ago nearly a quarter of eligible Americans voted in the primaries, playing a direct hand in the formation of their party’s ideology, while today that number is closer to one in ten. While the near-universal consensus among pundits and political theorists is that politics has become too polarizing, this extremism has emerged not from fanaticized voters, but from an apathetic middle that has almost completely disappeared from the political landscape. The absence of moderate voters has only had a multiplying effect, as extremist candidates drive out even more centrists from the voting pool.

Gary Girod is currently pursuing a Ph.D in modern Western European labor history at the University of Houston, and graduate of Chapman University.

In Southern California, It Takes an Assortment of Villages

Thu, 01/21/2016 - 06:40

Among urban historians, Southern California has often had a poor reputation, perennially seen as “anti-cities” or “19 suburbs in search of a metropolis.” The great urban thinker Jane Jacobs wrote off our region as “a vast blind-eyed reservation.”

The Pavlovian response from many local planners, developers and politicians is to respond to this criticism by trying to repeal our own geography. Los Angeles’ leaders, for example, see themselves as creating the new sunbelt role model, built around huge investments Downtown and in an expensive, albeit underused, subway and light-rail network.

Yet the notion of turning Southern California into a dense, New York hybrid makes very little sense. Nor has it done much for the regional economy, certainly in Los Angeles. The City of Angels thrived during its period of development into a multipolar region; in the 21st century, as Downtown has gained a few thousand hipsters, the rest of the city has lagged economically while population and job growth – including in tech – has been more robust in the surrounding counties of Orange, Riverside and San Bernardino.

Building off Strength

Southern California, even before the advent of the freeways, developed along the lines of an “archipelago of villages.” Even Downtown Los Angeles, the one legitimate urban core in the region, lost its central relevance by the 1930s and, despite all its self-promotion, employs close to the smallest share – well short of 3 percent – of the regional workforce of any large region in the country.

In contrast, the two fastest-growing areas in Southern California – the Inland Empire and Orange County – are arguably the largest regions in the country without a real downtown. Rather than a negation of urbanity, as some suggest, these areas are nurturing an expansive archipelago of smaller hubs, each serving distinct geographies, populations, tastes and purposes, and constitute the building blocks for Southern California’s urban future.

Read the entire piece at The Orange County Register.

Joel Kotkin is executive editor of NewGeography.com and Roger Hobbs Distinguished Fellow in Urban Studies at Chapman University, and a member of the editorial board of the Orange County Register. He is also executive director of the Houston-based Center for Opportunity Urbanism. His newest book, The New Class Conflict is now available at Amazon and Telos Press. He is also author of The City: A Global History and The Next Hundred Million: America in 2050. He lives in Orange County, CA.

Why High Taxes Aren’t the Only Reason GE Left Connecticut

Tue, 01/19/2016 - 21:38

General Electric, unhappy with a recent corporate tax increase in Connecticut, has now announced that it is relocating to Boston’s south waterfront. Indeed Connecticut’s tax climate is bad, ranking 44th according to the Tax Foundation, but GE’s move points to much bigger problems in the state.  I examine this in my new piece over at City Journal. Here’s an excerpt:

For decades, nearby New York City’s pain was Connecticut’s gain. New York was a grim, dangerous, failing city that almost went bankrupt in the 1970s. More than 100 Fortune 500 companies fled during that era, many heading to suburban New Jersey and Connecticut—including GE, which moved in 1974 from 570 Lexington Avenue to Fairfield, Connecticut. The same story played out in cities across America, with corporations fleeing dying downtowns for the safety of the suburban office campus.

Today, cities are back. The policing revolution—helped by the waning of the crack epidemic—made cities safe again. Core public services were slowly restored, parks were rebuilt, and transit systems were cleaned up and refurbished. Investment started returning. The structure of the economy changed, too. Starting in the 1990s, technology radically transformed the business world and is now a major industry in its own right. The financial industry was deregulated. Globalization drove demand for new types of business services, reinforcing the need to stay on top of a constantly shifting landscape. People with advanced, specialized knowledge are the ones who help companies innovate now. These employees work in highly interactive ways that benefit from clustering together—disproportionately in urban areas like New York, Chicago, and Boston.

Click through to read the whole thing.

Aaron M. Renn is a senior fellow at the Manhattan Institute and a Contributing Editor at City Journal. He writes at The Urbanophile, where this piece originally appeared.

Photo: The former General Electric/Remington facility in Bridgeport, CT. The buildings have been demolished in recent years.

Is California’s Economy Swell?

Mon, 01/18/2016 - 21:38

Every now and then, something happens to cause California’s comfortable establishment to celebrate the state’s economy.  Recent budget surpluses and jobs data have provided several opportunities, never mind that these are hardly summary statistics.  They don’t tell the complete story.

The celebrants conveniently ignore California’s nation-leading poverty, huge inequality, persistent negative domestic migration, and the fact that with about 12 percent of the nation’s population, California is home to about 30 percent of the nation’s welfare recipients.

A recent Next 10 report, prepared by Beacon Economics, has provided another opportunity for celebration.  The Los Angeles Times’ coverage of the report is here.  Their reporter, Chris Kirkham, provides a straight-forward summary, including charts not in the original report and quotes from people who might not be expected to be mindless cheerleaders.  Full disclosure: He tried to interview me, but I was unavailable.

My favorite coverage was a celebratory piece at The National Memo, by one Froma Harrop, titled High Taxes, Regulations, and a Swell Economy.  Try telling the children of one of the several families living in a single-family home, children with little prospect of ever living a middle-class lifestyle, that California’s economy is swell.  Try telling that to the huge numbers of long-term unemployed in California’s Central Valley, or one of the many people who, like Martin Saldana, have been poorly served by California’s swell economy.  California’s economy might be swell, but only for a portion of the population.

Harrop, and apparently large numbers of California’s comfortable establishment, don’t appear to care much about their less-fortunate fellow citizens.  She’s channeling Marie Antoinette when she says “OK.  Those who can’t pay the price—or who want bigger spaces—can and often do consider other parts of the country.”

Right.  What about all the people who provide services to California’s wealthy coastal residents in places like Monterey and Santa Barbara?  What about counties like Napa and Ventura that insist, by law, that land be set aside for agriculture, an industry that employs thousands, but can’t survive and pay wages that would allow a respectable standard of living in these high-cost counties?

This time the celebration turns out to be about nothing.  The Next 10 report is seriously flawed.  The first hint of weakness is on the first page of the actual report, page 4 of the document, where they say “This analysis is trying to show….”  Serious analysis attempts to answer questions, not support a pre-conceived opinion.

The next clue is Table 1.  In a report filled with time series, the authors present data on one point in time, say that California has the fourth highest net job growth rate, and conclude all is good.  Why would they do that?  Could it be that the time series doesn’t support the narrative?

Actually, they used the only recent year where California performed significantly better than the United States.  Here’s the data in time series.  It’s similar to a chart in the Los Angeles Times’ piece.  We compare California’s net job creation rate with that of the United States:

Doesn’t look so spectacular, does it? 

Maybe the rankings would look better?  Below is a chart of California’s ranking going back to 1977.  Remember, one is good, 50 is bad:

The narrative isn’t supported here either.  California has only ranked in the top 20 twice since 2006, and over that time it’s been in the bottom 20 three times.  Indeed, California has been in the top ten only once since 2001.  That was the data point they used in their analysis.

The report has other weaknesses.

Consider the charts 4a through 4f.  Combined, they purport to show that for California, firms of all ages were net job creators every year.  There is no year where they show firms of any age group having net job losses.  Given the well-documented massive California job losses in the past few recessions, this is simply unbelievable. 

Indeed, a close look at the charts yields apparent internal inconsistencies.  Chart 4e is an example.  In 2002, 2009, and 2010 job destruction rates were far greater than job creation rates, but somehow they report that net job creation rates managed to remain positive in each of these years?  For the record, we built a chart using aggregate data that show net job loss rates for all California establishments of -2.2, -5.8, and -3.1 for the years 2002, 2009 and 2010, respectively:

California’s apologists don’t do themselves any favors by resorting to such shoddy and misleading work.  California has had some good job years recently.  It also has some huge strengths.  These include a world-leading venture capital infrastructure, a world-leading climate, and a fantastic location between Asia and the massive American consumer market.

California has some huge challenges too, including the poverty, inequality, and limited opportunity for minorities.  Ignoring these challenges and exaggerating the state’s strengths is a guarantee that California will never be the land of opportunity that it was --- or could be.

Bill Watkins is a professor at California Lutheran University and runs the Center for Economic Research and Forecasting, which can be found at clucerf.org.

Around The World, The Tide Is Turning Against Megacities

Sun, 01/17/2016 - 21:38

The massive construction waste collapse last month in Shenzhen reflects a wider phenomenon: the waning of the megacity era. Shenzhen became a megacity (population over 10 million) faster than any other in history, epitomizing the massive movement of Chinese to cities over the past four decades. Now it appears more like a testament to extravagant delusion.

In 1979, Shenzhen was a small fishing town of roughly 30,000 people when it became a focus of former Chinese leader Deng Xiaoping’s first wave of modernization policies. Now it is a metropolis of 12 million whose population grew 56 percent between 2000 and 2014. For years, it stood as the brash wunderkind of Chinese cities, proud of its gleaming infrastructure that is now increasingly suspect.

The Shenzhen collapse came four months after a similar deadly public safety disaster in Tianjin, another relatively new megacity, where an explosion at a chemical warehouse killed 173 people. And of course, there is the widespread urban air pollution that is hazardous in Beijing and simply noxious elsewhere. Simply put, the once compelling “economies of scale” offered by increasing the size of cities have broken down in urban agglomerations over 10 million people, where their size has now become encumbrances to further growth, not to mention the happiness and health of their citizens.

One big problem with megacities, the Chinese are discovering, is their impact on property prices and fertility. Chinese may have been freed last year from the tyranny of the one-child policy, but don’t expect a baby boom in any of the biggest, most glamorous cities. Shanghai has among the lowest fertility rates in the world, one-third of the replacement rate. Beijing and Tianjin suffer a similarly dismal fertility rate.

This reflects both crowded conditions and insanely high property prices that, on an income-adjusted basis, now are far higher than those in expensive world cities like Vancouver, London, Sydney, San Francisco and New York — two times higher in some cases.

The population growth rate in Beijing and Shanghai has dropped dramatically since 2010, according to  demographer Wendell Cox. The population of China’s capital expanded 3.9 percent a year from 2000 to 2010; growth slowed to 2.3 percent annually from 2010 to 2014. In Shanghai the population growth rate for the same periods slowed from 3.4 percent annually to 1.3 percent. High degrees of pollution have led at least some affluent urban Chinese to move back toward the countryside, as well as to cleaner, less congested regions in Australia, New Zealand, and North America.

Nonetheless, the Chinese government remains committed to driving further urbanization to boost economic growth, aiming to turn more rural farmers into city-dwelling, free-spending consumers. In 2014 the government set a goal to increase the ratio of the Chinese population that lives in cities to 60% by 2020 from 53.7% then. But  the urbanization strategy aims to funnel migrants to small and midsize cities with less than 5 million residents, maintaining tight restrictions on legal migration to the megacities.

To make the smaller cities more attractive Beijing promised to ramp up infrastructure spending, and local governments have rolled out housing subsidies, tax breaks and cheaper mortgages to lure migrants. Whether that will be enough to counteract the pull of the megacities’ bigger job markets is an open question.

Peak Megacity In Much Of The World

Until recently the worldwide trend toward megacities — there were 34 in 2014 — has seemed relentless. But in much of the world this trend is slowing down. The populations of Europe and North America are growing slowly, with the exception of London and Moscow. In the last decade the population of New York City grew at roughly one third the relatively low national rate.

Where megacities can be expected to grow in the future are in the backwaters of the global economy, in Africa and parts of Asia, where the most rapid population growth and urbanization is taking place.

In an impressive 2011 study, the consultancy McKinsey predicted that through 2025, population growth would shift to 577 “fast-growing middleweight” cities many of them in China and India, while, in contrast, megacities would underperform economically and demographically.

In India as well, population growth rates have slowed considerably for two of its three largest cities, Mumbai and Kolkata, while New Delhi has become the country’s largest megalopolis. More rapid population growth has taken place in mid-sized cities such as Hyderabad, Pune, Chennai, and Bangalore, as well as in smaller cities like Coimbatore, home to 2.5 million, that have seen much of the industrial and tech growth in the country.

Urban decentralization has become something of a theme of the government of Prime Minister Narendra Modi, who implemented a program of “rurbanization” as Chief Minister of the state of Gujarat. Villages are still home to the vast majority of Indians and serve as the primary source of new urban migrants. Modi speaks of human settlements with the “heart of a village” and developing “the facilities of the city.”

Singapore-based scholar Kris Hartley notes a shift of industrial and even service businesses to more rural locales in Southeast Asian countries like Thailand, Vietnam and Indonesia, and parts of China. As megacities become more crowded, congested, and difficult to manage, Hartley suggests, companies in these areas are finding it more convenient, less costly, and better for the families of their employees to locate farther from giant cities.

Where Megacities Will Grow Fastest

According to U.N. estimates, 99 percent of all population growth between 2010 and 2100 will take place in developing countries, some 83 percent in Africa alone followed by 13 percent in Asia, particularly the less developed parts.    

Rather than an indicator of the future, megacity growth in these regions increasingly is something of a lagging indicator of an early phase of urbanization. Growth projections suggest the evolution of two more megacities in Africa: Johannesburg-East Rand (South Africa) and Luanda (Angola).  They will join Lagos in Nigeria, as well as the rapidly growing and poor megacities Cairo and Kinshasa, as well as Karachi in Pakistan

As is the case in India, these cities will likely be most prolific in producing slums. Worldwide there are now as many as a billion denizens of these depressed areas, threatening the social stability of not only of their countries but also the world, as they tend to generate high levels of both random violence and more organized forms of thuggery, including terrorism.

One does not have to be a Gandhian idealist to suggest that perhaps dispersion, not concentration, provides a better model for future urban growth in developing countries, offering more space, privacy, and connection to nature, note social scientist Robert Obudho. A focus on large city development, he argues, will exacerbate problems, while shifting toward smaller-scale areas could encourage more “self-reliance, spatial equity, [and] local participation.”

Ultimately, a shift toward dispersion—both within regions and between them—has been made more feasible in the developing world, as in the West, by new technology. Smaller cities and even villages are no longer as economically isolated and are brought closer to the outside world through the use of cell phones and the Internet. Economic growth in these places could help stem megacity migration by closing the gaps in living standards of rural people relative to their urban counterparts, as has occurred in western countries.

Such ideas need to be heard more in the discussion about cities in the developing world. We need to confront the urban future with radical new thinking. Rather than foster an urban form that demands heroic survival, we should focus on ways to create cities that offer a more prosperous, healthful and even pleasant life for their citizens.

Joel Kotkin is executive editor of NewGeography.com and Roger Hobbs Distinguished Fellow in Urban Studies at Chapman University, and a member of the editorial board of the Orange County Register. He is also executive director of the Houston-based Center for Opportunity Urbanism. His newest book, The New Class Conflict is now available at Amazon and Telos Press. He is also author of The City: A Global History and The Next Hundred Million: America in 2050. He lives in Orange County, CA.

Photo: Shenzhen:  Binhe Avenue from the Shun Hing Tower (by Wendell Cox)

China's Navy: A Maritime Power?

Fri, 01/15/2016 - 21:38

When China’s navy looks beyond its coastal waters, which it increasingly does, it sees a kind of Great Wall. The Chinese call this the “First Island Chain,” a line of islands, some small, others huge, extending from the Japan archipelago to the north, the Ryuku island chain past Taiwan, and the Philippines to the south. The waters within this arc are considered an integral part of China itself.

Increasingly, China’s sailors are penetrating this barrier through various choke points to gain access to the broader Western Pacific Ocean. In late November, a large formation of Chinese long-range bombers and support craft passed through the gap between Okinawa and the island of Miyako, the so-called “Miyako Channel".

The Miyako Channel is strategically vital for China because it is one of the few international waterways through which the Chinese navy and air can access the Pacific Ocean without violating somebody’s space. It is also located close to the Japanese-controlled Senkaku islands which are also claimed by China.

The first time a Chinese H-6K bomber passed through the channel was September, 2013; the first multi-plane formation to use this passageway was in May this year, and late this year an unusually large formation of eight bombers and support aircraft passed through the gap, flew around the Pacific, and then returned to home base through the channel.

The H-6K is a modified and much improved version of an old Soviet Tu-22 bomber, known as a “Badger”. It has been configured to hold cruise missiles under its wings or in its bomb bay. The planes reportedly flew about 620 miles into the Pacific before returning to their home base near Shanghai.

Both the Chinese navy and the air force are learning to conduct extended maritime operations far from home waters and into the wider Western Pacific. Of course, China has maintained a permanent, rotating flotilla of two destroyers and a supply ship in the waters off the coast of Somalia and the Gulf of Aden since 2009. Unlike Japan, it does not have a permanent base in that region, although it is seeking one.

In March, 2014, two Chinese warships docked at Abu Dhabi, the first time a Chinese fleet had made a port call on the Arabian Peninsula since the days of the Treasure Ships of Admiral Zheng He. In 2013, the Chinese navy made its first goodwill visit to South America, and it stationed a guided missile frigate in the Mediterranean to help escort ships removing chemical weapons from Syria.

These missions are not war fighting, but the ships have enhanced capabilities for operating in seas far from home. They have gained experience in coordinating with other naval services on anti-piracy patrol, and exercised with other navies, including those of South Korea and Pakistan.

In the summer of 2013 a Chinese naval flotilla passed through the Soyu Strait, which separates Hokkaido from the southern tip of Russia’s Kurile islands; they returned to their home base through the Miyako Channel. The People’s Daily trumpeted this maneuver as if it were a major triumph. Never mind that these narrow waters are international passageways or that they could easily be closed off if the Japanese decided to do so.

China routinely conducts naval and air exercises beyond the First Island Chain as far away as the Philippine Sea, and the number of Chinese naval flotillas passing through the First Island Chain has increased significantly in recent years. There were two in 2008 and 2009, four in 2010, five in 2011, and eleven in 2012. In 2012 surface combatants were deployed seven times to the Philippine Sea; they were deployed nineteen times in 2013. The Maneuver-5 exercise in the Philippine Sea involved units from all three of China’s fleets, its largest open-ocean exercise to date.

The Chinese navy has now penetrated all of the Western Pacific choke points along the chain, from the Tsuruga Strait separating Hokkaido from Honshu in northern Japan to the Bashi Strait separating Taiwan from the Philippines and the Sunda Strait in Indonesia. In October, 2012 a flotilla exited the East China Sea through the narrow passage way between Taiwan and Japan’s Yonaguna island in the Ryukyu chain (where the Japanese army has constructed a surveillance radar).

This is thought to have been a signal from Beijing of displeasure over Tokyo’s decision to buy the Senkaku islands a month earlier. Later, two Sovremnny Class destroyers and two frigates exited the chain through the Miyako Strait and returned via the waters separating Yonaguna from Taiwan.

The navy has steadily progressed from a handful of vessels, to multi-fleet (i.e. elements from all three of China’s fleets), to combined operations with submarines, drones and long-range bombers. Not only does China maintain a permanent anti-piracy force in the Indian Ocean, it now routinely conducts naval exercises and operates beyond the First Island Chain, says the US National Defense University.

This year China was invited to participate in the Rimpac exercise in waters near Hawaii. It sent a destroyer, but also an intelligence-gathering ship, making it possibly the first time a nation spied on an exercise in which it was a participant.

When queried as to its purpose and intentions of these missions, Beijing has a standard reply: “The training is in line with the relevant international practices and is not aimed at any one country or target and poses no threat to any country or region.”

In June, 2015, Beijing issued a white paper on its defense priorities in which it stated what has been obvious to any naval planner paying attention: that China's naval interests are no longer limited to its coastline, but span the globe. “The traditional mentality [going back to Mao Zedong] that the land outweighs the seas must be abandoned,” the paper states.

That the Chinese navy will enhance its capabilities for “open seas protection” just puts into words what is actually happening. The white paper leaves little doubt that China is intent on transforming itself into a modern maritime power, capable of challenging Japan or the US in Asia and elsewhere.

Todd Crowell is the author of The Coming War, published by Amazon as a Kindle Single.

First Island Chain (perimeter marked in red) map by Suid-Afrikaanse (GFDL) via Wikimedia Commons

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Kotkin has a striking ability to envision how global forces will shape daily family life, and his conclusions can be thought-provoking as well as counterintuitive. It's amazing there isn't more public discussion about the enormous changes ahead, and reassuring to have this talented thinker on the case. — Jennifer Ludden, NPR national desk correspondent

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