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Doing What Actually Works

2 hours 47 min ago

Last year I engaged in a failed attempt to renovate and expand an old house in an 1890’s era neighborhood in Ohio. It ended badly. So I thought I’d do a follow up on what actually does work given the legal parameters and cultural context.


I sold the house to a smart young local guy who bought eight similarly run down properties on the same block within a short period of time. He gathered private funds from a group of personal investors to finance the venture. Then he hired a family owned contracting company from across the river in Kentucky to renovate all the homes. He’s selling the properties as they become ready for market and distributing the profits to his investors, keeping a percentage for himself. It’s a really good economic model with a fast lucrative turn around.

The new owner and his contractor never dreamed of changing any of these buildings in a way that would have required any kind of special permission or variances from the city authorities. That way lies ruin. This smart team of savvy professionals brought these abused and neglected husks up to respectable middle class standards quickly and efficiently in a way that only marginally involved municipal officials with plain vanilla over-the-counter permits and ho-hum inspections. Once the new kitchen cabinets and fancy appliances go in along with the new windows and flooring these homes have instant market appeal. They’ve been selling very well, particularly because the collective renovations of multiple buildings at the same time in the same concentrated area feeds a palpable sense that the neighborhood is rapidly gaining value.

It helps that the new owner went to high school in the area. In a provincial town like Cincinnati these things really matter to the locals. And he’s selling single family homes, presumably to future owner/occupants. In contrast, I was reviled in social media as both a carpetbagging gentrifier who was driving out long time working class residents and an absentee slumlord who would dump “the wrong element” on to the neighborhood and degrade property values and the quality of life for nearby homeowners.

The end result is that the house I paid $15,000 for will ultimate sell for six figures even though it’s still exactly the same size and shape – give or take a nice cosmetic skin job – after it’s flipped at a generous profit. So the folks who worry about gentrification will experience the same resultant condition relative to what I had in mind for the place. And there’s no guarantee that it won’t eventually be purchased by someone who will choose to rent the property rather than live in it themselves. But all that is beside the point. The regulatory environment and cultural perceptions are the defining constraints. The new owner is just a whole lot better at effectively piloting his way around those shoals. I have to respect his business acumen.

Over the past five years I’ve followed a variety of young talented industrious people in the neighborhood. One couple has been engaged in another business model that works beautifully. They buy a distressed property at a reasonable price point. They move in and occupy the space themselves for about a year while they renovate it. Then they buy their next property, move in, and rent the one they just completed. Instead of flipping properties they’re steadily building a long term portfolio with positive cash flow and equity. They’re currently managing a dozen units and filling them with good quality people from the community.

The crucial point is that they never buy a property that requires special permission to upgrade or needs extraordinary amounts of structural work to bring it up to code. They buy a solid shell and clean it up. Full stop. If they encounter an otherwise great building that happens to need fire sprinklers, or an elevator, or a zoning variance they steer well clear of it. Let some other poor bastard kill themselves in the meat grinder of endless bureaucracy and public outrage. (That was me…)

To do absolutely anything else is technically possible, but hideously time consuming, difficult, and untenably expensive – and your neighbors will call you all sorts of terrible names and project all their fears on to you. For folks who believe in building great new places that mirror the charming old compact mixed use walkable neighborhoods of a century ago… Let it go. We have the dregs we inherited from previous generations and they can be shined up. But that’s it.

John Sanphillippo lives in San Francisco and blogs about urbanism, adaptation, and resilience at granolashotgun.com. He's a member of the Congress for New Urbanism, films videos for faircompanies.com, and is a regular contributor to Strongtowns.org. He earns his living by buying, renovating, and renting undervalued properties in places that have good long term prospects. He is a graduate of Rutgers University.

All photos by Johnny Sanphillippo

Are America’s Cities Doomed to Go Bankrupt?

Fri, 01/20/2017 - 05:56

I’m a fan of Strong Towns and share their thesis that the biggest sustainability problem with much of suburbia is its financial sustainability.

recent article there about Lafayette, Louisiana has been making the rounds. That city’s public works director made some estimates of infrastructure maintenance costs and which parts of the city turned a “profit” from taxes and which were losses. Here’s their profit and loss map.

http://www.urbanophile.com/wp-content/uploads/2017/01/lafayette-la-tax-m... 300w, http://www.urbanophile.com/wp-content/uploads/2017/01/lafayette-la-tax-m... 768w" sizes="(max-width: 776px) 100vw, 776px">

The obvious conclusion that we are supposed to draw is that dense, compact, traditional urban development is profitable and good, but low density sprawl is a money loser and bad.

There’s some truth in this, but taking that simplistic view can give a misleading impression. For example, let’s consider why high density central business districts tend to have such density of development and high property values per acre (and thus taxes). It’s obvious that these districts derive a great part of their value from the overall scale of the community, i.e., sprawl.

Let’s do a quick thought experiment. Lower Manhattan below 59th St. is certainly incredible valuable property. However, if the rest of the metro area were some how chopped away leaving only this super-valuable part, how much value would that land retain? In part, Manhattan is valuable because it’s the center of a vast megacity region where tremendous amounts of human capital that lives in dispersed communities can be concentrated in a small area for commercial purposes.

This article says that only about five cities in America don’t suffer from a fatally flawed financial model. I seem to recall that elsewhere they said NYC and SF are the only two cities that can survive in the long run financially.

But it wasn’t that long ago that NYC nearly went bankrupt and had to be rescued. A recent study just said that its structural finances are the second worst of any major city in the country, primarily because of its gigantic liability for retiree health care. NYC looks good now because its economy has been booming. Let’s see how it does it a major downturn, particularly without a strong fiscal hand like Bloomberg at the tiller.

San Francisco is unaffordable to all but very high income residents. It’s a de facto gated community. It may well be that pricing everybody but the rich out is a viable strategy for financial sustainability, but that’s obviously a path foreclosed to most places, even if they wanted to try it.

We also need to consider that there’s infrastructure we have maintained. By and large our telecommunications infrastructure and electricity infrastructure are in very good shape, for example.  For telecom especially we’ve made vast investments to not only maintain, but dramatically upgrade our infrastructure. How did we manage to pull that off if it’s financially impossible to maintain and upgrade infrastructure? What lessons could we learn from that?

In short, I agree with the general Strong Towns thesis that we need to look at the long run “total cost of ownership” of sprawl. In many cases, the math just doesn’t add up and some cities are in an infrastructure hole so deep they’re unlikely ever to get out. But they are overstating their case here.

Aaron M. Renn is a senior fellow at the Manhattan Institute, a contributing editor of City Journal, and an economic development columnist for Governing magazine. He focuses on ways to help America’s cities thrive in an ever more complex, competitive, globalized, and diverse twenty-first century. During Renn’s 15-year career in management and technology consulting, he was a partner at Accenture and held several technology strategy roles and directed multimillion-dollar global technology implementations. He has contributed to The Guardian, Forbes.com, and numerous other publications. Renn holds a B.S. from Indiana University, where he coauthored an early social-networking platform in 1991.

Photo "Downtown Lafayette, Louisiana" by Patriarca12 (Own work) [CC BY 3.0], via Wikimedia Commons

Are America’s Cities Doomed to Go Bankrupt?

Fri, 01/20/2017 - 05:56

I’m a fan of Strong Towns and share their thesis that the biggest sustainability problem with much of suburbia is its financial sustainability.

recent article there about Lafayette, Louisiana has been making the rounds. That city’s public works director made some estimates of infrastructure maintenance costs and which parts of the city turned a “profit” from taxes and which were losses. Here’s their profit and loss map.

http://www.urbanophile.com/wp-content/uploads/2017/01/lafayette-la-tax-m... 300w, http://www.urbanophile.com/wp-content/uploads/2017/01/lafayette-la-tax-m... 768w" sizes="(max-width: 776px) 100vw, 776px">

The obvious conclusion that we are supposed to draw is that dense, compact, traditional urban development is profitable and good, but low density sprawl is a money loser and bad.

There’s some truth in this, but taking that simplistic view can give a misleading impression. For example, let’s consider why high density central business districts tend to have such density of development and high property values per acre (and thus taxes). It’s obvious that these districts derive a great part of their value from the overall scale of the community, i.e., sprawl.

Let’s do a quick thought experiment. Lower Manhattan below 59th St. is certainly incredible valuable property. However, if the rest of the metro area were some how chopped away leaving only this super-valuable part, how much value would that land retain? In part, Manhattan is valuable because it’s the center of a vast megacity region where tremendous amounts of human capital that lives in dispersed communities can be concentrated in a small area for commercial purposes.

This article says that only about five cities in America don’t suffer from a fatally flawed financial model. I seem to recall that elsewhere they said NYC and SF are the only two cities that can survive in the long run financially.

But it wasn’t that long ago that NYC nearly went bankrupt and had to be rescued. A recent study just said that its structural finances are the second worst of any major city in the country, primarily because of its gigantic liability for retiree health care. NYC looks good now because its economy has been booming. Let’s see how it does it a major downturn, particularly without a strong fiscal hand like Bloomberg at the tiller.

San Francisco is unaffordable to all but very high income residents. It’s a de facto gated community. It may well be that pricing everybody but the rich out is a viable strategy for financial sustainability, but that’s obviously a path foreclosed to most places, even if they wanted to try it.

We also need to consider that there’s infrastructure we have maintained. By and large our telecommunications infrastructure and electricity infrastructure are in very good shape, for example.  For telecom especially we’ve made vast investments to not only maintain, but dramatically upgrade our infrastructure. How did we manage to pull that off if it’s financially impossible to maintain and upgrade infrastructure? What lessons could we learn from that?

In short, I agree with the general Strong Towns thesis that we need to look at the long run “total cost of ownership” of sprawl. In many cases, the math just doesn’t add up and some cities are in an infrastructure hole so deep they’re unlikely ever to get out. But they are overstating their case here.

Aaron M. Renn is a senior fellow at the Manhattan Institute, a contributing editor of City Journal, and an economic development columnist for Governing magazine. He focuses on ways to help America’s cities thrive in an ever more complex, competitive, globalized, and diverse twenty-first century. During Renn’s 15-year career in management and technology consulting, he was a partner at Accenture and held several technology strategy roles and directed multimillion-dollar global technology implementations. He has contributed to The Guardian, Forbes.com, and numerous other publications. Renn holds a B.S. from Indiana University, where he coauthored an early social-networking platform in 1991.

Photo "Downtown Lafayette, Louisiana" by Patriarca12 (Own work) [CC BY 3.0], via Wikimedia Commons

Loyal Opposition Versus Resistance to Trump

Wed, 01/18/2017 - 21:38

Perhaps nothing has made modern progressivism look sillier than the often hysterical reaction to the election of Donald Trump. This has spanned everything from street protests, claims of Russian electoral manipulation and even reports of sudden weight gain and loss of sexual interest. Rather than become more introspective in the face of defeat, the bulk of left-leaning media and their intellectual allies have embraced the notion — even before the new president proposes anything — of following what UC Berkeley public policy professor and former U.S. labor secretary Robert Reich calls “the resistance agenda.”

The notion of modern progressives donning berets and fighting the modern-day version of Nazis is absurd. Donald Trump may be wrongheaded, and personally venal, but he is not Adolph Hitler, or even Benito Mussolini. Critically, he is not particularly popular, as were those demagogues. Trump’s election certainly was not a mandate, as many liberals correctly point out.

The election showed a still deeply divided nation. Hillary Clinton won the popular vote, but the GOP triumphed everywhere else, notably at the congressional level, where they won by 3.5 million votes, and it did even better at the state and local levels. Certainly, the progressives can get back into the game, but first they need to toss out the berets, stop talking civil disobedience and instead embrace the role of loyal opposition, using counter-arguments rather than histrionics.

Progressives still have wind at their backs

Democrats, time is still largely on your side. All the constituencies that backed Hillary Clinton — minorities, millennials, college-educated professionals — are demographically ascendant. Those that backed Trump, such as boomers, seniors and members of the white working class, are destined to fade.

To return to power in the short run, however, the Democrats need to appeal to parts of the largely white, older Trump base, many of them former Democrats. The meme, as seen in Slate’s assertion that the election proved “how racist, sexist and unjust America is,” does not seem the best way to win over these wavering voters. There are opportunities galore to do this.

Read the entire piece at The Orange County Register.

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, was published in April by Agate. He is also author of The New Class ConflictThe City: A Global History, and The Next Hundred Million: America in 2050. He lives in Orange County, CA.

Trump protest photo by i threw a guitar at him. (https://www.flickr.com/photos/becc/26879649373/) [CC BY 2.0], via Wikimedia Commons

Detroit’s New Streetlights Show Service Rebuilding in Action

Tue, 01/17/2017 - 21:38

I’ve been arguing that one thing struggling post-industrial cities need to do is take care of their own business, doing things like addressing legacy liabilities and rebuilding of core public services.

Last week I write about Buffalo doing just this by completely re-writing its zoning code and creating a new land use map of the city to bring its planning ordinances up to date for the 21st century.

Michael Kimmelman, architecture critic at the New York Times, recently wrote a feature on another good example: the replacement of Detroit’s entire street light inventory.

Detroit had 88,000 street lights, but only about half of them worked. Many of them were ridiculously old, some dating to the early 20th century I believe. Many of these were historic and charming as a result, but alas they didn’t work and couldn’t be maintained either. What’s more, thieves kept stealing the wire out of them for the copper.

The new system consists of 65,000 new LED lamps. As the Times puts it:

Let’s hope that if anyone writes a history of Detroit’s rejuvenation, a chapter is devoted to the lights returning. Like picking up the trash, fixing potholes and responding to emergencies, these efforts signal that no matter where you live in Detroit, you are no longer forgotten — that government here can finally keep its basic promises.

This is where the new lights come in. They’re spread all across town. The project cost $185 million, paid by the city and the state. The Public Lighting Authority of Detroit, backed by the mayor, received a critical assist from the Obama administration: Energy Department experts advised local officials to swap out the old, costly, broken-down sodium lamps, which vandals had been stripping bare for copper wire.

They recommended LED technology. Investments by the Obama administration in energy-efficient lighting have reduced costs, making LEDs feasible for a city like Detroit. Three years ago, nearly half the 88,000 streetlights in the city were out of commission. The more potent LED lights allow the authority to replace those 88,000 old fixtures with 65,000 new ones, strong enough for you to read one of those glossy magazines after dark.

Detroit said that it needed to actually deliver high quality services to its residents. Streetlighting is literally a high visibility service. And unlike some human services areas or economic development, it’s a straightforward piece of physical infrastructure that should be well within the ability of the city to actually deliver. And the new lighting authority did deliver:

The whole thing came in under budget and on time. When was the last time anyone could say that about a major infrastructure project in Detroit? “An example of how good government should work,” as Lorna L. Thomas, chairwoman of the lighting authority, put it at the switch-flipping ceremony.

It’s also an example of how one smart urban-design decision can have ripple effects. Some residents here grumbled about fewer lights. That said, the stronger new ones turn out to save Detroit nearly $3 million in electric bills. They use aluminum wiring, which nobody wants to strip, discouraging crime. The technology even cuts carbon emissions by more than 40,000 tons a year — equivalent to “taking 11,000 cars off of your streets,” [said Shaun Donovan].

Part of creating a willingness to spend more money on government is recreating a sense that government is actually competent. Delivering a project on time, under budget, that will save millions in operating costs, reduce theft, and be more environmentally friendly is a step in the right direction.

I’m not the biggest fan of LEDs and might be with the grumblers on wanting a higher density solution. But my preferences for gold level services aren’t always realistic. This appears to be a high quality, cost effective solution the city should feel good about. Other post-industrial cities should take note.

Click over to read the rest of the Times piece.

Image via Laura McDermott/The New York Times

Aaron M. Renn is a senior fellow at the Manhattan Institute, a contributing editor of City Journal, and an economic development columnist for Governing magazine. He focuses on ways to help America’s cities thrive in an ever more complex, competitive, globalized, and diverse twenty-first century. During Renn’s 15-year career in management and technology consulting, he was a partner at Accenture and held several technology strategy roles and directed multimillion-dollar global technology implementations. He has contributed to The Guardian, Forbes.com, and numerous other publications. Renn holds a B.S. from Indiana University, where he coauthored an early social-networking platform in 1991.

Them that’s got shall have. Them that’s not shall lose.

Mon, 01/16/2017 - 21:33

My family lived in this building when I was a kid in the 1970’s. This was the door to our old apartment. It’s in a nondescript part of the San Fernando Valley in Los Angeles. There are a million places just like this all over the Southland. These beige stucco boxes are the workhorses of semi-affordable market rate housing in California. The place hasn’t changed in forty years other than the on-going deferred maintenance.

I walked around the block to see the buildings where my friends used to live and the shops where we bought groceries and such. I can’t say I felt nostalgia. These weren’t happy times. But I was aware of the fact that the people who live here now are the same as my family was then – basically good people who are scraping by with almost no money doing the best they can with what they have. These are the minimum wage workers who do all the invisible dirty work of the city. Real incomes for these folks haven’t changed since I was a kid. But the cost of everything important from owning a home to health care to a proper education has skyrocketed.

I want to go back to my last post about the exclusive homes in the fringe suburbs. The people who can afford to live here do so in large part so they can distance themselves from the people in my old neighborhood. Fair enough. I completely understand. I don’t want to live in my old neighborhood again either.

But there’s that lingering problem of public infrastructure vs. the tax base of various forms of development. The city has spent almost nothing on my old block for decades. Yet those sad buildings keep spinning off revenue year after year. And there are a lot of them. Collectively they generate enough excess cash that the authorities can siphon it off to fund other activities. When it comes time to allocate resources who do you think has the most likely chance of getting what they need? The people who live in my old apartment, or the folks who live in the $700,000 homes up on the hill?

As a society we want to believe that the poor are draining the public coffers dry. We need to blame the lower end of the working class for whatever we don’t like about the country. We want it to be true that they are undeserving compared to the better people who begrudgingly support them from a distance. Welfare. Food stamps. Section 8. But the reality – if you look at the budget and the actual numbers – is that without the poor packed tightly in their crappy apartments all working for crumbs in underfunded sections of town there could be no exclusive enclaves.

Billie Holiday said it best. Them that’s got shall have. Them that’s not shall lose.

John Sanphillippo lives in San Francisco and blogs about urbanism, adaptation, and resilience at granolashotgun.com. He's a member of the Congress for New Urbanism, films videos for faircompanies.com, and is a regular contributor to Strongtowns.org. He earns his living by buying, renovating, and renting undervalued properties in places that have good long term prospects. He is a graduate of Rutgers University.

All photos by Johnny Sanphillippo

The Irony That Could Trip Up Trump's Quest To Make The U.S. Economy 'Great Again'

Sun, 01/15/2017 - 21:38

Perhaps no president in recent history has more pressure on him to perform economic miracles than Donald Trump. As someone who ran on the promise that he could fix the economy -- and largely won because of it -- Trump faces two severe challenges, one that is largely perceptual and another more critical one that is very real.

To start, Trump must cope with the widespread idea, accepted by much of the media, that we are experiencing something of an “Obama boom.”

He is widely portrayed as inheriting a very strong economy, notes MSNBC, in which the U.S. is “the envy of the world.” Fortune sees Trump inheriting “the best economy in a generation.”

Yet this is more a matter of perception than reality, a kind of “fake news.” To be sure, President Barack Obama inherited a disastrous economy from George W. Bush and can claim, with some justification, that on his watch millions of jobs were restored and the economy achieved steady, if unspectacular, growth. Under Obama average GDP growth has been almost twice as high as under his predecessor, but roughly half that of either President Reagan or Clinton.

Less appreciated, however, are the fundamental long-term weaknesses in the U.S. economy that Obama and Bush have left for Trump. A recent report from the U.S. Council on Competitiveness details a litany of profound, lingering flaws -- historically slow growth, rising inequality, stagnant incomes, slumping productivity and declining lifespans. As the report concludes: “The Great Recession may be over, but America is dangerously running on empty.”

These make for challenging conditions for Trump to make good on his promise to “make America great again.”

Since 2005 the vast majority of new jobs created have been part-time, and most have been in low-end service professions. Full-time middle-class employment, particularly in fields like manufacturing, construction and energy, has recovered some, but not enough to rekindle a broad sense of economic opportunity. Both the numbers of the rich, and those of the poor, grew markedly under our now departing President. There are now 16 million more people on food stamps than in 2008, and homeownership is down to the lowest level in nearly 50 years.

Trump may have lost the popular vote but given his awful approval numbers, it’s a testament to how deep the distress is for millions amid this economic malaise that he managed to come even close. Perhaps more importantly House Republicans, also running against the economy, outpolled their rivals by 3.5 million votes. Their constituents differ from that of the blue states won by Hillary Clinton. These states, whose economies depend more on financial engineers, real estate speculation, media and technology development, did well – or at least those who worked in these industries did.

Trump’s Biggest Challenge

Trump won because of Middle America -- largely white, suburban and small town, mainly in the vast region between the Appalachians and the Rockies. To consolidate his grip on power, and that of his unruly party, he needs to extend the weak, but long-lasting Obama recovery into something that drives up higher wage employment in manufacturing, energy and services.

This is where Trump’s emerging nationalist policies could come into play. Conservatives and liberals alike sneer at his needling of big corporations, foreign and domestic, over jobs, but what is the job of a President? Shouldn’t he be on the side of average citizen in Podunk, USA? If Trump can bring good jobs back to Middle America, notes analyst Aaron Renn , a native of southern Indiana, they’ll appreciate it. Trump, he notes, is “sending a powerful message to workers that they matter and he will fight for their interests. “

His jawboning of CarrierFordGM and Sprint, and even the mighty Apple, could all be dissected as dependent on subsidies, incentives and intimidation. But people in Indianapolis, southeast Michigan and Kansas City are not theoretical beings waiting for the welfare leavings of the coastal super-rich. Their desires matter as much as those of sensitive souls in San Francisco or Brooklyn.

There are certainly ways -- tax policies, regulatory reform, infrastructure investment -- that might spark growth and get companies to create more jobs here.

Is Trump Up To The Job?

There is nothing better for an economy than mass prosperity, which is something now sorely missing. That means people buying houses, getting married, having babies, the essentials of a strong middle class economy. Anyone who delivers those goods -- last accomplished by Bill Clinton and Ronald Reagan -- seems certain of re-election. This is particularly critical for the roughly seven in 10 Americans who have less than $1,000 in savings.

Of course, Trump seeks to achieve this goal is using a very different approach than either Clinton or Reagan. He has chosen to follow an economic nationalist course that, in some ways, seek to reverse the approach embraced by both of these successful Presidents and much of the nation’s establishment. In contrast to virtually everyone who has held the White House since the 1940s, Trump did not run for leader of the world; he ran, very purposely, as the candidate of Americans. Clinton, like the European Union have offered more complexity, notes the Guardian; Trump, like many effective leaders, boiled everything down to simple memes.

Whether this populist course will work is not clear. Critics in the Democratic Party have pointed out, correctly, that Trump’s cabinet hardly fits a populist mold. It’s full of Wall Street financiers and high level corporate executives. He also will face opposition within his own party, which remains largely chained to big business interests and includes many advocates for ever expanding globalization. Similarly many “routine” jobs that paid well have fallen not simply to foreigners, but to automation and technology.

Yet ultimately Trump has proven himself something of savvy politician -- far more than anyone suspected -- and seems, at least for now, to be keeping his eye on the ball. The specter of tax, regulatory reform and more infrastructure spending is already ramping up projections of long lagging investment from businesses. And the general population, however deeply divided, seems more optimistic than in previous years, which could further stimulate the economy.

This could reinforce the notion that Trump’s hectoring of executives, and pushing economic nationalism, could prove effective in creating broad based economic growth for the emerging post-globalization era. Now it’s a matter of whether he can pull this off without sparking a trade war, an international meltdown or another recession that could turn him not into the new Reagan, but the latest version of Herbert Hoover.

This piece originally appeared in Forbes.

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, was published in April by Agate. He is also author of The New Class ConflictThe City: A Global History, and The Next Hundred Million: America in 2050. He lives in Orange County, CA.

Photo by Gage Skidmore from Peoria, AZ, United States of America (Donald Trump) [CC BY-SA 2.0], via Wikimedia Commons

World Automotive Sales Setting New Records

Fri, 01/13/2017 - 21:38

The world has come a long way since 1929, when 80 percent of the world’s car registrations were in the United States, which also manufactured 90 percent of the vehicles. Now China produces the most cars and its annual sales rank top in the world. China overtook the United States in vehicle sales during the Great Recession. But it’s not like Americans are no longer buying cars; the US broke its own record last year. In 2016, sales records were also set in nations as diverse as China, the United Kingdom, Canada, Australia and Mexico.  

China

China has emerged as the world’s largest automotive market. In 2016, China’s sales of passenger cars, light trucks (including sport utility vehicles, or SUVs) and commercial vehicles reached 23.9 million. This is 6.5 million more cars than were sold in the United States. This gap is likely to grow, because China's large population offers greater opportunity for growth. The United States has about eight times as many vehicles per 1,000 population as China. The US leads in total vehicles with 260 million compared to China's 140 million, according to OICA, the international vehicle manufacturers organization (Organisation Internationale des Constructeurs d’Automobiles), 

From virtually the beginning of motorization more than a century ago, the United States dominated world automotive production but during  the Great Recession   China assumed sales leadership. As sales dropped precipitously in the US, Chinese sales rose 47 percent in 2009.

Sales in 2016 were aided by temporarily lower taxes on small engine vehicles, which ended on December 31. Still, analysts expect another four to five percent growth in vehicle sales in 2017.

As in a number of other nations with rising volumes, SUVs took an increasing share of total sales figures. SUV sales were up 44 percent, eight times the increase in passenger car sales. Now, nearly three-quarters as many SUVs as passenger cars are sold in China (Note).

Buick was one of the international pioneers in China’s automobile market, from agreements after US President Richard Nixon’s early 1970s visit. Buicks had been favored by some government officials. and were the first American cars built in China (in a joint venture with local SAIC ). China’s Premier Zhou Enlai, who served from 1949 to 1976, owned one before World War II (Photo: Premier Zhou En Lai’s Buick, Museum in Nanjing). Today, 80 percent of the world’s Buicks are sold in China.

In recent years the Chinese  market has become more diverse. Virtually all of the international players sell in China and there are a number of local manufacturers. Sweden’s flagship brand, Volvo, now owned by Chinese interests, who now ship a “made in China”  model to the United States (the only Chinese import).

China’s infrastructure is well prepared for its record breaking sales. China leads the world in its length of motorways (freeways or controlled access expressways), with 123,500 kilometers (76,700 miles) as of the end of 2015 (Photo: G4 Expressway between Zhengzhou, Henan and Wuhan, Hubei). This compares to the latest available US total of 104,500 (64,900 miles) in 2014.

China’s cities are served by extensive freeway systems. In Beijing  there are five freeway ring roads and a sixth partially opened. But cars have become so popular that the high city densities have predictably created both horrific traffic. Further, despite effective emission controls, the high density of traffic contributes to the country’s severe air pollution problems . The plan for a more decentralized Beijing and environs (Jin-Jing-Ji) is aimed at least partially at reducing traffic congestion.

Photo: Zhou En Lai’s Buick, Zhou En Lai Museum, Nanjing

Photo: G4 Expressway between Zhengzhou, Henan and Wuhan, Hubei

United States

A record 17.6 million light vehicles were sold in the second largest market, the United States, which broke last year’s record of record of 17.4 million. Light duty truck sales captured nearly 60 percent of the market, with an annual increase of 7.2 percent. This included SUV’s, (and “crossovers”) with 38 percent of the market and a 7.4 percent increase. Passenger cars continued their decline by 8.1 percent, to 40 percent of the market.

Western Europe

The core European Union 15 nations, along with Norway and Switzerland taken together account for the third largest car market.  . There was no new record there last year but the strongest volume since 2007. Nearly 14 million light vehicles were sold, approximately six percent below the record set in 1999.

The United Kingdom set a record, with sales of 2.6 million vehicles, up two percent from 2015. Fifteen of the seventeen nations had sales increases. Italy, Portugal and Ireland had the greatest gains, at 17.5 percent, 16.2 percent and 15.8 percent respectively. Spain also exceeded a ten percent gain (10.9 percent), while Finland gained 9.3.

Strong gains were also posted in Sweden, Finland, Denmark and Belgium, with increases of from seven to eight percent. However, neighboring Netherlands had by far the largest drop, 14.7 percent. Large markets France (up 5.1 percent) and Germany (4.5 percent) contributed importantly to the higher Western Europe sales number. Sales were down 2 percent in Switzerland.

A More Mobile World

In 2014, world vehicle sales reached 89 million (Figure 1). Between 2004 and 2014, world car sales rose at a rate of 3.3 percent annually. Even with the reverses of the Great Recession, this was a more than one-quarter increase from the 2.6 percent rate of the previous decade. If the trend of recent years continues, production will exceed 100 million by 2020.

According to OICA, international vehicle manufacturers organization (Organisation Internationale des Constructeurs d’Automobiles), there were 1.2 billion vehicles in the world in 2014, 180 per 1,000 population.

It might be expected that the greatest motorization would have been reached in the United States, the most affluent of the larger nations. That would be partly right, but not the 50 states, rather Puerto Rico is the most intensively motorized geography in the world, with 892 vehicles per 1,000 residents, according to OICA (Puerto Rico is routinely reported separately, for cars and other data .  This is surprising, given that Puerto Rico’s median household income was only one-third of the 50 states in 2015, and less than one-half that of 50th ranked Mississippi (Figure 2).

The United States has to settle for fourth position, following Iceland and Luxembourg. Even that may seem high, especially in view of data in The Economist's The World in Figures, which says that the US  ranks 36th in cars per 1,000 population. But in the United States, cars aren’t even half the story. In the US, peak sales of traditional passenger cars  was reached in 1974 and sales have dropped nearly 40 percent. Consumers have been buying SUVs and pickups instead. Motorization is measured by personal vehicles, not cars. According to OICA, in 2014 86 percent of Western European vehicles were cars, compared to 47 percent in the United States, In fact, in 2016, the top three selling vehicles in the United States were pickups, led by the Ford F Series, which is also the top seller in Canada (photo: Ford F-150 Pickup), where nearly two-thirds of 2016 sales were pickups and SUVs.

Photo: Ford F-150 (2017 model)

World motorization continues to grow strongly. The cars are cleaner , safer and will continue to get more environmentally friendly. The mobility they have facilitated has made an important contribution to the continuing improvements in the quality of life and will continue to do so, despite efforts of governments and planners to discourage their use.

Note: Vehicle types may not be standardized in national reporting and thus caution is required in interpreting this data.

Wendell Cox is principal of Demographia, an international public policy and demographics firm. He is a Senior Fellow of the Center for Opportunity Urbanism (US), Senior Fellow for Housing Affordability and Municipal Policy for the Frontier Centre for Public Policy (Canada), and a member of the Board of Advisors of the Center for Demographics and Policy at Chapman University (California). 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: Chang’an Avenue, Beijing by Australian cowboy at the English language Wikipedia [GFDL], via Wikimedia Commons

Globalization's Winner-Take-All Economy

Thu, 01/12/2017 - 21:33

“If you are a very talented person, you have a choice: You either go to New York or you go to Silicon Valley.”

This statement by Peter Thiel, the PayPal founder and venture capitalist, unsurprisingly caused a stir, given that he made it in Chicago. Simon Kuper had made a similar observation in the Financial Times when he described how young Dutch up-and-comers had their sights set on London, not Amsterdam. “Many ambitious Dutch people no longer want to join the Dutch elite,” Kuper wrote. “They want to join the global elite.”

Populist movements in Europe and the United States have fueled talk of social and economic division, of a small class of winners at the top and a far larger group of increasingly disaffected lower-skilled workers at the bottom. This attitude seems to flow through to places as well, with global city winners like London and post-industrial losers like Flint, Mich.

Because these divides cleave along social class, educational and cultural lines, they are clear and easy to see. But there’s another -- less visible -- divide cutting across the seemingly monolithic group of the successful. This one separates those who are indisputably winners from those whose success is ambiguous, more qualified and more contingent. This difference is the one between the hedge fund principal, raking in wealth seemingly effortlessly, and the young adult struggling to pay urban rent despite possessing an excellent degree and professional employment. It’s the difference between New York and Cincinnati -- or even Chicago.

The same forces of globalization that  have pulled top Midwest talent into Chicago from below are also acting on the city from above, drawing its talent further up the global city hierarchy. The knowledge economy favors the college degreed over the less educated, but those with the highest and most differentiated skills are most favored, while those whose skills are second tier -- less perfectly in tune with the emerging economy -- are more vulnerable to competitive pressures.

It’s easy to see that the Flints of this world have struggled. Less visible are the stresses put on second-tier cities -- the Chicagos and Cincinnatis -- from a system that is disproportionately giving the greatest rewards to those at the very top of the hierarchy while threatening even the seemingly successful cities with being left behind.

Economist Richard Florida calls this phenomenon “winner-take-all urbanism.” It’s the superstar athlete or celebrity effect transposed into the urban world. Just as A-list stars earn far more than the merely famous, the top business talent and the top cities are reaping disproportionate riches over the merely prosperous.

This divide is harder to spot because the people and places involved are often superficially similar. The people in both possess university degrees. They share similar cultural norms, aspirations and politics. The places they live in all have their farm-to-table restaurants, tech startups, artisanal coffee roasters and bicycle commuter infrastructure. As with a sports team, they all wear the same uniform. But some are all-stars while others are role players who are more easily replaced.

When young workers or artists struggle to find an affordable apartment in a global capital, this isn’t just proof of a failure to deregulate housing development. It’s also a marketplace sending a powerful signal that their position among the winners of society is much more precarious than they might imagine. Most would agree that there are some businesses and people who shouldn’t be in New York or San Francisco. We shouldn’t expect a peanut butter spread of talent and economic activity across the country. The nature of the industries concentrated in these places produces a higher-end specialization. So there will be some economic value line below which it isn’t viable to be there.

There’s an argument to be made that building more housing to reduce rents can draw the line lower. But that still presumes a line. When aspirational millennials -- or even older people like me -- can’t afford the current rent, that’s a signal that they are near or below that line. In a time in which rewards seem to be skewed to the top, that should be worrisome to them personally, not just to the poor or working classes.

Similarly, cities that remain a notch below the top tier should be worried. Chicago’s financial crisis, population loss, violent crime spike and other problems suggest fundamental structural challenges facing the city. And if even Chicago is not fully achieving the global-city status it craves, shouldn’t other cities be worried?

Yet the leaders of these cities, and the ambiguously successful people who live in them, have tended to identify themselves as among the winners. They haven’t really grappled with the fact that the global economy puts them at risk. It’s not just people in Flint or Youngstown, Ohio, who are being buffeted by globalization. If these people and cities ever came to view themselves as at risk, they could become a powerful voice for reforming the system to be more equitable while retaining its fundamentally open character. They are the exact potential champions for change in a system that badly needs it so that we can broaden the pool of success.

Unfortunately, those among the ranks of the second-tier successful have instead sided with the global capitals and the global elite to defend the economic status quo, leaving the reform fight to the populists who prefer an overly closed system. They may yet discover to their chagrin that the very system they so vigorously supported will ultimately become their own undoing.

This piece originally appeared in Governing Magazine.

Aaron M. Renn is a senior fellow at the Manhattan Institute, a contributing editor of City Journal, and an economic development columnist for Governing magazine. He focuses on ways to help America’s cities thrive in an ever more complex, competitive, globalized, and diverse twenty-first century. During Renn’s 15-year career in management and technology consulting, he was a partner at Accenture and held several technology strategy roles and directed multimillion-dollar global technology implementations. He has contributed to The Guardian, Forbes.com, and numerous other publications. Renn holds a B.S. from Indiana University, where he coauthored an early social-networking platform in 1991.

Photo: Kevin D. Hartnell (Own work) [CC BY-SA 3.0 or GFDL], via Wikimedia Commons

Working-Class Nostalgia

Wed, 01/11/2017 - 21:38

The first time I presented a paper at an academic conference, I was accused of being nostalgic. My mistake, as my fellow academic pointed out, was that in my bid to find some value in working-class occupational cultures I was guilty of backward looking romanticism. It wasn’t meant to be constructive criticism, but over the years I’ve developed a longstanding interest in the idea of nostalgia which is often attached to working-class life.

So I’ve been especially interested in the ways that political developments on both sides of the Atlantic have involved nostalgia as the backward-looking voters supported Brexit in the UK and Trump in the US.  We may see more of this in France, with support for Le Pen later this year. Charges of nostalgia in these situations refer to a whole range of stances and attitudes, from the more benign sentiments of those who want a return to full industrial employment or desire a greater sense of community to those who more darkly ‘want their country back’, which too often is code for freedom to discriminate. Looking beyond recent elections, we can to detect a backward-looking trend in television, in programmes such as Call the MidwifeDownton AbbeyMad MenEndeavour, or the new Netflix series, The Crown.  In politics and popular culture, many seem to be happiest when living in the past.

However, by using the term nostalgia as a catchall criticism we often miss the complexity and nuance involved, and class often has a big part to play here. Those who study nostalgia note that it almost always tells us more about attitudes toward the present than views of the past. It is precisely because people feel unsettled about their current unstable situation and unknowable future that they seek solace in the comfort of the past. Scholars also point out that nostalgia is very rarely ‘simple’ in the sense that people want to live in the past. They are almost always critical, even reflective, about both the present and the past, and they find something of value in that past that may have been lost.

Finally, while it is true that nostalgia is often portrayed as an anti-progressive, anti-modern conservative emotion, it can also have a more creative, progressive, even radical side. I think it is this aspect of nostalgia that can help us think more critically about working-class culture. Reporters and commentators explain voting behaviour using the familiar tropes of ‘smokestack nostalgia’ and ‘rustbelt romanticism’. But dig a little deeper, listen a little more carefully, and it’s easy to see why people might want to return to the past when industrial workers earned $28 per hour and enjoyed good pensions, health care, and perhaps above all, long-term job security. To be nostalgic for those aspects of the past is not only understandable, it’s completely rational. While these positive aspects of the past may sometimes erase less desirable aspects of history, many workers who mourn the loss of earlier jobs are at the same time critical of the past or the work they may have done. As part of my research, I often interview workers who did routine and mundane jobs. Quite a few have said that they hated their jobs but loved the people they worked with. I remember vividly a former coal miner from the North East of England telling me that he despised the physical labour of the mine but would return tomorrow if he could because he missed the comradeship of those he had worked with.

Here then is the point about nostalgia. It seems to me that we need to listen carefully when people talk about their pasts. Dismissing a desire for positive aspects of a remembered past as romantic, conservative, and anti-progressive is wrong-headed, and it also misses a real opportunity. Surely, we want working-class people to remember what collective action and union shops achieved.  We want people to be ambitious for themselves and their kids.

But above all we need to harness the more radical and progressive aspects of a nostalgia that leads people to ask why. Why is it that industrial working-class jobs paid more in the past than they do now? Why were terms and conditions better in the thirty years of the long boom after World War Two? And why did working-class people in that period enjoy rising standards of living year after year, while today similar groups know only precarity? Once we ask these questions, we can start to argue for a more positive, open, and progressive future. We cannot just leave the past to more reactionary voices who want to capture the negative aspects of nostalgia for their own ends.

This piece first appeared at Working Class Perspectives.

Tim Strangleman, University of Kent

The Demographics of Poverty in Santa Clara County

Tue, 01/10/2017 - 21:33

Tucked away in the bottom corner of the San Francisco Bay, tech royalty make themselves at home in their silicon castles. Santa Clara County is the wealthiest county in California, and 14th in the nation, boasting an average median household income of $96,310. However, where there are kings, there must be subjects. Despite its affluence, Santa Clara remains one of the most unequal counties in the United States. The combined forces of enormous wage gaps, exorbitant housing prices, and shifts in the regional economy have compounded over recent years, resulting in a shrunken middle class and increased poverty levels.

Santa Clara County contains just over 1.9 million people and is home to much of the Silicon Valley. The relatively recent explosion of growth in the high-wage technology industry has generated a new rank of upper-middle class to fabulously wealthy individuals. But, even in the economic miracle that is Silicon Valley, poverty remains a prevalent force and affects a disturbing number of lives in the region. Although, according to the Census Bureau, only 8.3% of Santa Clara County residents live at or below the Federal Poverty Level (FPL), this number drastically underestimates the true number of people that are experiencing financial hardship in the region. In a study conducted by United Way, it was found that the real cost budget for a family of four residing in Santa Clara County stands at $65,380 per year, or 281% of the FPL.

High regional housing costs account for much of the discrepancy in poverty levels between the county and the nation. A study out of the California Budget and Policy Center calculated that the poverty rate in Santa Clara County soars to 18% when factoring in housing costs, meaning nearly one in five residents live in poverty.

It is for this reason that the region has one of the largest homelessness populations in the nation, with around 7,600 homeless individuals residing within Santa Clara County. When local homeless individuals were surveyed regarding obstacles to securing housing, the top four answers were as follows: No job/income, no money for moving costs, bad credit, and lack of available housing. Of course, poverty is cyclical, and these answers affect one another to some extent: a lack of income means no money for moving costs, which may lead to bad credit and which could then lead to an inability to secure permanent housing. Around 56% of survey respondents also reported being homeless for over a year, up significantly from 47% just two years prior, indicating that the homeless in Santa Clara County continue to face significant obstacles to securing housing. High homelessness rates are symptoms of a greater trend: the fact that gross income inequalities in Santa Clara County have created a society of have’s and have not’s, separated by an income gap that shows no sign of closing.

Housing Trends

The most significant impediment to financial security in the county is the volatile housing market and the exorbitant cost of owning a home. According to a report conducted by the U.S. Department of Housing and Urban Development on the South Bay Area, the average price of houses sold in 2014 stood at $788,500 for an existing home and $828,000 for a new home. This is over four times the median value of homes nationally, which stands at $178,600. The disparity is even more prevalent in the areas of the region closer to large technology firms, such as Palo Alto, where the average home costs $2.43 million. San Jose also has the 7th largest share of renters in major U.S. cities, 56 percent, a rate that only continues to increase as housing costs do the same. The median gross rent in Santa Clara County stands at $1705 per month, nearly double the national average.

Current trends indicate that the increasing housing costs show no signs of reversing, which does not bode well for residents that are already struggling financially. A study from the California Budget and Policy Center found that, in 2013, over 50% of households classified as low-income were at risk of moving out of the area due to increased housing costs.

Net migration in Santa Clara County is overwhelmingly negative.

The result of high housing costs? Net domestic migration has been negative every year since 1996, except 2011, and appears to be dipping further, despite the fact that the population of Silicon Valley has grown continually in recent years. This can be attributed to a combination of natural births and massive foreign immigration rather than domestic migration. Therefore, negative net domestic migration suggests that a large portion of residents are leaving the area due to a lack of an income that cannot keep up with rising costs of living.

However, for those who stay, high housing prices lead to a plethora of other disadvantages, creating a cycle of poverty that decreases social mobility in the region. A search for cheaper housing has led many to seek living arrangements in the southern and eastern parts of San Jose, where housing is cheaper, but comes at the cost of higher crime rates and worse school districts. Additionally, job growth has been concentrated in the western parts of the county. The search for cheap housing has led to an increase in overcrowded households, as residents move in with one another in order to share the costs of rent. The Santa Clara County Department of Public Health concluded in 2014 that 14% of residents were living in overcrowded households, with 5% living in severely overcrowded households. Latinos in the region are disproportionately affected, with 31% living in overcrowded households and 12% living in severely overcrowded households.

The combination of these factors limits social mobility by undermining each individual’s access to economic opportunity. Moving into an overcrowded house in an underfunded public school district limits potential to obtain a quality education that may provide access to high-skilled, high-wage jobs.

The Income Gap

Inequality in the region is perpetuated by a growing income gap, and the ardent hunt for afford-able housing may be explained by the gross income disparities among residents. As housing prices have skyrocketed over recent years, incomes simply have not kept up with costs of living, particularly at the lower end of the spectrum.

Santa Clara County’s income gap has widened considerably since 1989.

Economic gains in the region have flowed overwhelmingly to the top quintile of income-earners, who have seen their wages increase by over 25% over the past 25 years. In a shocking comparison, income levels have declined for low-income households since 1989, a clear sign of a widening wealth gap in the region. Those at the bottom also find themselves working harder for less money: the average income for those living above the previously described real cost of living in Santa Clara County stands around $27 per hour, whereas the average income for those living below the real cost of living comes in at a bit over $10, around the current California minimum wage.

To make matters worse, government efforts have proven relatively ineffective in remedying regional inequality. A recent study has shown that even when a family is a recipient of CalWORKS and CalFresh benefits, government-funded initiatives to provide benefits to needy families, an average family of four is still tens of thousands of dollars away from comfortably subsisting in Santa Clara County. Additionally, government benefits are not reaching populations that would benefit from them the most: a United Way study found that less than 19% of single mothers and less than 5% of immigrants statewide subscribe to these programs.

Shifts in the Regional Economy

Efforts to increase wages of low-paying jobs may alleviate financial hardship to a certain degree, but these actions fail to consider an underlying trend in Santa Clara County: low-skilled, blue collar jobs are disappearing. Wage increases in industries heavily populated by lower income earners matter little if those jobs do not exist. Historically, Santa Clara County was a manufacturing hub, famous for producing semi-conductors along with other components vital to the burgeoning technology industry. However, recent years have seen manufacturing jobs leaving the area in droves, either to other parts of the country or abroad.

Sector growth in the region, percentage change, 2000-2014.

The chart above shows that job growth in Santa Clara County has only been observed in a few sectors of the local economy. Despite this growth, total nonfarm payroll employment has decreased in the past 15 years, and the impact of this job loss may be observed across the economy. The most significant reductions of the workforce have occurred in sectors referred to as “blue-collar,” typically middle income jobs that may or may not require higher education. These types of jobs cover many of those within the goods-producing sectors, comprised here of the mining, logging, construction, and manufacturing industries.

The rapid decline of “blue collar” jobs in the region may be attributed at least in part to the explosive growth of Silicon Valley. As the region attracts more skilled workers, increases the region’s desirability, and pays workers competitive wages capable of keeping up with costs of living, those very expenses will continue to drive upwards. As a result, workers across all economic sectors have demanded higher wages, a sentiment exemplified in the recent minimum wage hikes. Unfortunately, this drives lower-paying blue-collar industries to relocate, often out of the state, so they can lower their input costs, creating a polarized society of high-wage earners in the information sector along with low-wage earners in a service sector dedicated to the needs of the technocrats.

Santa Clara County is a place of immense, but heavily-concentrated wealth. Multi-billion-dollar technology campuses dot the landscape like behemoths, yet the wealth and progress that accompanied the growth of the Silicon Valley has also left a significant proportion of its population behind. The environment is increasingly hostile to social mobility, the manufacturing sector has skipped town, and government efforts to mitigate the effects of these changes have proven relatively unsuccessful. Trends have shown that the region’s poor are increasingly confined to specific industries and geographies, and their freedoms restricted as they are subject to a degree of economic violence that shows no immediate signs of relenting. Significant shifts in local policy are needed to reverse the current social and economic trends and ameliorate the situation in an increasingly polarized Santa Clara County.

Alex Thomas is currently a sophomore at Chapman University pursuing a major in Political Science. He is originally from San Jose, California, and has worked extensively within the city and surrounding areas. He hopes to further his interest in local politics through continued study and community involvement in the upcoming years.

Photo: Coolcaesar [CC BY-SA 3.0], via Wikimedia Commons

The Futility of Annual Top 10 Predictions

Mon, 01/09/2017 - 21:33

In every recent year, a black swan event has made top 10 lists appear quaintly naive and unimaginative. Our list is probably no better.

This time of year, top 10 predictions are all the rage. These lists can be interesting and entertaining but how useful are they really?

This question goes to the heart of forecasting. How futile or how useful is an attempt to forecast the economy, or technology, or world events for the next twelve months? There are three answers.

First, not futile and somewhat useful. Projecting the trends of 2016 into 2017 is a useful exercise to identify their linear logical trajectories and end points. For example, the automation of many job functions will continue as long as robotics and artificial intelligence make progress. Or, North Korea’s ability to deliver a nuclear warhead on a long-range missile will continue to improve if unchecked.

Second, futile and not that useful. When a desirable trend, say a decline in unemployment, is identified, policy makers will attempt to reinforce it. When an undesirable trend becomes obvious, they will work to counter it. However in both cases, the intervention can be either effective or counterproductive. It can either reinforce or roll back the trend. Human tinkering means that few trends are truly linear or logical beyond the near-term. There may be a slowdown in the spread of automation. There may be an agreement to stop North Korea’s nuclear ambitions.

Third, neither futile nor useful but somewhat irrelevant. While forecasters are focusing their sights on the high probability of a, b and c, there are always bigger low-probability events brewing under the surface. In fact, the most important event in any given year, the one event that shakes things up and that has wide long-lasting ramifications, is usually one that few people foresaw at the beginning of that year.

     •  In 2016, Brexit and the victory of Donald Trump. A large majority of experts gave either event a low probability.

     •  In 2015, the massive refugee influx into Europe. The numbers were rising in previous years but no one saw the surge coming.

     •  In 2014, the sudden rise of ISIS after it conquered large territories in Syria and Iraq. President Obama had famously dismissed them as the JV team a few months earlier.

     •  In 2013, the Boston Marathon bombing and Edward Snowden’s revelations.

And so on. If you look at it by decade, the most important events of the 1990s and 2000s were the collapse of the Soviet Union and the 9/11 terror attacks. Neither featured in top ten lists in any year but both had an enormous impact and repercussions that are still rippling around the world.

So instead of a list of top 10 higher probability predictions, we should consider a list of lower probability events each of which, were it to occur, would have a very large impact on the future of politics, economics, science etc. As extensively argued by Nassim Taleb, black swan events often have a much greater impact on the future.

Here is one attempt to compile such a list, with the caveat admission that it is only marginally better if at all than other lists and that the most important event of 2017 will likely be something else.

Low Probability high impact events

In no particular order:

     •  A major cyberattack that paralyzes the electric grid, payment exchanges, the stock market and/or other infrastructure. Until repaired, this would wreak havoc on daily life and the economy and would hit GDP for several quarters. It would also lead to new security measures and the attendant spending by corporations and governments.

     •  Putin removed from power. This has a low probability but it is not impossible. Referring to Putin, George Friedman recently wrote that “Russia must be led by a magician who can make small things appear large.” Through ways not always approved in the West, Putin has managed to spread Russia’s influence despite economic deterioration. But Russia has large demographic and economic challenges which could get worse after his departure.

     •  Another financial crisis starting in Europe or in emerging markets. Though regulation and oversight have increased since 2008, there was no deep overhaul of the cultural mindset at many leading financial institutions. The world is awash with credit and emerging markets are considerably weaker now than in 2008. If nothing else, moral hazard created by the bailouts means that the next crisis could be as severe as the last one, with little appetite in the public for saving the banks one more time.

     •  A joint Russia-NATO military operation against ISIS and a settlement of the Syrian war. ISIS has lost much territory in 2016 but is still effective at orchestrating terror attacks in other countries. During the campaign, Donald Trump vowed to hit them hard.

     •  A sharp economic slowdown in China. China has been a huge engine of growth for over two decades lifting its own economy and boosting commodity-based countries such as Brazil, Russia and the OPEC countries. Chinese demand also helped maintain strong demand for American and European goods at a time when growth in Western economies was sluggish or nonexistent. At the same time, China’s low-cost manufacturing and capital flows into the US lowered inflation and interest rates. A marked China slowdown could throw all of the above in reverse, lifting interest rates in the US and Europe and depressing demand for finished goods and commodities.

     •  Political turmoil in Saudi Arabia and/or Iran. Both countries have vast oil reserves and are the leading power brokers in the Middle East. Destabilization in either would have important near and long-term consequences.

     •  A coup d’état or populist revolt in an OECD country. OECD member Turkey experienced an aborted military takeover in 2016. Could it happen elsewhere? Highly improbable but not necessarily 100% out of the question, as far as black swans are concerned.

     •  The price of oil at $20 or $90 per barrel. Today oil is trading near $55 and a decline to $40 or a rise to $65 are neither here nor there in terms of their lasting impact. But a $30 to $40 rise or drop would certainly shake things up. It is not difficult to construct either scenario, improbable as it may be. For a drop, imagine China and/or the US economy weakening while production from Iran, Iraq, Libya and US shale producers surges back. For a rise, consider emerging markets recovering with a stronger India while turmoil in the Middle East threatens some production.

     •  A major terrorist attack with thousands of casualties. Unfortunately, this one will have to feature on the list every year for the foreseeable future. Though it has a low probability, its occurrence anywhere would shock and reshape the world for the several decades that follow.

     •  On the positive side, there will continue to be advances in science and medicine. Because positive developments tend to build on the previous years’ progress, they are by their nature incremental, and are therefore unlikely to generate surprise shock or awe headlines.

These are all low probability but not zero probability events. And the impact of each would be far greater than that of any higher probability event featuring in many top 10 predictions for 2017.

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.

Photo: Edvard Munch [Public domain or Public domain], via Wikimedia Commons

California as Alt-America

Sun, 01/08/2017 - 21:38

In 1949 the historian Carey McWilliams defined California as the “the Great Exception” -- a place so different from the rest of America as to seem almost a separate country. In the ensuing half-century, the Golden State became not so much exceptional but predictive of the rest of the nation: California’s approaches to public education, the environment, politics, community-building and lifestyle often became national standards, and even normative.

Today California is returning to its outlier roots, defying many of the political trends that define most of the country. Rather than adjust to changing conditions, the state seems determined to go it alone as a bastion of progressivism. Some Californians, going farther out on a limb, have proposed separating from the rest of the country entirely; a ballot measure on that proposition has been proposed for 2018.

This shift to outpost of modern-day progressivism has been developing for years but was markedly evident in November. As the rest of America trended to the right, electing Republicans at the congressional and local levels in impressive numbers, California has moved farther left, accounting for virtually all of the net popular vote margin for Hillary Clinton. Today the GOP is all but non-existent in the most populated parts of the state, and the legislature has a supermajority of Democrats in both houses. In many cases, including last year’s Senate race, no Republicans even got on the November ballot.

Homage to Ecotopia

The election of Donald Trump has expanded the widening gap. The two biggest points of contention going forward are likely to be climate change, which has come to dominate California’s policy agenda, and immigration, a critical issue to the rising Latino political class, Silicon Valley and the state’s entrenched progressive activists.

Most of the big cities -- Los Angeles, San Jose, San Francisco, Oakland and Sacramento -- have proclaimed themselves “sanctuary cities,” and the state legislative leadership is now preparing a measure that would create “a wall of justice” against Trump’s agenda. If federal agents begin swooping down on any of the state’s estimated 2 million undocumented immigrants, incoming Attorney General (and former congressman) Xavier Becerra has made it among his first priorities to  “resist” any deportation orders, including paying legal fees.    

Equally contentious will be a concerted attempt to block Trump’s overturning of President Obama’s   climate change agenda.   In recent years Gov. Jerry Brown has gone full “Moonbeam,” imposing ever more stringent environmental policies on state businesses and residents. The most recent legislation signed by Brown would boost California’s carbon reductions far beyond those agreed to by the U.S. in the Paris accord (which Trump has said he will withdraw from). All of this is being done along with a virtual banning of nuclear power, which, as the Breakthrough Institute’s Michael Shellenberger notes, remains the largest and most proven source of clean energy.

California’s draconian climate policies have been oft-cited by Obama and environmentalists as a role model for not only America but the world. However, they will not be widely emulated in the rest of the country during the next four years. Instead, California may be opting for a kind of virtual secession, following the narrative portrayed in Ernest Callenbach’s 1975 novel, “Ecotopia,” where Northern California secedes from the union to create a more ecologically perfect state.

Ironically, the state’s policies, which place strong controls on development, road construction, and energy production and usage, are somewhat symbolic; by dint largely of its mild climate, the state is already far more energy efficient than the rest of the country.  But to achieve its ambitious new goals,  most serious observers suggest, the state would lose at least 100,000 jobs and further boost energy prices -- which  disproportionately affect the poorer residents who predominate in the state’s beleaguered, and less temperate, interior.

The impact of these policies would be far-reaching. They have already reduced outside investment in manufacturing to minuscule levels and could cost California households an average of $3,000 annually. Such economic realities no longer influence many California policymakers but they could prove a boon  to other   states, notably Texas, Arizona and Nevada, which make a sport of hunting down California employers.   

A ‘Light Unto the Nations’?

Even with these problems, no other part of the country comes close to being as deeply progressive as California.  Illinois, President Obama’s home state, is a model for nothing so much as larceny and corruption. New York, the traditional bailiwick of the progressive over-class, is similarly too corrupt and also too tied to, and dependent upon, Wall Street. In addition, both of these states are losing population, while California, although slowing down and experiencing out-migration by residents to other states, continues to grow, the product of children born to those who arrived over the past three decades.

California’s recent economic success seemingly makes it a compelling “alt-America.” After a severe decline in the Great Recession, the economy  has roared back, and since 2010 has outpaced the national average.  But if you go back to 2000, metro areas such as Austin, Dallas, Houston, Orlando, Salt Lake City and Phoenix -- all in lower-tax, regulation-light states -- have expanded their employment by twice or more than that in  Los Angeles.

Indeed, a closer examination shows that the California “boom” is really about one region, the tech-rich San Francisco Bay Area, with roughly half the state’s job growth recorded there since 2007 even though the region accounts for barely a fifth of the state’s population. Outside the Bay Area, the vast majority of employment gains have been in low-paying retail, hospitality and medical fields. And even in Silicon Valley itself, a large portion of the population, notably Latinos, are downwardly mobile given the loss of manufacturing jobs.

According to the most recent Social Science Research Council report, the state overall suffers the greatest levels of income inequality in the nation; the Public Policy Institute places the gap well over 10 percent higher than the national average. And though California may be home to some of the wealthiest communities in the nation, accounting for 15 of the 20 wealthiest, its poverty rate, adjusted for cost, is also the highest in the nation. Indeed, a recent United Way study found that half of all California Latinos, and some 40 percent of African-Americans, have incomes below the cost of necessities (the “Real Cost Measure”). Among non-citizens, 60 percent of households have incomes below the Real Cost Measure, a figure that stretches to 80 percent below among Latinos.

In sharp contrast to the 1960s California governed by Jerry Brown’s great father, Pat, upward mobility is not particularly promising for the state’s majority Latino next generation. Not only are housing prices out of reach for all but a few, but the state’s public education system ranks 40th in the nation, behind New York, Texas and South Carolina.  If California remains the technological leader, it is also becoming the harbinger of something else -- a kind of feudal society divided by a rich elite and a larger poverty class, while the middle class either struggles or leaves town.

Will America Turn to the California Model?

The new California model depends largely on one thing: the profits of the very rich. Nearly 70 percent of the state budget comes from income tax, half of which is paid by the 1 percent wealthiest residents (the top 10 percent of earners accounted for nearly 80 percent). This makes the state a model of fiscal instability. As long as the Silicon Valley oligarchs and the real estate speculators do well, California can tap their wealth to pay its massive pension debt, and expand the welfare state inexorably for its increasingly redundant working-class population.  

It’s highly dubious this model would work for the rest of the country. Due largely to its concentration of venture capital, roughly half the nation’s total, Silicon Valley may be able to continue to dominate whatever is the “next big thing,” at least in the early stages. Even parts of the tech community, such as Uber, Lyft and Apple, have announced major expansions outside of the state, in some cases directly due to regulatory restraints in California. Layoffs, meanwhile, are rising in the Valley as companies merge or move to other places. Google, Facebook and others, of course, will remain, keeping the big money in California, but the jobs could be drifting away.   

Under any circumstances, the rest of the country -- with the exception of a few markets such as Manhattan and downtown Chicago -- could not absorb the costs for housing or the taxes California imposes on its residents and businesses. Part of the reason stems from the fact that California is indeed different; its climate, topography, cultural life cannot be easily duplicated in Kansas City, Dallas or anywhere else. People will pay for the privilege of living in California, particularly along the coast. Would they do so to live in Minneapolis or Charlotte?

Nor, unlike during much of the postwar era, can it be said that California represents the demographic future.  The state -- even the Bay Area -- generally loses people to other states, particularly those in middle age, according to an analysis of IRS numbers.  Brown apologists suggest it’s only the poor and uneducated who are leaving, but it also turns out that California is losing affluent people just as rapidly, with the largest net loss occurring among those making between $100,000 and 200,000.  

Perhaps more revealing, the number of children is declining, particularly in the Los Angeles and San Francisco areas. Children made up a third of California’s population in 1970, but USC demographer Dowell Myers projects that by 2030 they will compose just a fifth.

Nor is help on the way. Although boomtown San Francisco has maintained its share of millennials, most large California cities have not. And the number of people in their mid-thirties -- prime child-bearing years -- appears to be declining rapidly, notably in the Bay Area.   Coastal California is becoming the golden land for affluent baby boomers rather than young hipsters. Surfing dudes will increasingly be those with gray ponytails.

Instead of a role model for the future, the Golden State seems likely to become a cross between Hawaii and Tijuana, a land for the aging rich and their servants. It still remains a perfect social model for a progressive political regime, but perhaps not one the rest of the country would likely wish to, or afford, to adopt.

This piece originally appeared in Real Clear Politics.

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, was published in April by Agate. He is also author of The New Class ConflictThe City: A Global History, and The Next Hundred Million: America in 2050. He lives in Orange County, CA.

Photo by Thomas Pintaric (Own work) [GFDL or CC-BY-SA-3.0], via Wikimedia Commons

Our Most Popular Stories of 2016

Fri, 01/06/2017 - 21:38

2016 is gone, 2017 is here. Here’s a look back at the most popular stories at New Geography in 2016. Happy New Year, and thanks for reading.

12. This is Why You Can’t Afford a House. Back in February, Joel Kotkin made the case that housing costs are a huge burden on America’s middle class and argued for more discussion on the topic at the national level. This piece was also published by The Daily Beast.

11. Super Bowl: Super Subsidy Sunday. Just in time for last year’s Super Bowl, Matthew Stevenson outlined the massive public subsides enjoyed by pro sports franchises.

10. The New War Between States. In this Real Clear Politics Essay, Joel points out the variation in economic DNA across different regions of the country and the need to adjust policy to leverage those differences as a national competitive advantage.

9. What Happens When Wal-Mart Dumps You. Joel breaks down the future of the retail industry and its potential impacts on communities of all types: urban areas, suburbs, and small towns. This piece was also published by The Daily Beast.

8. Farewell Grand Old Party. From his weekly Orange County Register column, Joel notes how the rise of Trump signals a turning point for the Republican Party.

7. America’s Next Boom Towns: Regions to Watch in 2016. One year ago Joel and I created an index to identify some of the best-performing large U.S. metropolitan areas. This piece appeared in Forbes.

6. Best Cities for Jobs 2016. Our annual Best Cities for Jobs index ranks all of America’s metropolitan areas according to short- and longer-term job growth performance. Follow the link to see the various topical rankings.

5. New York’s Incredible Subway. In this piece Wendell Cox describes New York City’s subway system, unlike any other transit system in the United States.

4. Best and Worst: 2015 International Housing Affordability Survey. Wendell’s Annual Demographia International Housing Affordability Survey is a critical comprehensive reference on worldwide housing affordability by urban area. Here’s the highlights of the report.

3. Today’s Tech Oligarch’s are Worse than the Robber Barons. Joel argues that the political influence of high-tech business leaders are worse than the robber barons of the last century because today’s tech firms offer little to improve the lives of the middle class.

2. An Open Letter to the Democratic National Committee from a Rural Democrat. Former North Dakota State Senator Tyler Axness offers his advice to Democratic Party leaders from the perspective of rural America.

1. Largest Cities in the World: 2016. Wendell’s annual World Urban Areas report is perhaps the most comprehensive resource for worldwide urban population data. This April 2016 article summarizes the report.

Mark Schill is a community and corporate strategy consultant with Praxis Strategy Group and Managing Editor of New Geography.

2010-2013 Small Area Data Shows Strong Suburban & Exurban Growth

Thu, 01/05/2017 - 21:38

The latest small area estimates from the Census Bureau indicate that suburban and exurban areas continue to receive the overwhelming share of growth in metropolitan areas around the country, with a single exception, New York. The new American Community Survey (Note 1) 5 year file provides an update of data at the ZCTA (zip code tabulation area), which are described below, as analyzed by the City Sector Model. The data was collected from 2011 through 2015, and can therefore be considered generally reflective of the middle year of the period, 2013.

City Sector Model Analysis

The City Sector Model classifies small areas into five categories based on population density, commuting mode and age of development (the criteria is described in Figure 7). There are two pre-World War II classifications, the Urban Core CBD (central business district) and the Urban Core Inner Ring. These areas are typified by substantial reliance on transit, walking and cycling for commuting and have higher population densities. There are also three post-World War II, classifications, the Early Suburbs, Later Suburbs and the Exurbs, both of which have lower population densities and substantial automobile orientation (Figure 1).

The Overall Trends

In contrast to the narrative that there has been a “return to the cities” (meaning the urban core, as opposed to cities in the functional sense or physical sense, which are metropolitan areas and urban areas respectively see Note 2 in a previous post), most new residents are located in the suburbs and exurbs. Between 2010 and 2013, The automobile oriented suburbs and exurbs captured 89.9 percent of the new population growth in 52 major metropolitan areas (over 1,000,000 population in 2013). By contrast, 10.1 percent of major metropolitan population growth was in the Urban Core. The Urban Core-CBD, (largely identified with the Central Business District), accounted for 0.8 percent of the growth, and the Urban Core: Ring, the neighborhoods surrounding the core, for the other 9.3 percent (Figure 2). Although the vast majority of growth is concentrated in the suburbs and exurbs, the urban core has reversed their long-term decline, after suffering a small loss in population between 2000 and 2010.

Each of the five categories experienced population increases between 2010 and 2015 (Figure 3). However, only the Later Suburbs grew faster than its pre-existing share of the metropolitan population. The Later Suburbs had 26.9 percent of the population in 2010, yet added a much stronger 45.8 percent of the population increase from 2010 to 2013.

The Earlier Suburbs grew faster than in the previous decade, but their 29.5 percent share of metropolitan growth was far less than their 41.5 percent population share in 2010. The Urban Core: CBD captured 0.8 percent of the growth, less than its prior 1.3 percent share, while the Urban Core: Inner Ring fell nearly one-third short of equaling its previous population share. The Exurbs, which were hit hard by the Great Recession, also fell short of gaining at the rate of their population  (Figure 4).

New York and the Rest

 The New York metropolitan area, dominated the nation in urban core growth, with 73.2 percent of the population increase, leaving only 27.8 percent for the suburbs. Even this, however, is not likely an indication of a “return to the core city” because of apparent net domestic migration losses (Note 2) throughout the metropolitan area. In fact the city of New York was not attracting new domestic migrants at all, from the suburbs or elsewhere in the nation, with a net domestic migration loss of 400,000 between 2010 and 2015. All of the city of New York’s population gain was due to an excess of births over deaths and, as befits one of the world’s great global cities, international migration.

New York’s domination of urban core growth was astounding in raw numbers, as well. More than one-half of all the urban core growth among the major metropolitan areas was in the New York metropolitan area. Washington was a distant second, with 11.2 percent of the urban core growth. Boston was close behind at 9.7 percent, followed by San Francisco-Oakland at 8.1 percent. The other two metropolitan areas with legacy core cities were substantially lower, with Philadelphia accounting for 4.1 percent and Chicago 3.7 percent. All of the 46 metropolitan areas without legacy core cities, accounted for only 10.6 percent of total urban core growth, one-fifth the growth in New York alone. As with so much, the story of high density urban cores in the United States is largely about New York (Figure 5).

Nothing like New York’s domination of urban core growth over suburban and exurban growth occurred elsewhere, not even among the other five metropolitan areas with “legacy cities” (core cities). These are the metropolitan areas with the six largest central business district in the United States, and in which the core cities account for 55 percent of the national transit commuting destinations (despite having only six percent of the national employment).

Boston, came the closest, with 39.9 percent of its growth in the urban core. There was one other metropolitan area with more than 30 percent of its growth in the urban core, Philadelphia at 36.2 percent. The Chicago urban core accounted for 29.7 percent of its growth, San Francisco for 24.5 percent and Washington for 20.8 percent. Each of these, with the exception of San Francisco, managed to have proportionally greater growth in its urban core than the population share already living there (Figure 6).

The situation was much different in the 46 major metropolitan areas without legacy core cities. In these, nearly all population growth (98.6 percent) was in the suburbs and exurbs. This is slightly above the 94.5 percent of the population living there.

Suburban Nation

Using a different small area classification system, the Urban Land Institute (ULI) has reached similar conclusions on the distribution of metropolitan population and growth. Indicating that “America remains a largely suburban nation,” ULI indicates that 79 percent of the nation’s metropolitan population lives in the suburbs and that suburban areas accounted for 91 percent of metropolitan growth from 2000 to 2015. These trends are mirrored in large measure in Canada and Australia, according to work led by Professor David Gordon of Queens University in Kingston, Ontario.

To be sure, the improvement in urban core fortunes is a very positive development. There is no question that urban cores are far nicer places than they were two decades ago and that their renewed growth makes the entire city, from the central business district to the sparsely populated exurbs, a better and more productive place. But the bulk of growth, and the preponderance of the population, remains firmly suburban.

Note 1: The American Community Survey (ACS) uses sampling methods from which estimates are built, not actual counts like occur in the US Census every 10 years. The most reliable data is from the Census, which will be conducted next in 2020.

Note 2: “Apparent” is used because domestic migration data is not reported below the county level (such as in ZCTA’s). However, much of the Urban Core is in the city of New York and all of the inner ring suburban counties lost domestic migrants, suggesting that net domestic migration gains could not have occurred.

Wendell Cox is principal of Demographia, an international public policy and demographics firm. He is a Senior Fellow of the Center for Opportunity Urbanism (US), Senior Fellow for Housing Affordability and Municipal Policy for the Frontier Centre for Public Policy (Canada), and a member of the Board of Advisors of the Center for Demographics and Policy at Chapman University (California). 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: NASA satellite view of New York’s urban core

California’s Racial Politics Harming Minorities

Wed, 01/04/2017 - 21:38

Across the country, white voters placed Donald Trump in office by a margin of 21 points over Clinton. Their backing helped the GOP gain control of a vast swath of local offices nationwide. But in California, racial politics are pushing our general politics the other direction, way to the left.

Some of this reflects California’s fast track toward a “minority-majority” state. Along with a few other states — Hawaii, Texas and New Mexico — California is there now, with minorities accounting for 62 percent of the population, compared to 43 percent in 1990. The shift in the electorate has been slower but still powerful. In 1994, registered Democrats held a 12 percentage-point margin over Republicans. By 2016, the margin had widened to 19 points.

The racial shift does much to explain why Trump lost some largely affluent suburban areas like Orange County, where 53 percent the population is Latino or Asian, up from 45 percent in 2000. Perhaps most emblematic of potential GOP problems was Trump’s — and the GOP’s — loss in Irvine, a prosperous Orange County municipality that is roughly 40 percent Asian.

California’s unique racial politics

Ideology plays a critical role in California’s emerging politics of race. Hispanic and Asian voters outside California — for example, in Texas — have tended to vote less heavily for Democrats. In 2014, Republican Gov. Greg Abbott won 44 percent of Texas Latinos. Florida’s Gov. Rick Scott garnered 38 percent of the Latino vote in his successful re-election campaign. In contrast, that same year, Neel Kashkari, Jerry Brown’s Republican opponent, won only 27 percent of the Latino vote in California. Only 17 percent of California Asians voted for Trump, nearly 40 percent lower than the national rate (27 percent).

These differences, ironically, have become more evident as California has become relatively less attractive to immigrants. Since the 1980s and 1990s, as California’s economy has become increasingly deindustrialized, the immigration “flood” has slowed, particularly among Hispanics. By the 2010s, other cities — notably Dallas-Fort Worth and Houston — were emerging as bigger magnets for newcomers.

Read the entire piece at The Orange County Register.

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, was published in April by Agate. He is also author of The New Class ConflictThe City: A Global History, and The Next Hundred Million: America in 2050. He lives in Orange County, CA.

Wendell Cox is principal of Demographia, an international public policy and demographics firm. He is a Senior Fellow of the Center for Opportunity Urbanism (US), Senior Fellow for Housing Affordability and Municipal Policy for the Frontier Centre for Public Policy (Canada), and a member of the Board of Advisors of the Center for Demographics and Policy at Chapman University (California). 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.

Obama's not so glorious legacy

Tue, 01/03/2017 - 21:33

Like a child star who reached his peak at age 15, Barack Obama could never fulfill the inflated expectations that accompanied his election. After all not only was he heralded as the “smartest” president in history within months of assuming the White House, but he also secured the Nobel Peace Prize during his first year in office. Usually, it takes actually settling a conflict or two — like Richard Nixon or Jimmy Carter — to win such plaudits.

The greatest accomplishment of the Obama presidency turned out to be his election as the first African American president. This should always be seen as a great step forward. Yet, the Obama presidency failed to accomplish the great things promised by his election: racial healing, a stronger economy, greater global influence and, perhaps most critically, the fundamental progressive “transformation” of American politics.

Racial healing

Rather than stress his biracial background, Obama, once elected, chose to place his whiteness in the closet and identified almost entirely with a particular notion of the American black experience.

Whenever race-related issues came up — notably in the area of law enforcement — Obama and his Justice Department have tended to embrace the narrative that America remains hopelessly racist. As a result, he seemed to embrace groups like Black Lives Matter and, wherever possible, blame law enforcement, even as crime was soaring in many cities, particularly those with beleaguered African American communities.

Eight years after his election, more Americans now consider race relations to be getting worse, and we are more ethnically divided than in any time in recent history. As has been the case for several decades, African Americans’ economic equality has continued to slip, and is lower now than it was when Obama came into office in 2009, according to a 2016 Urban League study.

The economic equation

On the economy, Obama partisans can claim some successes. He clearly inherited a massive mess from the George W. Bush administration, and the fact that the economy eventually turned around, albeit modestly, has to be counted in his favor.

Yet, if there was indeed a recovery, it was a modest one, marked by falling productivity and low levels of labor participation. We continue to see the decline of the middle class, and declining life expectancy, while the vast majority of gains have gone to the most affluent, largely due to the rising stock market and the recovery of property prices, particularly in elite markets.

At the same time, Obama leaves his successor a massive debt run-up, doubling during his watch, and the prospect of steadily rising interest rates. Faith in the current economic system has plummeted in recent years, particularly among the young, a majority of whom, according to a May 2016 Gallup Poll, now have a favorable view of socialism. Economic anxiety helped spark not only the emergence of Bernie Sanders, but later the election of Donald Trump.

Read the entire piece at the Orange County Register.

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, was published in April by Agate. He is also author of The New Class ConflictThe City: A Global History, and The Next Hundred Million: America in 2050. He lives in Orange County, CA.

Photo: The Official White House Photostream (originally posted to Flickr as P012109PS-0059) [CC BY 2.0 or Public domain], via Wikimedia Commons

New Year, Same Old Streetcar Named Disaster

Mon, 01/02/2017 - 21:38

On December 30 the city of Atlanta began Year 3 of operating its much-ballyhooed Atlanta Streetcar System, and so far, all that can be discerned is a lot of bally hooey.

This month, the Atlanta City Council approved the final payment to URS for the design-build of the 2.7-mile Atlanta Streetcar project, making the total payment $61,630,655. That was, according to Public Works Commissioner Richard Mendoza, “$6 million less than URS originally submitted.”

Not exactly. The 2014 URS contract authorized by MARTA (the transit authority designated to receive the $47.6 million federal grant for the Streetcar), was $59 million; the original URS contract, based on the preliminary design, was $52.2 million.

Asked about the project’s full cost, Mendoza told councilmembers, “The entire project came in a tad under $97 million, which was within the original budget.” 

Not really. The original budget for the project, as listed in the TIGER federal grant application in 2010, was a capital cost of about $72 million. Annual operation and maintenance (O&M) costs in 2013, when it was originally slated to start running, would be about $1.7 million.

Later, the city projected a cost of about $3.2 million a year to operate the system. Then in February 2016, the city revised that cost to $4.8 million – a 52 percent increase. The city’s FY2017 budget includes nearly $5.3 million for the Streetcar O&M.

As for revenues: The grant application projected $420,000 in farebox revenue for the expected first year of operation (2013), making up 20 percent of O&M costs. In fact, the farebox recovery ratio is just 5.2 percent, as Mendoza told councilmembers on December 14 during his quarterly update on the system.

From January through November 2016, tickets brought in $177,580; by extrapolation, the 2016 farebox will bring in less than $195,000. That’s less than half (46 percent) of the grant application projection.

There were 809,000 passengers in 2015. From January through November 2016, there were just 348,043. The grant application listed projected average weekday ridership at 2,600; but this year (without breaking out weekend ridership) it is 1,462, just 56 percent of that original estimate.

The Streetcar had a late and spotty start, too. After construction and testing delays, operations began on December 30, 2014. It was supposed to offer free rides for three months; in March 2015, the mayor declared it would be free for the entire first year.

Ridership plunged after the $1 fare was implemented on January 1, although it did help reduce the number of homeless riding the vehicles. Fare evasion is a problem: The city reports 53 just percent of riders are paying the fare; hopes are better policing and a newly launched app will improve revenues.

State and federal audits found safety and management problems; in May, the Georgia Department of Transportation threatened to shut down the Streetcar unless corrective action was taken. This month, Mendoza told the Transportation Committee that nine (14 percent) items of 66 on the “Corrective Action Plan” had been completed.

This week, the city announced reduced Streetcar hours for the holiday weekend, “a modified schedule for New Year’s Eve to accommodate large crowds expected to attend holiday events in the downtown area. On Dec. 31 the streetcar will operate from 8:30 a.m. to 4:30 p.m., and then will resume normal operating hours on Jan. 1, running from 9 a.m. to 11 p.m.”

Reducing hours when tourists are most likely downtown is a far cry from the hype in the grant application: “[I]t will provide connectivity and circulation for the core of the Downtown area of Atlanta, improving accessibility and making it possible to conveniently travel from key destinations and event venues without a car and connecting tourists, residents, students and workers to attractions, jobs and public amenities.”

Unfazed by the dismal results so far, the city has another 22-mile phase under environmental review, planning to leverage November’s transit sales tax proposals that won 72 percent voter approval. Apparently, the project is nowhere near big enough to fail yet. The biggest tragedy, however, is that in an era of rapidly changing technology, Atlanta residents will be stuck with this transit from a bygone era for another 40 years.

This piece was originally published by the Georgia Public Policy Foundation on their blog, The Forum.

Benita Dodd is vice president of the Georgia Public Policy Foundation, an independent think tank that proposes market-oriented approaches to public policy to improve the lives of Georgians. Nothing written here is to be construed as necessarily reflecting the view of the Georgia Public Policy Foundation or as an attempt to aid or hinder the passage of any bill before the U.S. Congress or the Georgia Legislature.

© Georgia Public Policy Foundation (December 30, 2016). Permission to reprint in whole or in part is hereby granted, provided the author and her affiliations are cited.

Photo by Spmarshall42 - Own work, CC BY-SA 4.0, Link

How Post-Familialism Will Shape the New Asia

Sun, 01/01/2017 - 21:33

Surprisingly, the modern focal point for postfamilial urbanism comes from eastern Asia, where family traditionally exercised a powerful, even dominant influence over society. The shift toward post-familialism arose first in Japan, the region’s most economically and technologically advanced country. As early as the 1990s sociologist Muriel Jolivet unearthed a trend of growing hostility toward motherhood in her book Japan: The Childless Society? –a trend that stemmed in part from male reluctance to take responsibility for raising children.

The trend has only accelerated since then. By 2010 a third of Japanese women entering their 30s were single, as were roughly one in five of those entering their 40s – that is roughly eight times the percentage seen in 1960 and twice that seen in 2000. By 2030, according to sociologist Mika Toyota, almost one in three Japanese males may be unmarried by age 50.

In Japan, the direct tie between low birth rates and dense urbanization is most expressed in Tokyo, which now has a fertility rate of around one child per family, below the already depressed national average. Some of the lowest rates on earth can be seen elsewhere in eastern Asia, including those in Seoul, Singapore and Hong Kong, which are now roughly the same as the rate in Tokyo.

As more of Asia becomes highly urbanized like Japan, this kind of ultra-low fertility will spread to other parts of the continent. Most critically, this dynamic has already spread to mainland China, or at least to its larger cities, where fertility rates have dropped well below 1.0. In 2013, Shanghai’s fertility rate of 0.7 was among the lowest ever reported – well below the “one child” mandate removed in 2015 and only one-third the rate required to simply replace the current population. Beijing and Tianjin suffer similarly dismal fertility rates.

This pattern of low fertility, notes demographer Gavin Jones, suggests that rapid urbanization has already made the notion of the one-child policy antiquated. Now, even with fertility policies being loosened, many Chinese families are opting not to take advantage, largely due to the same reasons cited in other parts of the world: the high cost of living and high housing costs.

Perhaps no city better reflects Asia’s emerging urban paradigm than Seoul, the densest of the high-income world’s megacities outside of Hong Kong. The Korean capital is more than 2.5 times as crowded as Tokyo, twice as dense as London and 5 times as crowded as New York. No surprise then that self-styled urban pundits love the place, as epitomized by a glowing report in Smithsonian magazine that painted Seoul as “the city of the future.” Architects, naturally, joined the chorus. In 2010 the International Council of Societies of Industrial Design named Seoul the “world design capital.”

Ultimately, Seoul epitomizes the retro-urbanist fantasy: a city that is dense and dominating, rapidly turning the rest of the country into depopulating backwaters. Seoul has monopolized population growth in Korea, accounting for nearly 90% of total growth since 1970. Seoul also currently holds nearly 50% of the country’s population, up from 20% in 1960.

Seoul’s development has come at the expense of not just its own hinterlands but also its own humanity. Its formerly human-scaled form of housing, known as a hanok , which was one story tall and featured an interior courtyard, has been largely replaced with tall, often repetitive towers that stretch even into the suburbs. While architects and planners celebrate this shift, they rarely consider whether this form of urbanization creates a good place for people, particularly families.

When you consider the trends in similar cities, it’s unsurprising that Korean sociologists have noted the shift to high-density housing as being unsuitable for families with children.

Over time the impact of these housing policies will be profound. By 2040 Korea’s population will join those of Japan and Germany as one of the world’s oldest. This will occur despite determined government efforts to encourage childbearing, efforts that may well be doomed by the government’s similar commitment to a dense, centralized urban form.

What will happen to societies that are likely to retain extremely low rates of fertility? Japan, notes Canadian demographer Vaclav Smil, represents “an involuntary global pioneer of a new society.” Japan certainly exemplifies one way societies may evolve under diminishing birth rates.

Projecting population and fertility rates is difficult, but the trajectory for Japan is unprecedented. The UN projects Japan’s 2100 population to be 91 million, down from 2015′s 127 million, but Japan’s own National Institute of Population & Social Security Research projects a population of 48 million, nearly 50% lower than the UN’s projection.

Japan’s urban centralization both feeds and accelerates this trend. Rather than disperse, Japan’s population is “recentralizing.” A country with a great tradition of regional rivalries, home to an impressive archipelago of venerable cities, is becoming, in effect, a city-nation, with an increased concentration on just one massive urban agglomeration: Tokyo. This has, for the time being, allowed Tokyo to escape the worst of Japan’s demographic decline, drawing heavily on the countryside and smaller cities, both of which are losing population. From 2000 to 2013 the Tokyo metropolitan area added 2.4 million residents, while the rest of the nation declined by 2 million.

Tokyo is now home to almost one in three Japanese. But its growth is likely to be constrained, as the last reservoir of rural and small-city residents seems certain to dry up dramatically. A projection for the core prefecture of Tokyo indicates a 50% population cut by 2100 to a number smaller than it was at the beginning of World War II; 46% of that reduced population will be over 65.

This suggests it is time, in high-income countries at least, to shift our focus from concerns about overpopulation to a set of new and quite unique challenges presented by rapid aging and a steadily diminishing workforce. Even birth rates in developing countries are tumbling toward those of wealthy countries. As British environmental journalist Fred Pearce puts it, “the population bomb’ is being defused over the medium and long term.”

Some, like Pearce, see the Japanese model as an exemplar of a world dominated by seniors – with very slow and even negative population growth – that will be “older, wiser, greener.” Following the adolescent ferment of the 20th century, Pearce looks forward to “the age of the old” that he claims “could be the salvation of the planet.”

Yet, if the environmental benefits of a smaller, older and less consumptive population may be positive, there may be other negative ramifications of a rapidly aging society. For one thing, there will be increasingly fewer children to take care of elderly parents. This has led to a rising incidence of what the Japanese call kodokushi , or “lonely death,” among the aged, unmarried and childless. In Korea, Kyung-sook Shin’s highly praised bestseller, Please Look After Mom, which sold 2 million copies, focused on “filial guilt” in children who fail to look after their aging parents and hit a particular nerve in the highly competitive eastern Asian society that seems to be drifting from its familial roots.

Additionally, an aging population will certainly diminish demand for both goods and services and likely would not promote a vibrant entrepreneurial economy.

China will face its own version of “demographic winter,” although sometime later than Japan or the Asian Tiger states. The U.S. Census Bureau estimates that China’s population will peak in 2026 and then will age faster than any country in the world besides Japan. Its rapid urbanization, expansion of education and rising housing costs all will contribute to this trend. China’s population of children and young workers between 15 and 19 will decline 20% from 2015 to 2050, while that of the world will increase nearly 10%.

In China the consequences of the rising number of elderly will be profound. Demographer Nicholas Eberstadt, for example, sees the prospect of a fiscal crisis caused by an aging and ultimately diminishing population. China, he notes, faces “this coming tsunami of senior citizens” with a smaller workforce, greater pension obligations and generally slower economic growth.

It seems likely, as has occurred in Japan already, that rising costs associated with an aging population, and a dearth of new workers and consumers, will hamper wealth creation and income growth. Societies dominated by the old likely will become inherently backward-looking, seeking to preserve the existing wealth of seniors as opposed to creating new opportunities for the increasingly politically marginalized younger population.

The shift to an aging population also creates, particularly in Asia where urbanization is most rapid, the segregation of generations, with the elderly in rural areas and the younger people in cities. Around the world, the results of this shift are likely to resemble those seen in Japan, with cities becoming home to an ever expanding part of the population, while people in the countryside are destined to grow older and ever more isolated. It is not clear how the expanding senior population, which was traditionally cared for by younger generations, will fare with fewer children to support them and in the absence of a well-developed welfare state.

Later this century these same challenges will even be felt in many parts of the developing world. In rapidly urbanizing, relatively poor countries such as Vietnam, the fertility rate is already below replacement levels, and it is rapidly declining in other poorer countries such as Myanmar, Indonesia and even Bangladesh. In parts of Latin America, especially Brazil, fertility rates are plunging to below those seen in the United States. Brazil’s birth rate (4.3 in the late 1970s and now 1.9) has dropped not only among the professional classes but also in the countryside and among those living in the favelas. As one account reports, women in Brazil now say, “Afábrica está fechada”–the factory is closed.

Excerpted from The Human City: Urbanism for the Rest of Us, by Joel Kotkin (B2 Books, 2016)

This piece first appeared in Forbes.

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, was published in April by Agate. He is also author of The New Class ConflictThe City: A Global History, and The Next Hundred Million: America in 2050. He lives in Orange County, CA.

Photo: John Gillespie, CC License

Suburban Nations: Canada, Australia and the United States

Fri, 12/30/2016 - 21:38

Professors David L. A. Gordon of Queens University (Canada) and Paul Maginn and Sharon Biermann of the University of Western Australia have now shown Australia to be a largely suburban nation. This follows on Professor Gordon’s work with colleagues in 2013 that came to the same conclusion on Canada based upon 2006 census data. By using census tract data, rather than municipality data, Gordon, et al were able to avoid the misleading but readily accessible jurisdictional analysis (central city versus suburbs) that equated large low-density central municipalities like Calgary and Edmonton, with more compact and dense municipalities like Vancouver and Montreal (or New York with Phoenix). The Gordon, et al criteria is illustrated in Figure 1.

Broadly following the Gordon et al research, in the Spring of 2014, I published a similar “City Sector Model” using postal code tabulation areas (zip codes) for the major metropolitan areas of the United States. That criteria is illustrated in Figure 2.

This article compares the Gordon findings in Canada and Australia and contrasts them with my findings in the United States.

The Gordon Research: Canada and Australia

In Australia, as in Canada, Professors Gordon, Maginn and Biermann divided metropolitan areas into four classifications at a small area level. The research called the urban core classification "active core," to note the greater dependence of residents on walking and cycling for commuting to work. They divided suburban areas into transit and auto suburban areas, and designated the more rural areas of metropolitan areas as exurban. In both countries, they used the functional or economic definition of cities, which is metropolitan areas or labor market areas (Note 1).

Gordon, Maginn and Biermann’s analysis shows that Australia’s 27 metropolitan areas are 13 percent “active core”, nine percent transit suburbs, 69 percent auto suburbs and 10 percent exurban. This is nearly the same as the previous research on the 2011 Census of Canada which revealed 12 percent active core, 11 percent transit suburbs, 69 percent auto suburbs and eight percent exurban for all 33 metropolitan areas.

The Major Metropolitan Areas (Over 1,000,000 Population) In the smaller number of Australian metropolitan areas with more than 1,000,000 population, the “active cores” are only slightly larger than those in Canada (12.4 percent of the metropolitan population versus 11.8 percent). But Canada’s major metropolitan areas has larger “transit suburbs” by a 12.2 percent to 10.0 percent margin. The “auto suburban” figures are virtually the same, with Australia at 70.5 percent and Canada at 70.7 percent. Finally, Australia has a slightly larger “exurbs,” at 7.2 percent compared to Canada’s 5.2 percent (Figures 3 and 4).

Comparing to the United States

In the United States, the City Sector Model uses somewhat different criteria. Gordon’s central classifications (“active core” and “transit suburb”) parallel the City Sector Model’s “urban core: CBD” and “urban core: inner ring.” Gordon’s “auto suburban” and “exurban” also roughly parallel the two “suburban” and the exurban City Sector Model classifications.

Perhaps the largest difference between the two models is in the treatment of commuting. Professor Gordon’s approach is to classify the two central areas based on 50 percent higher than each metropolitan’s area average shares of walking, cycling and transit journey to work travel. The City Sector Model uses an across-the-board minimum 20 percent market share (transit, cycling and walking combined), to replicate a division between more dense pre-World War II development and the automobile oriented suburbs that followed.

Comparing to the United States

Of course, it is to be expected that the United States, with the lowest density built-up urban areas (called population centers in Canada and urban centres in Australia) would be even more suburban than Australia and Canada . This is indicated by the data (see Demographia World Urban Areas).

There are large differences in the two more central classifications. In Australia, the two central areas have 22.4 percent of the metropolitan area population, somewhat less than Canada’s 24.0 percent. In the United States the two central areas have a smaller 14.8 percent of the metropolitan area population (Figure 5).

Various factors account for this difference. There were, for example, huge urban core population losses   in the United States, but not in Canada and Australia. Another cause is the much earlier motorization of the United States, which by 1929, according to economist Robert Gordon, had achieved 0.9 vehicles per household and had 90 percent of the world’s registered vehicles (Note 2). With this unparalleled market penetration, the U.S. had a several decade long head start in automobile oriented suburbanization. Canada equaled the 1929 U.S. automobile market penetration in the middle 1950s and Australia in the middle 1960s.However, in the suburban classification, the metropolitan areas of the three nations were very similar. The US automobile suburb share of the population, at 68.8 percent was within two percentage points of both Canada and Australia. However, like the urban core, the suburbs showed considerably different results, with the United States having a 16.4 percentage exurban share, compared to approximately 10 percentage point lower shares in both Canada and Australia.

Part of difference in the exurbs is the larger geographic size of U.S. metropolitan areas, which are far less representative in capturing the genuine labor market. The building geographical blocks used by the U.S. Office of Management and Budget are simply too large for sufficient preciseness. This is illustrated by the Riverside-San Bernardino metropolitan area, which covers an area about the same size as the Canadian province of New Brunswick or the Australian state of Tasmania. By contrast, in Canada, Statistics Canada uses municipalities to construct metropolitan areas, while Australia uses “Statistical Areas Level 4,” which are generally smaller than US counties (Note 3). When the boundaries of a metropolitan area are far larger than the actual commuting shed (as often happens in the United States), more people will be in the metropolitan area.

At the same time, these results must be interpreted carefully, since there are differences in the criteria and geographical building blocks of metropolitan areas in all three nations.

Comparison of Population Growth

Professor Gordon’s research in both nations shows suburban growth   far out stripping growth in the central areas. In Canada, nearly 84 percent of major metropolitan area population growth between 2006 and 2011 was in the “auto suburbs” and “exurbs” (Figure 6). In Australia (27 metropolitan areas), the “auto suburbs” and “exurbs accounted” for nearly 78 percent of population growth (Figure 7). In the United States, the suburbs and exurbs accounted for over 85 percent   (Figure 8).

Suburban World

Contrary to planning preference for dense urbanization, suburbanization has occurred virtually wherever people can afford cars. This is even true in Europe, Japan and China. For example, the municipality of Paris continues to languish with a population a quarter below its level of 135 years ago (1881). The 8 million resident urban area growth since that time has been in the suburbs , which now cover more than 25 times the area of the ville de Paris (the central municipality). Other examples, such as the core municipalities of Copenhagen (from 1950), Barcelona and Milan (from 1970) have suffered significant population losses while all metropolitan area growth has been in the suburbs. There are many similar examples around the world.

Even with the differing definitions, the data in Canada, Australia and the United States is remarkably similar. Of course, not all suburbs are the same, but it should not be surprising that the organic growth of cities continues on their edges.

Note 1: For further information see: Paul Cheshire, Max Nathan and Henry G. Overman of the London School of Economics in their recent book, Urban Economics and Urban Policy: Challenging Conventional Policy Wisdom.

Note 2: See Robert J. Gordon, The Rise and Fall of American Growth: The U.S. Standard of Living Since the Civil War, page 374, reviewed at http://www.newgeography.com/content/005364-robert-gordons-notable-history-economics-and-living-standards.  

Note 3: The larger size of US exurbs is illustrated by the 11,400 square kilometer average areas outside the principal urban areas (exurbs) of US metropolitan areas. In Australia, the average outside the principal urban centres is 6,500 square kilometers, while in Canada the average area outside the principal population centres is 4,600 square kilometers (data based on metropolitan areas with more than 1,000,000 population).

Wendell Cox is principal of Demographia, an international public policy and demographics firm. He is a Senior Fellow of the Center for Opportunity Urbanism (US), Senior Fellow for Housing Affordability and Municipal Policy for the Frontier Centre for Public Policy (Canada), and a member of the Board of Advisors of the Center for Demographics and Policy at Chapman University (California). 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: Brisbane, Australia Inner Suburbs (by author)

Joel on Reason.tv

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"Greenurbia is the suburbs of the future. The suburbs of the 1950s were bedroom communities for people who commuted into the city. Today, there’s much more employment in the suburbs, and the big change is the number of people working full-time or part-time at home. Having people commute from one computer screen to another doesn’t make sense."

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