Archive for January, 2009

Martin Kenney
by Martin Kenney
Sat Jan 31st 2009 at 10:39pm UTC

Focus on the Ball Not the Eyes

Saturday, January 31st, 2009

I was always a defender when I played soccer. The best advice I was ever given as a defender was to focus on the ball not the offensive player’s eyes, upper body, or feet. Your peripheral vision takes those things in. In Washington, D.C. parlance, Deep Throat always had it right – follow the money. Any time you hear a politician, remember to watch the ball and the ball is the money.

Ignore the Middle East, abortion, whatever your hot button issue. These, though vitally important, are peripheral. The overwhelming issue that will structure all of the rest of our decisions for the next decade or even half century, is the reorganization of the economy. It is in dire shape. The pie is imploding and powerful interests are motivated to protect their slice and the current arrangements. To do this in this environment, they must have access to the monies and regulatory powers of the state. Remember, when in a high stakes situation where everyone is rushing you to make the most serious decisions of your life (our lives) and you (we) cannot figure out who is going to be the victim, it is probably going to be you (us).

So don’t focus on Obama’s statements condemning Wall Street bonuses, telling you he cares about you, etc. These are part of the drama. Focus on real behavior. For example, his appointment of Geithner (was he giggling while being “grilled” by the Senators?), Summers, and the sub-secretaries – all deeply implicated in the current catastrophe – or the rush to get the second tranche of the earlier bailout (which has not had a positive effect and for which most of the money is unaccounted for or has been paid out in bonuses to those most directly responsible for the current situation). Neither of these and his other economy-related actions have been to benefit you.

But there is an even more significant “tell.” Do you wonder why Obama is letting the Republicans and Democrats do whatever they want with the stimulus package? The answer to me is quite obvious – he doesn’t care about it and what it does. Look through it – it is chump change for everyone. $1,000 tax break per couple, some money for states and cities, money for the road builders, some for solar energy, some for university students, but all of it chump change. The simple reason is that he doesn’t care about the stimulus because it doesn’t matter.

The big prize is what his funders in the financial sector want and that is the bad bank where they can pour the multi-trillions of dollars of bad loans onto the taxpayer without losing their jobs, their stockholders being wiped out, and some of them having to do the perp walk. It is the next banking bailout where the massive transfer from the taxpayers to the wealthy is going to occur. Watch the ball. Don’t listen to the words, believe the “shocked” indignation, or accept that Obama and the Congressional Democrats do not know what is going on.

Why is it important for us to be skeptical? We are going to have to rebuild this place, and there are only so many resources. If they are squandered today, they will not be available tomorrow. Rich has written in indignation about the spending on highways instead of mass transit and remarked upon how we have to put our cities together in new ways for a new set of people. This will not be possible if we are rushed into fundamental decisions about who will benefit in this crisis.

If you watch the ball, you are much less likely to be faked out.

David Miller
by David Miller
Fri Jan 30th 2009 at 11:00am UTC

The Rise of D.C.

Friday, January 30th, 2009

After the inauguration here, my wife joked/hoped that Oprah would be buying a home in D.C. In that vein, Joel Kotkin offered a really interesting piece in the WAPO highlighting the D.C. Metro’s ‘coronation’ as the undisputed power broker among U.S. metros.

Kotkin directly states his thesis: “For more than two centuries, it has been a wannabe among the great world capitals. But now, Washington is finally ready for its close-up.

While D.C. has been growing in stature (in terms of population, wealth, tech, and lifestyle) for the last 20 years or so, our current economic crisis and the submission of other great power centers has put the District at the ‘height of its power.’ From Kotkin,

No longer a jumped-up Canberra or, worse, Sacramento, it seems about to emerge as Pyongyang on the Potomac, the undisputed center of national power and influence. As a new president takes over the White House, the United States’ capacity for centralization has arguably never been greater. But it’s neither Barack Obama’s charm nor his intentions that are driving the centrifugal process that’s concentrating authority in the capital city. It’s the unprecedented collapse of rival centers of power.

This is most obvious in economic affairs, an area in which the nation’s great regions have previously enjoyed significant autonomy. But already the dukes of Wall Street and Detroit have submitted their papers to Washington for vassalage. Soon many other industries, from high-tech to agriculture and energy, will become subject to a Kremlin full of special czars. Even the most haughty boyar may have to genuflect to official orthodoxy on everything from social equity to sanctioned science.

At the same time, the notion of decentralized political power — the linchpin of federalism — is unraveling. Today, once proudly independent — even defiant — states, counties and cities sit on the verge of insolvency. New York and California, two megastates, face record deficits. From California to the Carolinas, local potentates with no power to print their own money will be forced to kiss Washington’s ring.

Kotkin goes on to explain that D.C. is ready for this moment with a huge talent base and a great amenity-driven metro. He also argues that those of us who live here will benefit from this concentration of power in D.C. via greater opportunities and rising real estate values. Although I may benefit from this personally, I have great concerns about what this will mean for innovation, growth, and entrepreneurship (sustainable growth) in the U.S. Any thoughts?

Richard Florida
by Richard Florida
Fri Jan 30th 2009 at 8:53am UTC

The Mobility Paradox

Friday, January 30th, 2009
Nearly half of all Americans would like to move to a new place. Trouble is, the credit crisis and economic downturn have effectively locked them into their current location. Residential mobility levels approach record lows, according to recent reports by the U.S. Census and the Pew Research Center. USA Today’s Haya El-Nassar, one of my favorite trackers of demographic trends, reports:

Whether they favor cities, suburbs or the countryside, almost half wish they lived somewhere else, the report found. Denver, San Diego and Seattle are the top picks of the 30 largest metropolitan areas. Denver is the favorite city among Republicans, and it also rates well with Democrats and independents … In addition to Denver, favorite cities among Republicans are Phoenix, Orlando and San Antonio. Half of all liberals would like to live in San Francisco, more than double the share of conservatives. San Diego, once a bastion of conservatism, appeals to Democrats, liberals and moderates.

46% would prefer to live in a different type of community from the one they now reside. Adults 50 to 64 who live in cities are the least likely to say they live in the ideal place; two-thirds of those in that age group who live in the country say they couldn’t imagine living anywhere else.

Young people are the opposite: 57% of urban dwellers younger than 30 say the city is where they want to live. … “Fewer than half of all city residents say there is no better place to live than in a city.” … A smaller proportion of women express the desire to live in the nation’s largest cities  … Wanting to live outside cities doesn’t necessarily mean people reject urban lifestyles, however. The appeal of developments with an urban flair — ones that combine housing, stores and offices in a neighborhood setting — is growing.

My main take away: America’s two great dreams – the dream of unlimited economic opportunity and to own a single family home – are running head on into one another. Home ownership means less economic mobility when you can’t sell your home. The big cost of the housing crisis may not be what’s happening in the financial markets, it may be the long-run competitive damage caused by sagging labor mobility and the inability to flexibly match the location of workers to the location of jobs.

Richard Florida
by Richard Florida
Fri Jan 30th 2009 at 8:53am UTC

Who Is Us?

Friday, January 30th, 2009

Which car company is more “American”? A Big Three car maker which off-shores jobs and lays off American workers, or a foreign transplant that is ramping up production and creating jobs in the U.S.? That’s the famous question Robert Reich asked back in 1990 in a classic Harvard Business Review article.

The Wall Street Journal’s Joseph White updates Reich and asks “What Really Makes an American Car”?

Could there be a more American vehicle than a “Jeep Patriot?” Nothing on four wheels says American more proudly than Jeep, the rugged brand that helped America win World War II, and has ferried millions into our wild, Western spaces since.

Yes, in fact, there could be a more American SUV than a Jeep Patriot. A Toyota Sequoia would be one of them. The Sequoia is 80% “domestic” according to the National Highway Traffic Safety Administration, while the Jeep Patriot is only 66%.

The Treasury has pumped billions into two of the three American car makers with head offices in and around Detroit, hoping to avoid a collapse of what industry and political leaders call the U.S. auto industry. There’s lots of talk about the government supporting American efforts to develop electric cars and batteries, and some federal programs already established to do this …

Once you put down the flags and shut off all the television ads with their Heartland, apple-pie America imagery, the truth of the car business is that it transcends national boundaries. A car or truck sold by a “Detroit” auto maker such as GM, Ford or Chrysler could be less American — as defined by the government’s standards for “domestic content” — than a car sold by Toyota, Honda or Nissan — all of which have substantial assembly and components operations in the U.S.

So what should you buy if you want to buy a truly American-made car? For the 2008 model year, the government says the Ford Crown Victoria has the highest percentage of U.S./Canada content at 90%. The only hitch: It’s assembled in Canada.

Michael Wells
by Michael Wells
Thu Jan 29th 2009 at 5:33pm UTC

That’s Not Funny

Thursday, January 29th, 2009

What is it with comics these days? I noticed two stories about comics in yesterday’s NY Times. The creator of the French cartoon character Astérix is fighting his daughter over selling his company to a conglomerate. And a group of investors are suing Stan Lee and Marvel Entertainment over profits from films based on Lee’s characters (Spiderman, X-Men). That got me thinking about the comics business, which has moved beyond comic books to film and video games and serious money.

Phil Knight (founder and CEO of NIKE) has a new animation company, LAIKA, that’s building studios south of Portland to take on Pixar. They’re just releasing their first feature film, Coraline.

Japanese Manga are big business. There’s a whole wall of them in Powell’s Bookstore and my oldest granddaughter is obsessed with them.

Three major movies in the last year are based on characters by the three big comic companies: The Dark Knight (Batman by DC), Spiderman by Marvel, and Hellboy from Dark Horse.

This year’s best war documentary, Waltz With Bashir, is animated.

Is this driven by escapism, technology, a need for heroes, or what?

Richard Florida
by Richard Florida
Thu Jan 29th 2009 at 11:04am UTC

State of Human Capital

Thursday, January 29th, 2009

The U.S. Census has just released its latest assessment of human capital and educational attainment (h/t: Kevin Stolarick). It’s the first assessment to use information from both the Current Population Survey and the American Community Survey which enables analysis of historical trends and state-by-state comparisons. Lots and lots of interesting nuggets:

  • 27 percent of U.S. adults have a bachelor’s degree or above.
  • Those with a bachelor’s degree on average earned about $20,000 more a year ($46,805) than workers with a high school diploma ($26,894).
  • A slighly larger percentage of foreign-born residents (11 percent) had advanced degrees (that is a master’s degree or above) then those born in America (10 percent).
Richard Florida
by Richard Florida
Thu Jan 29th 2009 at 11:04am UTC

Finance Salaries Heading Back to Earth

Thursday, January 29th, 2009
Could the hegemony of finance – in terms of attracting talent at least – be over? Quite possibly, according to new research by NYU’s Thomas Philippon and Ariel Reshef from the University of Virginia who write that up to half the pay premium enjoyed by bankers in recent years will “disappear.” The New York Times reports:

The professors calculate that relative financial wages, taking into account education and other demographic factors, declined sharply in the 1930s and then at a slower pace until about 1980, when there was virtually no difference. Then, in a new era of financial innovation, “The financial sector became once again a high-skill, high-wage industry,” Mr. Philippon wrote on the N.Y.U web site this week…

The authors offer several reasons why financial salaries soared in the 1920s and again since 1980. It isn’t computers, they argue, because there were no computers the first time, and it is not just a strong stock market. Instead, they attribute it in part to strong demand for financial analysis at a time when technical revolutions were leading to an explosion of new stock offerings and loans to young and risky companies. Before 1930, that was the electrical revolution. More recently, it was information technology.

There is also the lure of increasing financial innovation, which they say is least likely to occur when there is more regulation. “Highly skilled labor left the financial sector in the wake of Depression-era regulations, and started flowing back precisely when these regulations were removed.” …

[S]ociety could benefit from a flow to other industries. “As a society, do we want to put a third of our best brains in the financial sector?” he asked, pointing to a study indicating Harvard graduates from the early 1990s were far more likely to go into finance than were those who had graduated a decade earlier.

Richard Florida
by Richard Florida
Wed Jan 28th 2009 at 1:22pm UTC

Sachs on Stimulus

Wednesday, January 28th, 2009

Money quote:

The most obvious problem with the stimulus package is that it has been turned into a fiscal piñata – with a mad scramble for candy on the floor. We seem all too eager to rectify a generation of a nation saving too little by saving even less – this time through expanding government borrowing.

Yepper.

Richard Florida
by Richard Florida
Wed Jan 28th 2009 at 12:47pm UTC

Sensible Swedes

Wednesday, January 28th, 2009

Sweden’s Sloped Curve posts in English telling us what an absolute mess the U.S. mortgage system is and what needs to be done to fix it (via Mark Thoma).

First of all, I believe that prepayment penalties are key. In Sweden, if you pay off a fixed-rate mortgage before it expires, you have to pay for the interest rate differential between the fixed rate you’re paying and the fixed rate the lender can get in the market by investing the money you lent in an equal investment. With 10 years left on a mortgage, this can work out to a very hefty sum …

Secondly, I do believe that there should be no closing costs or points involved in getting a mortgage. This means that, as long as your mortgage is not a fixed rate mortgage, you can move your loan to another lender at any point in time, with zero cost. This promotes competition and promotes the use of adjustable rate products …

You also need to make mortgage recourse loans. You need to make sure that mortgage decisions are based on the verified income of the borrower, and not only on the assets of the borrower …  Also, you need to make sure that you can not borrow nearly 100% of the property value.

Finally, one thing that is desperately needed is new and strong regulation on what sort of mortgages that can be securitized. This also means that we can rather easily find solutions to how to get the other things to happen. New laws regarding the creation of mortgage backed securities could require that any mortgage packaged into an MBS fulfill the requirements I mention. It would be illegal to market mortgage based securities if they do not fully consist of recourse mortgages with prepayment penalties, no closing costs, a verified income that is high enough to handle the mortgage and a reasonable loan-to-value.

If this was to be implemented in the US, I believe the the federal reserve would have the tools necessary to better ensure sane credit availability and avoid the current boom and bust cycle.

BTW, we have a very similar system in Canada, where our banks remain stable, houses continue to be sold, and mortgages are still being given out.

It’s amazing to me that we (that is the U.S.) would let our housing and mortgage system undermine our banking system and real economy.

Richard Florida
by Richard Florida
Tue Jan 27th 2009 at 9:23am UTC

Suburbs and Crisis

Tuesday, January 27th, 2009

Bruce Katz and Jennifer Bradley make the case for extending urban policy to the suburbs, creating a broader metropolitan-oriented policy:

America can’t ensure its leading place in the global economy unless we grapple with the problems and opportunities of our suburbs. Nonprofits, long focused on inner cities, need to reach out to poor families and immigrants in the suburbs. The federal government should support the production and preservation of affordable housing there. Even more important, Washington needs to recognize that suburban governments are being flattened by the housing crisis—they don’t have the experience or the capacity to slow the tide of foreclosures or deal with neighborhoods strafed by vacancies. The Feds need to use some of the billions in recovery funding to help local governments buy up foreclosed properties and put that land to productive use.

Ryan Avent weighs in here.

Sure, some suburbs need help. Sure, there will be a lot of adaptive reuse work to be done there. Sure, we can us regionally oriented metropolitan policy. But in the main, we need to reorient urban policy from social policy to economic competitiveness policy. The cornerstones of that policy must be to enable mobility (which has all but stopped now), encourage scale and density, and dramatically increase speed and velocity of the movement of goods, people, and ideas within urban areas. The scale of the problem is gi-normous and there is precious little indication the U.S. political system is up to it, or even aware it. One thing is for certain, getting this geography right is key to broad U.S. recovery, critical to any stimulus, and essential to  long-run competitiveness and proseperity. The historical analog is of course suburbia’s role as the spatial fix for post-World War II capitalism and the spur for Fordist production. So what is the spatial fix for today’s economy? The place that gets this right generate huge first-mover advantages in capitalism’s next phase.  For something so important, I’m amazed so few people are even thinking about it.