Creative Class

I know most of you voted for Obama. In the process, you were hoping and praying for change. Unlike many of you, I had far less faith, but much hope. On January 18, I posted this about Obama. I would like to revisit this earlier post, as my fears are being confirmed. In it the deepest insight was that Obama was ratifying Bush’s failed policies and taking ownership of them. By choosing not be truthful with the American people, Obama is now rapidly on the way to failure. This is despite the fact that Michael Wells and others have argued that he has just been in office for four weeks, give him a chance.

The trouble is that the market and foreign policy are not giving him time and he is continuing nearly all of the failed policies of the past using advisors that are the architects of this failure.

On the economy, there is no reason to list the architects of failure he has appointed, but it is important to note that it is not only the top appointments, but also the lower-level appointments including an ex-lobbyist for Goldman Sachs, a new head of the SEC who formerly was the head of the securities industry self-regulatory (an oxymoron) organization, which did an excellent (snark) job with Messrs. Madoff and Stanford.) An aside, in my experience when one finds one large mother cockroach  [i.e., an enormous Ponzi scheme] under the refrigerator, much less two, be prepared for many baby cockroaches, small Ponzi schemes and frauds, and, God forbid, even larger ones to be exposed soon. The big ones are the signs of the infestation. In a similar vein, appointing a hedge fund manager to help with the automobile industry bailout, where the hedge funds have been involved in bankrupting not only the manufacturers, but also the parts suppliers, seems particularly tone deaf. Instead of change, Obama has taken ownership of the failed policies of the past and seems bound and determined to continue them.

In terms of the military adventures, he is going down a parallel path. He has not unilaterally declared that we will be completely out of Iraq in 16 months. In Afghanistan, he is taking the Lyndon Johnson path of only approving half of what the generals want. He has continued Bush’s policies on rendition, put the CIA dungeons in Afghanistan off limits to human rights rules, and not yet closed Guantanamo. Folks, let us be serious. These wars are not going to be won. Dungeons are not moral and cannot be defended. But, more important, we and Obama need to face the fact we CANNOT afford these wars and dungeons.

What is the biggest “tell” that Obama may not be serious about change? He is discouraging Congressional investigations of the Bush Administration and serious investigations as to the causes of and responsibilities for the financial meltdown. He is not demanding that the SEC prosecute CEOs lying about the financial condition of their firms, has not told his press secretary to stop attacking reporters who say things that he doesn’t like, or demanded that his cabinet officers including Geithner stop lying about the fact that our banks are insolvent.

If he represents change, then he needs to stop the lies, sleights to hand, and doubletalk. He needs to stop the surreptitious transfer of public funds to private firms. The bloggers, the stock market, and the economy will expose the corruption regardless. And, unfortunately for all of us, Obama will be discredited. Trust is so valuable for someone trying to change the system, once lies are exposed it is over. It is not too late, but it is very late. Yes, only four weeks into a new presidency and it is late. To begin with so much promise and so quickly plant the seeds of a collapsed Presidency is a tragedy for all of  us.

Those who voted for Obama need to contact him and your Congresspersons every day saying you want something different. We did not vote for four more years of a more personable George Bush. Obama must be something different. He does not need to take ownership of the Bush Catastrophe.

There’s lots of good music emerging out of the T-Dot urban music scene right now, which seems to be indicating something interesting about the city’s profile with respect to talent, at least in that scene. Toronto has a notoriously coarse urban music culture, known internationally as “The Screwface Capital” – in the analogue world, we used to get the music early from our cousins in New York and play it out just so that we could be over it first. We can’t wait to be apathetic about your music. Especially if the artist is out of the GTA. Something about that metabolism has always devoured artists from the area before they could break international ground. And yet within the last few weeks or so:

K’naan released his hotly anticipated album Troubadour yesterday:

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Drake has been generating quite a bit of buzz around the recent release of his “Mixtape” So Far Gone:

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K-OS single called 4 3 2 1 from his forthcoming Yes! album has been picking up steam with the release of the video:

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And Zaki Ibrahim’s recent EP Eclectica (Episodes in Purple) has just received a Juno nomination for R&B / Soul Recording of the Year – she’s making noise in the UK and other places around the world as well:

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So here’s a question: How many of these artists, each of whom has been experiencing great success abroad, and represents Toronto not only on their MySpace pages but also in their lyrics and music, were born in the GTA or even the province?

The answer: Only K-OS.

And while K-OS represents something of the “old guard,” one of the last monuments to the early 90s scene, K’naan, Drake, and Zaki Ibrahim are arguably some of the strongest talent cultivating some of the strongest international buzz out of the city. And they are all imports – K’naan from Somalia, Drake from Tennessee, and Zaki from… well… all over, starting with Vancouver.

While each represent the city in their own way, they are unapologetically hybrid – much like Toronto itself. These artists have been able to come to the city, call it home and find the right people, layers of connectivity, and industry infrastructure to launch their careers into the national/international stratosphere.

So what is it about Toronto’s music scene – at least the urban music scene – that international talent has found so enabling? Why has it seemed to be less kind to its “native” artists?  Why haven’t we seen this kind of talent-spiking in Halifax, or Vancouver, or even Montreal? What is it about a city that gives it the capacity to not only attract and incubate such a diversity of talent, but the capacity to launch it as well?

I know there’s already enough music in this post, but here’s some more.

Ed Glaeser says it’s time to kill – or at least maim – the tax deduction for interest paid on mortgages.

The Great Depression provided an opportunity to rethink old policies in a major way. In the current morass, everything should, once again, be open for debate. One sacred cow that has long been in need of a good stockyard is the home mortgage interest deduction. So, in the spirit of libertarian progressivism, I suggest gradually reducing the upper limit on the deduction to loans of up to $300,000, and then refunding the tax revenues in a more productive manner.

He’s right – especially on the broadest point. Do away with the mortgage interest deduction. But the reset provides the opportunity to really rethink and restructure the housing system more broadly.

The only way toward long-run and sustainable recovery is a dramatic change in where and how we live. What ultimately got us out of the Long Depression of the late 19th century and the Great Depression of the 1930s wasn’t just new technology, or creative destruction, or government spending, it was a phase-shift in the way we live – in our economic geography. The recovery after the Long Depression took shape around the rise of the industrial city and its streetcar suburbs. The recovery after the Great Depression was powered by suburbanization. We need a massive shift not just in our infrastructure but in our housing system.

The reform and restructuring of the housing system needs to be much deeper and go much further than reigning in the mortgage interest deduction. We need to bring our mortgage-lending practices into line with those of other advanced countries, like Canada or Sweden or most of Europe. That means much larger downpayments and penalites on prepayments; shorter term loans; and all the rest – just like my very own mortgage in Canada. Sure that means increased cost and shared risk, but it comes with a much more stable  housing market (where you can still get a mortgage and buy and sell homes) and a much more stable banking system. And we have to encourage other forms of housing tenure, like renting, which are in sync with the labor market flexibility and residential mobility the adavnced creative economy requires.

Check it out! In The Venturesome Economy, Amar Bhidé of Columbia University examines the role of entrepreneurship and innovation in a global economy. In a great interview/podcast on Econtalk, Russ Roberts draws Bhidé out on these topics. One overarching theme – the source of economic growth is not technology, per se, but the application of technology to market-relevant products; and that the U.S. national innovation system (research, funding, and labor) has historically been quite adept at this entire process. What happens now, however, is open for debate.

The last 25 minutes of the interview are particularly interesting for those with a scholarly bent, as the conversation turns to a discussion of Schumpeterian versus Hayekian models of innovation and the impact of Knightian uncertainty in the entrepreneurial process.

I think Bhidé is right and that there’s a lot to be optimistic about. One key issue is making sure that that the U.S. national innovation system remains flexible and resilient.

Where do you think tomorrow’s breakthrough innovations will come from? And who will provide them? The university lab? Corporate research and development? Your garage?

I’m amazed actually at how many people still want to count NYC for dead. I see it the other way around: The crisis in the financial sector may end up being good for NY in the long. While the massively over-bloated NY financial industry certainly brought short-term income and tax revenues to the city’s economy, it can also be seen as badly distorting the city’s economy, creating real opportunity costs, and, in effect, crowding out other more inventive, creative, and entrepreneurial kinds of endeavors.

I’m still amazed at those who think of NYC primarily driven by the financial sector. Our team at the MPI has looked at the industry mix, the occupational mix, and all of the various measures, clusters, and LQs, and it is a big, diverse economy. It is among the most diverse in the U.S. and the world – more diverse than Chicago, or Washington, D.C., or even Silicon Valley for that matter – all places with solid futures.

NYC also has a very fast metabolism – perhaps the fastest in the world overall, as research by the Santa Fe Institute shows. Without it, it would not have been able to survive, at its scale. That metabolism means it is not only hyper-efficient, it means it has the underlying capability of generating lots of new ideas in leading edge industries – particularly content-based or even convergence industries, like Bloomberg.

The recent shift toward entrepreneurship and creativity by the Bloomberg administration does not surprise me. These ideas have been bubbling around the administration since its earliest days. Bloomberg, at the end of the day, is himself an entrepreneur, so he would naturally gravitate to this kind of response in a crisis period.

In the short run, NYC will certainly take a hit – losing an estimated 65,000 plus financial jobs and many, many more overall. The hit will be harder than in some cities and regions, like say Washington, D.C., but not nearly as hard as in most. In the long run, it has the scale, centrality, openness, creativity, and metabolism to come back.

Like I said: My hunch is the reset ends up being a good thing for NYC in the long-run, helping to correct the distortions the over-bloated financial sector brought to the city’s economy. And it’s good to see the Bloomberg administration acknowledging and trying to encourage the creativity and entrepreneurship that have long powered the NYC economy.

The new issue of our e-newsletter, Martin Prosperity Insights is out. It details the options for a truly advanced infrastructure. It also includes links to three new working papers.

With President Obama visiting Canada last week, Nancy Folbre discusses how the economic crisis is being felt in the two countries over at the NY Times Economix (h/t: Scott Pennington):

O Canada. That big, beautiful country to the north is a lot like us, just colder and a few degrees less … neoliberal. Canada has moved more slowly than the United States to deregulate its economy and shrink its social safety net. The resulting differences in the impact of global recession are small, but instructive.

As Fareed Zakaria points out in a recent Newsweek article, Canada is weathering the financial crisis better than we are. Canadian banks are more old-fashioned (that is, centrally regulated) than our own. Stricter leverage requirements have been enforced. Subprime mortgages have not been encouraged. Prohibitions against foreign bank takeovers have protected Canadian institutions from competition from the United States, but also buffered them against financial contagion.

Mr. Zakaria overstates the case when he claims that no government bailout has taken place there. The Canadian government has provided substantial assistance to the financial sector. But its efforts to increase available credit remain far less costly than our trillion-dollar subsidies. A more serious concern for Canadians is the likelihood that the sinking American and global\economy will pull them down.

As someone who spends a great deal of time between the two countries, they certainly feel like a world of difference to me. Yes, recession has hit parts of Canada, but Canadians show far, far less anxiety than their American counterparts. Life goes on more or less as usual. Canada’s social safety net surely plays a role as does its higher level of social cohesion.

But there is another difference that really matters. Canada’s credit and financial markets continue to function. That means people can get a mortgage or a home equity loan, or finance or lease a car. So the housing market still works, people buy and sell their homes, and undertake renovation projects. Plus they can sell their house and move to another place for economic or other reasons if they so desire. This means that the Canadian economy, while it has slowed down, can continue to function.

The frozen financial markets in the U.S. mean that its economy has, in effect, locked-up: homes can’t be sold; people can’t move. The vaunted mobility and flexibility of the U.S. economy has thus evaporated leaving it in a zombie-like state. This is what happens in a financial crisis and it’s why the U.S. is experiencing a very different kind of economic crisis today than with previous recessions and why it is ultimately in worse shape then Canada.

One last thing: The policy dialogue in Canada is less about bailing out the old and much, much more about investing for the long-run. Sure, there is a lot to complain about with Canadian politics and policy, but the overall dialogue is much more focused on the future and how to invest in a broadly functioning creative economy.

New York City strives to diversify its economy out of finance – focusing on incubation and “garage” spaces for creatives and entrepreneurs. The New York Times:

Rather than write them off as losers in the casinos of capitalism, city officials are encouraging them to start over, the Silicon Valley way. As part of a $45 million program, the city will subsidize garage-size offices as hatcheries for their most promising ideas for new businesses in finance or other fields.

Ryan Avent sees the crisis as an opportunity for the Big Apple, but hard choices must be made:

New York should also come to grips with the fact that high real estate prices may have cost it some economic vitality. The expense of homes and business space no doubt led to a loss of talent to other metropolitan areas. It’s difficult to take a professional risk when one has to work all out to pay the rent.

In one sense, then, the crisis creates a direct opportunity for the city. Assuming that basic public services can be maintained, the decline of real estate prices in New York could help new industries to flourish. It’s impossible to overstate the advantages the city has available in terms of talent and institutions. But New York leaders should learn from their heavy dependence on Wall Street, the wealth of which crowded out other industries — an unbalanced income distribution is risky for a city. To prevent this from happening in the future, New York needs to focus on affordable housing, and should work to make it easier to build a lot of new housing. It should also stay focused on services that make middle-class city life possible: good public schools, good public transit, good public safety, and good public amenities, like parks and museums.

Cities in the sand sink deeper, according to the Wall Street Journal.

Builders rushed into this one-time agricultural crossroads during the housing boom. They put up beige stucco houses on winding streets, with names like Heavenly Place and Good Vibrations Lane. They lured young people who couldn’t afford homes in nearby Phoenix or its costly suburbs. The population soared to 37,000 last year from 1,400 a decade ago, making Maricopa one of the nation’s fastest-growing towns. Now, it’s become a dead end for some of those people.  “We’re trapped,” says Tracy Campbell ..

Housing prices nosedive again according to the new Case-Shiller Index: Phoenix and Las Vegas remain hardest hit.

It’s impossible to get mortgages above the conforming limit – that means the market is virtually frozen in regions like New York, San Francisco, and D.C. The Wall Street Journal:

The lack of financing is particularly acute in markets where rising home prices have made jumbo loans a necessity for even middle-class borrowers, such as New York City, coastal California and Washington, D.C. “If you own a $650,000 home in many parts of this country, you’re not a wealthy person by any stretch, and you’re being cut out of any relief,” says Guy Cecala, publisher of Inside Mortgage Finance. Around 4% of all borrowers have loans that exceed conforming limits, according to an estimate by First American CoreLogic. But that share rises in high-cost states such as California, at 17%, and New York, at 8%. condos – with high rates.

An essay on how the crisis brings tough times to troubled towns (via Planetizen).

Wired Magazine on the need to shift from cars to people/ pedestrians.

A story in Sunday’s New York Times about a drought in Central California made me think again about Modesto, the Central Valley town where I grew up. While we focus on the problems of large cities like Detroit, agricultural and exurban areas like the Valley are crumbling. The implications for our food supply, for millions of people and for our nation, are dire.

Here’s an excerpt from the Times piece:

The country’s biggest agricultural engine, California’s sprawling Central Valley, is being battered by the recession like farmland most everywhere. But in an unlucky strike of nature, the downturn is being deepened by a severe drought that threatens to drive up joblessness, increase and cripple farms and towns.

Across the valley, towns are already seeing some of the worst unemployment in the country, with rates three and four times the national average, as well as reported increases in all manner of social ills: drug use, excessive drinking and rises in hunger and domestic violence.

Ironically, many of our neighbors and friends my parents’ age when I was growing up were Okies and Dust Bowl refugees. This drought may now impact their grandchildren the same way but it’s not clear where they can go.

Modesto sometimes seems to be suffering the plagues of Egypt. However, the region’s problems precede the downturn by a couple of decades and, in fact, Modesto suffered from the dot-com boom as well. The downtown is pretty dead, but the malls that replaced it are also suffering.

My mother lived in the house I grew up in until a couple of years ago, so I visited frequently. Our working class neighborhood has turned into a virtual slum (yes, they don’t only exist in big cities). Several of the neighbors live in the cash economy, the guy across the street ran a small junk yard in his backyard. When we were cleaning out her house, the neighbors were digging through the dumpbox in broad daylight.

I started to notice Modesto’s statistics when I read Rise, then in postings on this blog. In Rise, Modesto ranked 208 of 265 in the creativity index. This isn’t the deep South or rural Midwest, but a medium-sized city some 90 miles from San Francisco.

During the housing bubble, Modesto ranked high on the unaffordability list, as prices were driven up by Bay Area commuters earning much more than the locals. Then when the bubble burst, it was in the top ranks of foreclosures. Median house price went from $110,000 in 2000 to $350,000 in early 2006 to $175,000 today (Zillow numbers).

As I’ve watched lists on this blog, Modesto commonly is at the bottom, most recently in best places for small business (#98 of 100). It was virtually dead last in Bert Sperling’s last Best Places list. Other lists as diverse as worst air pollution and numbers of college-educated women have Modesto scraping bottom. Decades of industrial fertilizer and pesticides have sunk into the ground and poisoned the aquifer, so that the Valley is a place where drinking bottled water is an actual health measure.

The Valley is different from the farming parts of the Midwest, it’s not losing population, and grows pretty high value orchard and truck farm crops. Nevertheless, it’s collapsing and the repercussions will likely affect the nearby San Francisco-Silicon Valley region and California’s creative class economy.

These are the four main aspects of a knowledge worker’s day, according to the workplace design firm, Gensler:

To facilitate their practice, Gensler conducts industry-leading research into how people work.

Their most recent study, released late last year, resulted from interviewing 900 individuals across all variety of companies from banks to telecom to internet to financial services. They also examined the overall workplaces in question as well as corporate performance including profitability as well as measures of innovation and market leadership.

According to Gensler, leading companies and their employees placed a much higher emphasis on collaborative activities (including socializing) and less on individual focused work.

We found that employees at top-performing companies not only spend more time collaborating and learning, they consider that time more critical to job success than do their peers at average companies, who remain focus work-centered.

Leading companies often have spent money in recent years creating custom workplaces to facilitate collaboration, socializing, and learning as well as allow for focused individual work.

This led Gensler to create a Work Place Index (WPI) based on a range of factors from air and light quality to overall design. They then examined a company’s WPI score against factors such as profitability, and noted a strong positive correlation (and this WPI score can be done before and after a major workplace renovation).

The results show that as a company’s WPI rises, their scores on multiple business metrics also rise, including profit, market position, innovation capabilities, employee engagement and brand.

Indeed for some leading companies, workplace change that increased the WPI score corresponded to profits rising 7-14 percent.

As more research like Gensler’s reaches the knowledge economy and broader corporate world, it is likely to continue the push toward workplace changes – both the physical and psychological. After all, many employees don’t want to be seen as socializing too much for fear of it being considered unproductive; or feel they should be seen diligently working in their office.