Creative Class

New York Magazine’s Michael Crowley profiles NYC Transportation Commissioner Janette Sadik-Khan’s effort to take back the city’s streets from the automobile (pointer via Brian Knudsen).

[E]ven though the Broadway plan has been pitched as a way to ameliorate traffic, it’s apparent when touring Times Square with Sadik-Khan that the planning problem that most animates her is not car congestion but people congestion. ‘This is a plan to pedestrianize a street, not to mitigate traffic,’ says someone who has discussed it with DOT officials. ‘This was a plan about greening New York, outdoor space, and seating. It was almost a happy accident that they found that traffic could be mitigated.’  In this offhand remark one can see Sadik-Khan’s truly revolutionary vision. She has fashioned herself the city’s streets commissioner, rather than the city’s traffic commissioner, and has not been shy about imposing a vision of the 21st-century street that seizes it back from the automobile. ‘One of the good legacies of Robert Moses is that, because he paved so much, we’re able to reclaim it and reuse it,’ she says. ‘It’s sort of like Jane Jacobs’s revenge on Robert Moses.’”

As Matt Yglesias notes, most Manhattanites don’t depend on, or even own, cars. Still the streets are clogged with them – mostly from commuters or so-called “bridge and tunnels.” Closing off parts of Broadway is terrific. Now it’s time to get some real congestion pricing in place.

Matt Yglesias, responding to the automotive bailout debate, argues that it does:

What I find interesting, however, is not so much how irrational it is to attribute nationality to a business enterprise but how much nationality really does seem to matter. For example, the oil business is an global business. And the six “supermajor” firms are all global firms. But the CEO of Royal Dutch/Shell is Dutch. The CEO of Total is French. The CEO of BP is British. And the CEOs of ConocoPhillips and ExxonMobil are Americans. It’s a bit hard to understand why a competitive international labor market would work out that way. And beyond CEO nationality, local norms seem to make a big difference. The CEO of Total earns way less money than the CEOs of the other supermajors and to a first approximation the reason is that he’s French, and French CEOs just don’t get paid very well. More broadly, European and Japanese executives earn less money than American executives, with British executives in the middle. I recall that one of the issues with the DaimlerChrysler merger was that the executive pay scales were totally out of whack.

Beyond CEOs, Nestle has 15 directors. Of them one is Indian, one is Swiss/American, seven are Swiss, and the rest are from other European countries. But there’s nothing especially “European”—and certainly nothing Swiss—about the company’s actual operations. They earn a lot of money in Europe, but the majority of their revenue is from outside of Europe, and there’s production all over the world. It’s also totally normal for large multinational firms to be disproportionately owned by shareholders located in their “home country” and home continent.

Corporate nationality, in other words, doesn’t matter. But it seems as if it actually does. And for somewhat mysterious reasons.

Reasonable points all. (BTW, this is a huge deal in Canada, maybe even more so than in the U.S.).

But GM and Chrysler had U.S. management and ran their companies into the ground. Toyota, Honda, and the transplants have created jobs in America. Nationality cuts several ways.

Some time ago, when I was studying the globalization of the automotive industry and the rise of off-shore transplants, I discovered something interesting. U.S. and European companies all said it was much easier to set up cutting-edge plants outside their home company. New greenfield plants could be built from scratch, filled with new equipment, laid out flexibly, and staffed with “fresh” managers and workers. Older plants back home suffered less from being in old buildings but from built-up and near-impossible-to-change organizational structures and relationships.

Seems to me the real issue isn’t nationality of ownership or management but its quality. From an economic development perspective, I’d much rather encourage companies and plants with great management to invest and develop in my country or location than to protect and shield ones owned by my far less capable compatriots.

UPDATE: The governments of Canada and Ontario apparently now own a two percent equity stake in Chrysler, according the Conor Clarke of The Atlantic who notes: ”Chrysler is going to become part of an Italian car company. And it’s doing so with Canadian dollars”

In a word - no.

Citing Justin Fox’s terrific chart of unemployment then and Kevin Drum’s comments, the always-insightful Matt Yglesias writes:

Populists on the left and opportunists on the right have taken to condemning the series of “bailouts” the government has undertaken since the fall of Lehman Brothers. And certainly I think these situations have been mishandled in a number of respects. And beyond that, I think these situations are inherently problematic in a variety of ways. But there’s a strong case to be made that the policy response to the recession has made things better than they might otherwise have been. When I say something like that, people tend to pester me in response for specifics: What, exactly, would have happened if we’d just let AIG and Citi and Bank of America and others collapse? The problem is that it’s impossible to say, in detail, what would have happened.

Yglesias is right: It’s hard to say exactly what might have happened without the bailouts and stimulus.

But something much bigger is at work today then in the 1930s. It’s the structure of our economy that’s the key – and that dwarfs the effects of government bailouts, stimulus, and related policy.

Our economic class composition and occupational structure have changed dramatically over the past several decades. In the 1930s, the majority of Americans worked in manufacturing and related industries. We had an enormous working class. These industries and jobs are very vulnerable to recessions and business cycle shifts with tremendous ups and downs. Recessions – never mind bigger events like the current crisis – devastate manufacturing and working class jobs -  as Michael Mandel, Ryan Avent (which Yglesias more recently cited), and our own research at the Prosperity Institute has detailed. The creative class, which now accounts for some 40 million workers and about a third of the workforce is much more flexible and resilient. It is this changed economic class and occupational structure which are keeping us from Depression-level unemployment rates.

The bailouts and stimulus, while they may help at the margins, also pose an enormous opportunity costs.  On the one hand, they impede necessary and long-deferred economic adjustments. The auto and auto-related industries suffer from massive over-capacity and must shrink. The housing bubble not only helped spur the financial crisis, it also produced an enormous mis-allocation of resources. Housing prices must come a lot further down before we can reset the economy – and consumer demand – for a new round of growth. The financial and banking sector grew massively bloated – in terms of employment, share of GDP and wages, as the detailed research of NYU’s Thomas Phillipon has shown – and likewise have to come back to earth.

On the other hand, there is the classic question: What better and more effective things might have been done with these trillions? That’s for historians to ponder and decide. But the combination of the massively misallocated resources produced by the bubble (plus the costs of military adventures) combined with humongous bailout spending puts the U.S. behind the economic eight-ball in a way it has not been in more than a century. Having hold on the reserve currency helps, but it cannot absolve all these compounded sins.  Sooner or later the money will run out; bills will come due.

That creates a wide open structural opportunity to accelerate what Fareed Zakaria has dubbed the “rise of the rest” to accelerate. Crises are periods where the relative position of nations and regions can and do change dramatically. (Do I think the U.S. will lose its hegemonic position: Of course not. My hunch is that the U.S. is in the same position structurally as England at the onset of the Long Depression of 1873. It was not until the next major crisis – the Great Depression of 1929 and the onset of WWII that it lost its position to the United States. So worst case: The U.S. has one more long-cycle at the top of the heap). But, just think of all the ways the trillions of bailout money could be used to build the economy of the future. And while you’re doing that imagine that some other places outside the United States that have been patiently building and conserving their resources may start to figure out how to do just that.

The clock of history ticks on. Over time, it tends to leave behind those places who get stuck, get trapped, or try too hard to breathe life back into the old order, neglecting the new one that is emerging. And that’s what really worries me.

Ed Glaeser:

The plan does too little to recognize that many homeowners are living in homes that they cannot afford. In one of the government examples, a family earning less than $44,000 a year has a $213,000 mortgage on a $190,000 house. By any reasonable standard, this family cannot afford that house. It would be far wiser for the government to facilitate the family’s move to rental housing than to provide a short-term subsidy aimed at keeping the family in the home. The plan should have been more forthright in acknowledging that America’s housing mess means new mortgage terms for some and new housing for others.

Tyler Cowen:

We should not be helping people stay in their homes if their mortgage payments are at 43 percent of their income.  (The bill requires banks, in such cases, to lower interest rates until monthly payments are at 38 percent of income.  The government then steps in to lower payments to 31 percent of income.)

Willem Buiter::

The extreme fiscal largesse bestowed on residential housing, directly and indirectly through mortgage interest deductibility, has led to a massive misallocation of investment in the US.  There has been overinvestment in the private residential housing stock and underinvestment in just about every other form of fixed capital: infrastructure, public amenities of all kinds (sports facilities, public recreational facilities, parks etc.), commercial structures, plant and equipment.  It is time to correct the distorted incentives that are at the root of this misallocation.  The easiest way to do this, in the current tax system, is to end the deductibility of mortgage interest in the personal income tax, close down Fannie and Freddie and end the role of the US government in the provision of residential mortgages.

Matt Yglesias:

But this impossible dream of re-inflating the housing bubble and making all the wealth reappear is going to die hard. Clever, but stupid, politicians are going to try to convince people that they have plans to make this happen, and they’ll criticize the Obama administration for not getting the job done. It’s important to understand, however, that we’re not talking about real assets that vanished. The houses are still there, and they’re still as good or bad or useful or non-useful as they ever were. What’s vanished is a speculative mania, and public policy can’t—and shouldn’t—create a new one.

That’s what the proposed $800 plus billion U.S. stimulus has come to. TPM’s Elena Schor has the details direct from Representative Jim Oberstar’s (D-MN) speech fo the U.S. Conference of Mayors.

That is why we set forth this $85-billion initiative from our committee. It’s been reduced in the final going. We expect that it’ll come out somewhere around $63 billion, but $30 billion for highways.  The reason for the reduction in overall funding — we took money out of Amtrak and out of aviation; we took money out of the Corps of Engineers, reduced the water infrastructure program, the drinking water and the wastewater treatment facilities and sewer lines, reduced that from $14 billion to roughly $9 billion — was the tax cut initiative that had to be paid for in some way by keeping the entire package in the range of $850 billion.

Ryan Avent has more to say here; Matt Yglesias here.

So it’s yes to highways and tax cuts, no to transit. I’m speechless.

The always extremely interesting Kevin Phillips in the Washington Post:

Here, then, is the unnerving possibility: that another, imminent global
crisis could make the half-century between the 1970s and the 2020s the
equivalent for the United States of what the half-century before 1950
was for Britain. This may well be the Big One: the multi-decade endgame
of U.S. ascendancy. The chronology makes historical sense — four
decades of premature jitters segueing into unhappy reality.

Matt Yglesias comments:

The United States is currently the richest country in the world by a pretty
wide margin. Since China and India are both growing from a much smaller
base, it should be possible for them to maintain higher average growth
rates over an extended period of time eventually overtake us in terms
of overall GDP.

The U.S. does not have to be overtaken by another country for its competitiveness to falter and its quality of life deteriorate. The biggest threat to US competitiveness, from my perspective, stems from the increasing global competition for talent. While the US once held a powerful upper hand in attracting global talent which fueled its technological and entrepreneurial edge,  the edge has diminished for three interrelated reasons. One, US policies have made it harder for  talented outsiders to get in. Two, small states  like Canada, Australia, New Zealand, the UK, and some northern European countries have increased their ability to attract global talent. And three, both China and India (who have supplied a great deal of US technical talent in recent decades) are working to retain more of their young talent and attract back those that left.

I don’t think we will see the ascendancy of another great power for some time, but the US may well lose ground – the cumulative result of small but significant improvements in competitive position from many quarters. And while I would never count the US out – its transformative and regenerative capabilities are unparalleled – the economic challenges America faces today do seem significantly  greater than at any time in recent memory.