As U.S. cities compete for the title of “Greenest” and vie to attract green industry, Portland State University is launching an initiative to use the city as a laboratory for sustainability studies. Portland was recently named America’s most sustainable city for the second year by SustainLane. PSU hired noted Dutch urbanist Wim Wiewel as its president this year, and the city as laboratory may be the first fruit of his administration.

While I was looking this up online, I came across a link to Paul Hawkin’s great piece on cities as environmental assets. Here’s a key line:

Urban migration represents a kind of collective wisdom, and how we configure our cities will be critical to our survival. Regardless of the myths about living close to the land, cities are where human beings have the lowest ecological footprint. It takes less energy, wood, material, and food to provide a good life for a person in a city than in the country.

The lost decade is often talked about in Japan. From 1990 to 2000, the Japanese economy was stuck in the aftermath of a burst housing bubble and the inability to channel investment into the “next big thing.” Of course that was the Internet. Today the U.S. is in a similar situation. We are in a post-housing bubble, a credit and banking crisis. We also face the difficult choice of figuring out the next big thing to invest in. If we miss it or do not get it right we will be Japan in the 1990s and Germany, Singapore, China, and Denmark will lead the next economic expansion. Where to put the money? The answer is simple - it’s The New New Deal. The Obama administration has a chance to set America on the right course. The question is… will it?  Will they cave in the old New Deal (bail out the auto industry) or can they embrace the New New Deal? What is the New New Deal? According to Jefferey Sachs:

• The development of mass-market, battery-powered autos that achieve at least 100 mpg of gasoline on fleets by the year 2015.
• An efficient power grid that can carry renewable energy - solar from the Mojave Desert and wind from the Great Plains - to the population centers of the U.S.
• A utility industry that can reduce 80 percent of emissions per kilowatt on newly built power plants by 2016. For the U.S. to achieve this it will have to decrease consumption and increase investment. One policy to help would be for a gasoline tax to keep gas prices high to reduce consumption and create tax revenues to fund R&D. I would suggest a tax that would keep gasoline prices at $4.00 a gallon rising by 50 cents a gallon over the next four years. This would create the incentives to invest in our energy efficient and sustainable future.

The latest issue of Dwell Magazine looks at one of America’s first (and often considered the most successful) urban renewal projects. Detroit’s Lafayette Park, now undergoing a subtle transformation as a new wave of residents including Keira Alexandra and Toby Barlow settle in, remix the past, and make the place their own.

Given the uncertainty looming with the likely restructuring of the automotive and manufacturing base in this area, it’s encouraging to see a vibrant and stable cooperative community within the city that has endured the region’s many changes over the last 50 years. And, who knows, what comes next may in fact be orchestrated from this place.

As we sit and watch the crisis in global capitalism, it’s obvious that governments are sticking their hands deep into the global economy and various national economies. The U.S. government is taking stakes in major financial and insurance firms, becoming partners (in all likelihood) with Detroit, planning major stimulus packages, bailing out over-leveraged homeowners, and planning increased/new regulations on everything from CAFE standards to 401K management.

For entrepreneurs, the landscape has shifted dramatically. Entrepreneurs and venture investors and lenders are unlikely to get much support from policy makers and elected representatives as those political types look to support/consolidate their power through their new corporate partners and other bailout recipients. In fact, policy actions, from bailouts to government/corporate ties, will likely hurt entrepreneurs going forward. The irony, of course, is that growth and innovation will come from new and growing firms, not badly damaged and slimmed down corporations, unions, and low-income homeowners.

Unfortunately, a new report on entrepreneurship in the U.S. from the Global Entrepreneurship Monitor was released this week and it is not very sunny. The report is full of interesting information information (yes, the U.S. still exhibits high rates of entrepreneurship, albeit slowing) and for the first time GEM has looked into minority entrepreneurship in the U.S. The report is worth checking out.

One way of ensuring that the entrepreneur is kept at the center of our economy is by supporting entrepreneurship education. Yesterday, I was fortunate enough to attend a positive, future-oriented event on Capitol Hill presented by the Youth Entrepreneurship Strategy Group. (A negative, old economy event was also occurring as the Big 3 and their cronies were on the Hill asking for $$$.)

The YES Group, led by the Aspen Institute and the National Foundation for Teaching Entrepreneurship, presented a new policy paper/action guide on entrepreneurship education for policy makers. They also convened a great panel discussion with education committee staff from the Senate and House and  introduced some great young entrepreneurs from low-income areas in the U.S. who highlighted what a difference entrepreneurship education can make in the lives of at-risk youths.

The YES Group sees entrepreneurship education as a key to solving the costly high school drop-out crisis in the U.S. and also creating a generation of entrepreneurs to spur the U.S. economy and lower poverty rates. The most interesting thing I heard was that out of the millions of students in HS and junior high in the U.S., only a small percentage have access to any entrepreneurship/financial education. Only nine states have formal legislation that promotes entrepreneurship education.

So while we have this rising tide of government intervention in the economy, let’s ensure that we support entrepreneurs and entrepreneurship education. Only entrepreneurs can ensure the long-term growth of our economy.

BTW, for a little Canadian flavor, check out the VeloCity Residence at the University of Waterloo. The residence hall is a web/mobile media incubator for entrepreneurially minded students. I recently exchanged emails with one of their first residents and they have some great things going on. It is a great model for entrepreneurship education at the post-secondary level.

In a little more than a few months the world has changed more than one can remember: A financial collapse with a slice of Wall Street gone. Impossible. A governmetn bailout of - would you believe- Wall Street. Paulson arguing that regulation is needed to stabilize the financial system. The global economy in recession, and it seems like it’s not the garden variety. It could be a depression. The election of the first African-American as President of the United States and an eoch changing shift in the electorate. The auto industry on the brink of bankrupcy. Birmingham, Alabama bankrupt. One does not know if we should buy on a rumor, sell on a hunch, or hunker down and hold. The markets are always looking forward and what they seem to be indicating is that we are now in for and have been in a bear market for most of the past decade. On average, these last 15 years or so we have a new administration that is likely to reside over a depression, bear market, major industrial bankrupcies. Welcome to the Global Economy.

I am sick and tired of people using ”Detroit” as a euphemism for the Big Three. Listen to GM chief Rick Wagoner:

“This is about much more than just Detroit… It’s about saving the U.S. economy from a catastrophic collapse.”

Detroit didn’t cause the auto crisis. Out of touch Big Three management did. For all its problems, Detroit - the city and the region that is - has assets and capabilities that go far beyond the Big Three. It has cutting-edge automotive design and technology, a broad-based supply infrastructure, great universities, a top-notch design community, a terrific airport, and perhaps the most incredible musical energy on the planet. The city and region can reinvent and rebuild but only by shucking off the dead-weight of the Big Three. And it is a shame for people to keep denigrating the city by invoking its name as a substitute for the Big Three.

Kathleen Pender asks: “Are you an idiot to keep paying your mortgage?” in light of the new homeowner bailout plan which offers to refinance loans that are at least 90 days delinquent. She quotes financial planner, Peter Schiff who:

predicts that many homeowners who have little or no equity will stop paying their mortgage and then reduce their income to get the biggest payment cut possible. They could stop working overtime or, if two spouses work, one could quit. After the modification, they could try to boost their income again.  “This is a once-in-a-lifetime opportunity,” Schiff says. “People are going to feel like complete morons if they don’t participate. The people getting punished are the ones who never made an irresponsible decision to buy a house they couldn’t afford.” … Schiff predicts that loan agents “will be cold-calling people trying to get them into it. Just like they encouraged people to overstate their income to get a bigger loan in the first place, now they will encourage them to understate their income to qualify for a smaller loan.”

Felix Salnon adds:

if you can get your principal reduced by hundreds of thousands of dollars just by quitting your job for a few months, that’s a deal which makes a certain amount of sense. It’s a pretty perverse incentive for the government to give you, but that’s the hand that millions of Americans are now being dealt. And it’s entirely the fault of the people who dreamed this scheme up.

Add to this the additional perverse incentives of an auto bailout and the opportunity costs of more (very limited) resources wasted.

The way out of the crisis is to: a) reduce the price of over-priced assets, b) weed out inefficiency in existing sectors and eventually upgrade them via creative destruction, c) invest in new infrastructure that can stimulate the rise rise of new industries. What we’re doing now is worse than forestalling the inevitable and even of pouring good money after bad - we are throwing away precious capital that is key to building a viable future.

While I know that Richard is the official ”Global Trends” guy around here, I hope that he won’t mind my pointing one out; if not a trend, a global synchronicity at least. In two of the world’s great cities - Toronto and Rome - disagreements in educational policy have led to strike situations.

In Toronto, from the Globe and Mail:

The campus was a ghost town yesterday, the first day of the strike by contract faculty, teaching assistants and graduate students, with classes for more than 50,000 students cancelled and pickets letting cars onto university grounds only every few minutes.

There are no plans to resume negotiations.

Christina Rousseau, chair of the Canadian Union of Public Employees Local 3903, said the striking workers are waiting for a signal from university administrators that they are ready to return to talks.

“Right now the ball is in their court,” she said. “We feel it is their turn to make a move.”

The university has offered a 9.25-per-cent wage increase over three years. A university spokesman said the administration is willing to go to binding arbitration.

The workers have asked for a two-year contract with a wage increase of 11 per cent over that period. The demand for a two-year deal is part of a broader strategy by CUPE Ontario to co-ordinate bargaining on all Ontario campuses in order to gain leverage at the negotiating table.

And in Rome from the BBC:

Sleeping bags in lecture theatres, lessons in parks, people wearing plasters on their faces. They are just some of the ingredients in Italy’s hugely divisive row over education.  The sleeping bags are being used by students, who have taken over a number of buildings. Lessons in some places are being held in parks, as classrooms are occupied, and the plasters are the symbolic sign of the “cuts” the students and staff are protesting against.

But these are not just isolated protests by a few disgruntled hardliners.  A number of recent marches in Rome have attracted up to half a million demonstrators.  Seasoned Italian commentators say they are the biggest in 15 years.

The protests are not just for university students. Secondary school teachers and pupils are also on the streets, as their slice of the education budget comes under threat as well.  The government is pushing its reforms because it believes universities and schools are inefficient and producing lacklustre results.

I also did a little bit of Facebook reconnaissance and found popular groups for and against the strike in Toronto, while Italy Education Minister Mariastella Gelmini’s page has been flooded with comments from young people on the situation.

While both are complex and ultimately different situations, one of the few comparables is popular support: In Rome it is overwhelming, while in Toronto it’s very divided. With starkly different political climates, I can’t speak on how well this bodes for either side, but it will be interesting to see how both situations are resolved. They each represent what the prospective futures of significant numbers of young people within their respective regions will be like. In turn, this will ultimately affect the overall prosperity of the regions.

And now, as always, some music.

Scientific American says the quant revolution in finance bears part of the blame for the crisis and it’s time for new and better models of the way the world really works (via Mark Thoma).

These lapsed physicists and mathematical virtuosos were the ones who both invented these oblique securities and created software models that supposedly measured the risk a firm would incur by holding them… Without the formal requirement to maintain debt ceilings and capital reserves, the commission had freed these firms to police themselves using risk tools crafted by cadres of quants … For its part, the quant community needs to undertake a search for better models—perhaps seeking help from behavioral economics, which studies irrationality of investors’ decision making… These number wizards and their superiors need to study lessons that were never learned during previous market smashups involving intricate financial engineering…

Maybe. Adding behavioral assumptions is a nice tweak, but it won’t remedy the fundamental flaw of this kind of approach. The number wizards need to do much more than read and quantify history. The problem is that that quants and much of modern economics for that matter have neglected the systematic study of economic transformation. What’s needed goes far beyond more historical and behavioral data points. Concretely this would mean building on the fundamental insights of Darwin, Marx, Schumpeter, and Jacobs to create a real scientific understanding of how economies grow, evolve, generate crises, and restore themselves. There are very, very few economists or social scientists that are willing to take on these big questions. And to build these models will not only take big thinkers, but reasonably large and stable teams of theorists, economic and financial historians, computer scientists, data-base experts, and others. It’s what we’re trying to do here at the Prosperity Institute, and I’d encourage others to join in.

Had a great chat with BusinessWeek’s Mike Mandel this morning on the crisis, its geography, and what to do about it. Then I came across this post by Nouriel Roubini (via Naked Capitalism).

With consumption being over 71% of GDP a sharp and persistent contraction of consumption all the way through at least Q4 of 2009 implies a more severe recession than otherwise… To bring back the household savings rate to the level of a decade ago (about 6% of GDP) consumption will have to fall – relative to current GDP levels – by almost a trillion dollar.

He notes that the crisis will be longer and deeper than virtually anyone thinks. But why?

The reason is becoming clearer and clearer every day. The crisis is at bottom the crisis of Fordism. It emerged around housing - the single family home, the pivot point of Fordist consumption. It’s not that the technology and idea-driven creative economy is not productive, it’s that our complex financial system in effect over-allocated the fruits of that productivity into the old cornerstone of the Fordist economy. Instead of creating new demand for technology or better health care or new energy or flowing into savings, that productivity translated into increased demand for housing.

So the current bailouts are fundamentally flawed. Propping up the housing-auto nexus of Fordism will only forestall the inevitable. Bailing out homeowners will only essentially handcuff them to their homes, leaving them paying out huge shares of income on housing and housing-related goods and making it impossible to achieve the mobility so many will need to locate economic opportunity. On a social level, it will keep pouring good money after bad, leaving us wrapped up in the old Fordist economy, unable to generate the demand for or the savings needed to generate the new system architecture and infrastructure required to reset the economy on a new and hopefully more sustainable growth trajectory.

The only way out of the crisis is to simultaneously create demand for and investment in these new areas, in part by massively reducing the amount of consumer spending on the old house-auto nexus.

So any government investment should do the reverse of the current bailouts. Instead of propping up these older sectors artificially it should aggressively seek downward adjustment in their costs, perhaps by investing in efforts to increase the efficiency and management of housing and reduce the costs of cars, energy, and mobility. Fiscal stimulus should also focus on the growth sectors of the future. In my mind, this turns on five interrelated factors:

1) Revolutionize the housing delivery system - More rental less ownership; better construction and management, creation of new housing delivery and management systems which allow for flexibility required to shrink the journey to work and allow people to move more freely as their job, career, and lifestyle prospects change.

2) Transform transportation - Everything from more energy-efficient cars, market pricing of roads and highways, to mass transit, high speed rail, and increased reliance of bikes and walking (especially as the journey to work can be shrunk via more flexible housing tenure).

3) Alternative energy - Moving out of the carbon-based economy, shrinking energy costs, and creating new areas for investment.

4) Revolutionize the human capital system - Economists agree this is the key to long-run growth. Currently we waste more of it than virtually any other resource. We need to massively invest in human talent and creativity on a mass scale. This requires an individually oriented, creativity enhancing (as opposed to creativity-squelching). This means moving well beyond schools to flexible, tailored approaches to creative development, including a massive commitment to early childhood and fundamental from-the-ground-up remake of our educational system.

5) Any solution has to do three interrelated things - It must encourage new investment, the creation of new technologies and enterprise, and accelerate creative destruction. To do so, it must shrink the overall costs of the housing-auto nexus, freeing up capital and demand that can flow into new areas as well as increased savings. It must increase investment in and demand not just for technology but for human development, health (holistic and other), and for experiences more broadly.

Problem is: We’re doubly handicapped in getting from here to there. For one, we remain locked in Fordist mindset which sees the problem as how to reset the old housing-auto nexus. It is too early in the transformative process to perceive the full contours of the new, emergent system and to identify the core investments with real precision. Compounding this is the limits of extant theory. Economics in its current guise overvalues simple micro-models based on the efficient allocation of market systems. Of course some economists have junked this, most notably the new empiricists who believe the answer is to be found in improved models and better data. The real issue is that we lacked theoretical understanding of the dynamics of capitalist economic crises and transformation - modern-day, scientific frameworks and dynamic models based on the broad kinds of understanding advanced by say Schumpeter and Marx. This is not just an academic point; it is a terrible handicap in understanding and dealing with the current crisis and and evaluating alternative paths out of it.

The sooner we dump the talk of the bailout and get on with understanding and building the sustainable economy of the future, the better.