Across the Great Divide

Denny Hecker Truck Gardens?

Just discovered this post was gobbled before it made it to the blog. Too busy to reconstruct my part of it, but here's the quote from Bill Lindeke that prompted some musings about adaptive reuse of our dying malls, foreclosed subdivisions and abandoned car dealerships.

Suburban growth seems like a terribly wasteful way to operate a national economy. Much of the time, it means constructing brand new homes, shopping centers, schools, and sewers at the outskirts of town while simultaneously depopulating and tearing down homes, shopping centers, and schools in the middle of the city or in the first-ring suburbs. The network of real estate developers, banks, home construction firms, food corporations, big boxes, and auto dealers line US freeways in an endless loop of new construction and obsolescence, peddling giant homes and an endless stream of shiny products that nobody really needs... Is this really all we have to offer? Shouldn't there be another way to make money? Isn't new retail development just vulturing away the old retail development? Does economic growth have to come at the expense of our cities?

And here's another good read, about Surprise, Arizona, and how it illustrates how the housing boom went so wrong.

Generally, people move to a community for a specific reason -- jobs, climate, scenery -- creating a demand for housing. If the demand exceeds supply, then prices go up, and someone builds new houses to meet the need. Something else seemed to be happening on the fringes of Phoenix. Instead of being lured by jobs or amenities, people came in large part because houses were relatively cheap. "Phoenix and Las Vegas became the ultimate suburbs of Southern California," says Christopher B. Leinberger, a real estate developer and visiting fellow at the Brookings Institution, where he studies urban planning. "They became the place for folks in California who could no longer afford the late 20th century American dream."

Just because a place is relatively cheap doesn't make housing affordable, however. That brings us back to the Guerros. They wanted a nicer house than they could afford, so their lender offered a solution: An adjustable-rate mortgage. Their monthly payments were $2,700. Of course, the bank would jack up their rates after two years, but it didn't matter. With home values climbing steadily, they could refinance before the rate reset, pull out enough cash to buy a jetski or a new car, and keep their mortgage payments in check. In other words, the banks were creating affordable housing where it didn't really exist; with easy and tricky loans, they were creating purchasing power, or demand. Tens of thousands of such loans were issued in Arizona, and the major homebuilders even got into the game, offering financing in a manner more often associated with car manufacturers.

This artificially inflated demand did the trick. In just five years, Surprise gained another 50,000 people, and added more than 7,000 homes in 2005 alone. Maricopa County -- which contains the bulk of the greater Phoenix metro area -- grew faster than anywhere else in the country, and the Phoenix area issued more than 62,000 residential building permits. The economy responded: In 2006, Arizona's gross domestic product grew by 6.7 percent, compared to 3.1 percent for the nation as a whole. The construction industry provided 9 percent of all non-farm jobs in Arizona, making it by far the biggest employer in the state. Those jobs drew more people, who took out more loans to buy more houses, creating more demand … you get the picture.

Housing prices soared -- nearly doubling, on average, over two years -- to create almost instant wealth. Speculation was so rampant that it threw population estimates for a loop. Last year, with the bust in full swing, state and local officials discovered that their method of counting people -- by starting with 2000 census numbers and then estimating population using the number of houses built and sold -- didn't work. They had assumed an occupancy rate of 98 to 99 percent, when in fact at least one of every 10 new homes was sitting empty, even before the bust. A lot of people were making a lot of money. A lot of people would lose money, too.

The New Retirement: Work Until You Win the Lottery.

A guy works for the same company for 26 years, likes his job and company and finally achieves the American Dream.

Now he can stop working three jobs to support his family.

Clyde Persley [that's his 1977 high school yearbook picture] won $39 million in a California lottery. But the kicker is that he worked part-time as a limo driver and was on-call at Santa Cruz restaurant, while also working full-time for a company operating candy-making machines.

Here's the quote that really stuck with me:

"I really appreciate my life with Harmony Foods," he said of his 26-year stint there. "I can't say enough how much my work has meant to me."

His story started me digging for statistics about the underemployed. How many Americans work multiple jobs just to stay afloat — because of low wages, inadequate hours, seasonal employment or lack of health care coverage? How many good workers hover near the poverty line and never work their way out?

But stories of real people, not numbers, are what brought the issue home for me.

Nearly a decade ago a researcher studied how rural Utah families met their family's needs despite low-paying work:

Jill, a single mother with four children, is a good example of multiple job holding.

At one time I was working four jobs. It was when I was first divorced ... about four years ago. I was working for the bank in town ... thirty five hours a week. And then because ... I have problems getting child support, I was working also in the evenings about three or four days a week ... for a convenience store for minimum wage. I was doing typing for an insurance agent. I was doing his billing and his correspondence at home on my computer and then on weekends I cleaned house for people.

That year, she told me, she "made $9,000 total," several thousand dollars below the poverty threshold for her family; thus, while working four jobs, she qualified for AFDC. After a spell on AFDC, she wasn't eligible for Medicaid without a spend down or for Food Stamps because of her vehicle, and was uninsured for several years as a result. Two of her children have chronic medical conditions for which they need prescription medication, but health insurance through her job at the bank would have cost her over $200 per month and "we needed that money to live on." Food was watched carefully during that time: "we had a gallon of milk ... this has got to last all week, kids. I was really thankful that my kids could get like free lunches at school and free breakfast. So they could go to school and eat and then they'd get a good lunch and we'd work out dinner."

Jill was able to keep up that schedule for about two years because her oldest daughter assumed many responsibilities at home, including meal preparation and child care. But the strategy of multiple job holding exacted some heavy costs on the family. "I was really lucky because my oldest daughter was very, very responsible and one of the reasons I quit was because ... we still needed the money, but my daughter's grades were dropping in school because she was spending so much time helping" with the younger children. Jill quit the job at the convenience store in order to stay home in the evenings with the children. In addition to the effects on her daughter, Jill found those years took a toll on her, as well. "It was really hard emotionally. I really think I aged a lot in two years ... just worrying. The stress of trying to carry on four jobs, make ends meet, you know, wondering how we were going to pay the next bill.... So I had no choice." During the years of multiple job holding, Jill also availed herself of some church-based assistance, mostly for groceries. In her case, low wage work meant she "balanced" her budget by devoting more time to paid employment, depending on family-provided child care, using local resources for groceries, and foregoing health insurance.

Clyde Persley says "I can't say enough how much my work has meant to me" and he seems to be a pretty centered guy. Yet his secure future is a matter of pure luck.

UPDATE: Bob Herbert talks about today's job prospects of the underemployed, and they're not as good as when Clyde graduated from high school.

Use Bubbles Sparingly in Measuring State Budget Differences.

Mitch Berg cites this infographic from Many Eyes that uses a bubble chart to compare the size of estimated state budget deficits.

The four states missing from the graph?  The low-tax, low-”service” states run by conservatives (whose education systems generally keep pace with Minnesota’s vaunted system, and clobber the bejeebers out of California, New York, New Jersey and Massachussetts’): North Dakota, Wyoming, Montana and Alaska; South Dakota’s deficit comes to around $60 per South Dakotan, so it’s close.

As Junk Charts reminds us, "Bubble charts are okay for the conceptual ('this is really big, and that is really tiny')." But they are lousy for more nuanced comparisons — because people have a hard time estimating differences in area and the bubble format may obscure what's actually being compared.

For example, that huge California deficit bubble is much bigger than the others, but so is California's population, economy and state budget. (To his credit, Mitch also provides a couple per capita comparisons. But comparing per capita deficits is a bit like comparing per capita debt. An important calculation in figuring how much you owe is how much you can afford to pay.)

Maybe the bubbles are okay, because Mitch's point is conceptual — that low-tax, low-service states run by conservatives do better than ummm... some other low-tax, low-service states run by conservatives, such as Florida and Nevada, both of which face proportionately larger budget deficits than Minnesota.

You could see that quickly if you looked at the much less sexy data set that was used to calculate the randomly arranged bubble charts. You'd also have to do a little reading to figure out that governors in two of those conservative states are Democrats. And that Alaska's SAT scores are on a par with California's, and Nevada's are worse.

You'd also miss that all Mitch's favorites (plus many of the other low tax states) do a good job of exporting taxes to non-residents — through energy and mining, permissive banking regulations, higher than average federal payments and tourism-related taxes. 

Wal-Mart Workers on Welfare? Let's Look for the Spin.

Ben Stiller, Michael Jordan and Smokey Robinson were among the celebrities to make presumably undiscounted appearances on stage at Wal-Mart's annual meeting last week.

News Cut notes that Wal-Mart plans to add 22,000 new jobs and then leaves it to its commenters to parse whether that's actually good news. One reader asks:

how many of those 22,000 jobs will pay enough to support a family? How many of those jobs have health care coverage? Family or individual? If there is health care, is it real health care or something dressed up to look like health care until it’s needed?

According to a 2006 Washington state study, about 23% of the 16,000 Wal-Mart employees in Washington  received state-subsidized coverage through Medicaid or the state's Basic Health Plan in 2004. (The company said the study data was misleading because it had since improved its employee health benefits.)

Maybe.

In all 25 states that have released such data, Wal-Mart heads the list of companies with the most employees and dependents enrolled in state-funded health care programs. (Wal-Mart was also the largest employer in two of the states, but ranked among the top 10 in only one other.)

In Massachusetts, a recent report says more than 40% of state's Wal-Mart workforce uses state-funded health care.  Wal-Mart does better in its home state, where many of its 45,106 employees have headquarters jobs. Just under 9% of its Arkansas employees  are on public assistance.

Wal-Mart says "The average wage for regular, full-time hourly associates in Minnesota is $11.59 per hour." But it gives no indication how many of the 20,746 it employs in the state fall in that category — or that the average pay for 52 weeks of full-time work amounts to shade over $24,000, before deductions for the employee health plan.

So let's take a generous but educated guess that 30%, or 6,600, of those 22,000 new workers will have state-subsidized health care.

But it's not as bad as it sounds. After all, how many of those Wal-Wart recruits already depend on public health subsidies?

Chambers of Communist.

In explaining China's rise and America's decline, historians may well note that capitalism -- American capitalism, anyway -- far from spreading democracy, actually has played a key role in transforming China into an authoritarian superpower. The transfer of manufacturing from the United States to China -- driven by the rise of mega-retailers such as Wal-Mart that have been able to enforce a regime of low wages all along their global supply chains -- has diminished our middle class and expanded theirs. American companies such as Wal-Mart have not been deterred in the slightest by China's authoritarian practices; indeed, before China enacted a law that infinitesimally increased workers' rights last year, the American chambers of commerce in China joined with communist hard-liners in opposing the statute.
— Harold Meyerson, Washington Post

Add another riff to yesterday's on China, democracy and capitalism on the 20th anniversary of the Tiananmen Square uprising.

Meyerson invokes Marx's "the idiocy of rural life"

by which he meant its isolation and its lack of social differentiation, but 20 years ago, it was that very "idiocy" on which the Chinese Communist Party depended to maintain its hold on power.

The urban/rural divide in China is centuries wide. Here, it's wide enough.

[h/t Norwegianity]

Finish the Revolution Without Me.

On the bus ride to Tiananmen Square, our guide James told us how his brother and a cousin went out the night the demonstrations turned deadly. They were teens; James was 11 and stayed home.

His cousin did not come home.

Once we get off the bus, James said, I will lead you through the square and describe its history. Please do not ask me any questions while we are there, because I will not be able to answer them. There may be people in the crowd who look like tourists, listening, but they are agents. Once we are back on the bus, you can ask me any question you want. And do not take pictures of the soldiers. They may take your camera.

So, of course, I contrived to get a picture of the soldiers. A tiny expression of freedom in the place where freedom once meant stepping in front of a tank.

On the surface, it was impossible to tell if the square held any  resonance of democracy for the non-western visitors there. Mao's portrait is still the focal point. Soldiers patrol in a non-threatening, honor guard sort of way. A man and kite merge. Tour guides do not take questions.

Tomorrow is the 20th anniversary of the massacre of hundreds of Chinese citizens by their own army. Things have been changing fast in China, and doubtless have changed since our visit more than three years ago.

But The Economist does not expect much in the way of acknowledgment: "For many in China the nationwide pro-democracy protests of 1989 and their bloody end have become a muddled and half-forgotten tale."

The China Beat offers a different perspective on the silence — that it is neither the result of suppression or fading memories.

Generally, the urban educated today have what they wanted at the time of the Tiananmen protests. They feel they can make such recommendations and that their expertise is respected. They and their children also now have their personal space, in the shape of access to websites, chat rooms, and a wide variety of publications and films. They can say what they want so long as they stay within increasingly generous boundaries and do not challenge the Party’s political monopoly.

Above all, in their material livelihoods the urban educated are doing very well, whereas at the time of the Tiananmen protests in 1989, they had good reason to be angry. Their salaries were low, and sour jokes circulated about private barbers earning more with their razors than hospital surgeons with their scalpels. But in the years since, there has been a deliberate government policy to favor the well-educated. Year after year the professionals on government payrolls have been offered repeatedly higher salaries. During one year in the late 1990s, the pay of all of the academics at China’s most prestigious public universities was literally doubled in one go. Opportunities to earn high salaries opened up just as much in the private sector. Many of the university students at Tiananmen Square in 1989 now drive cars and live in fancy high-rise apartments. They have gained a lifestyle that they had never imagined possible, and they do not want to upset the apple cart. If the government’s plan was to co-opt the salaried middle class, it has worked.

Reflecting on the Tiananmen protests, one of the most famous of the student leaders, Wuer Kaixi, flippantly articulated their desires, “So what do we want? Nike shoes. Lots of free time to take our girlfriends to a bar. The freedom to discuss an issue with someone. And to get a little respect from society.” They now have all that, in spades.

As a result, the members of the educated middle class, including many of the former university students who crowded Tiananmen Square two decades ago, have become a bulwark of the current regime. Summarizing a large survey of political attitudes in Beijing, a recent book concludes that, among all urban groups, “those who perceive themselves to belong to the middle class and who are government bureaucrats are more likely to support the incumbent authorities.” If there is another outbreak like Tiananmen, in fact, many of them might prefer to be on the government side of the barricades.

In this land where our former revolutionaries become stock brokers, college professors and community theater matrons, why should we be surprised?

Absolutely Wonderful!

“We sold 200 boxes in two-and-a-half days,” he said. “I’m the first to tell you that business is absolutely wonderful. It seems to be recession-proof.”

I'd been hearing about shortages when I was in Colorado. Local stores sell out as soon as a new shipment arrives.

Retailers are giving the president some of the credit for their upswing.

What's the product?

Do Higher Taxes Hurt the Economy? What About Cuts?

Too often, we let political ideology and anecdote rule, where fact-based analysis ought to be applied.

Yesterday, I wrote about my personal experience as a business owner and said I'd offer some facts about small business and taxes. Today, I'm punting to Tuesday's Pioneer Press. It will publish an op-ed that talks about a study I initiated for Growth & Justice, and what we found to be the potential economic impact of higher income taxes on small business in Minnesota.

 The impact is likely to be far, far less than the anti-tax rhetoric of Carly Fiorina, Joe the Plumber and Jason Lewis implies. But there is an impact, and liberals ought to acknowledge it. And conservatives should also take into account the economic impact of the cuts they demand if they're going to make the argument that the money will be better spent. I'd welcome a similar analysis from those who advocate less government spending. With the two studies, we might be able to have an honest discussion about reality.

Our study says that an increase in the personal income tax for high earners will have some negative impact on small business and the overall economy, which policy makers should recognize as they try to balance the budget. Using the best available data and studies of tax effects, we looked at a proposed new 8.5 percent income tax bracket (because that was the first bill to call for higher income taxes) and found up to 5,000 jobs might be lost. You can read the study for all the caveats [Download PDF].

The op-ed also says that if policy makers are going to consider the economic impact of tax increases on the economy, they also ought to consider a similar analysis on the economic impact of budget cuts, because there are indications they may be worse. Either way, there will pain when we try to close a revenue shortfall. Let's not pick our poison without knowing what's in the bottle.

There's a lot more to this subject, but I'll spare you the details for now. I don't claim to have all the answers, and I do not think government is the answer to every problem. But in looking to deepen my understanding, I was willing to challenge my own assumptions and go beyond my personal experience as a business owner. I challenge others to do the same.

Of Mice and Macroeconomics.

I've been on a reduced blogging schedule, obviously, and haven't yet broken out in hives. Hard to say whether it will become a reformed habit. Meanwhile, here's a cross-post from the Growth & Justice blog. 

Tony Wikrent of Nation Builder Books spoke at Drinking Liberally in Minneapolis last week, and The Cucking Stool produced this video from the conversation that ensued.

His comments — on the respective roles of the free market, financial and industrial sectors and the political system — provide a critique of what happens when national goals are determined by theoretical economics and the free market, without enlightened guidance from the political system.

For example, he says, allowing the free market to set industrial policy — say, reducing national petroleum consumption — doesn't necessarily result in the best asset allocation to benefit society. The question, he says, is how do you re-regulate a financial system so that doing the important, productive work that needs to be done is what's profitable?

Next, a video featuring Chris Ware's character, Quimby the Mouse, via Mark Gisleson. Quimby was a strange, early and often impenetrable Ware creation. Is this about mouse-cat-fish relations or love and co-dependence? You decide.

Quimby The Mouse from This American Life on Vimeo.

Rational Consumers, Efficient Markets and Infallible Economists.

Columnist John Kay writes about the quest to develop a macroeconomic theory of everything, "based on extreme rationality and market efficiency" — and why economists mostly failed to anticipate the failure of financial markets.

That people respond rationally to incentives, and that market prices incorporate information about the world, are not terrible assumptions. But they are not universal truths either. Much of what creates profit opportunities and causes instability in the global economy results from the failure of these assumptions. Herd behaviour, asset mispricing and grossly imperfect information have led us to where we are today.

There is not, and never will be, an economic theory of everything. Physics may, or may not, be different. But the knowledge we can hope to have in economics is piecemeal and provisional, and different theories will illuminate different but particular situations. We should observe empirical regularities and – as in other applied subjects such as medicine and engineering – we will often find pragmatic solutions that work even though our understanding of why they work is incomplete.

— John Kay, "How economics lost sight of the real world," Financial Times

(h/t Hal Davis, via Adrian Monck)