Category Archives: Business and Economy

Middle class declines in the majority of US metropolitan areas

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A new study from Pew shows that the middle class did not do well in many metro areas between 2000 and 2014:

The report by Pew Research Center found that the share of the middle class fell in 203 of the 229 U.S. metropolitan areas examined from 2000 to 2014, including major cities such as New York, Los Angeles and Chicago, which saw a relatively sharp drop in its middle class.

For many areas, a big culprit in the declining middle was the falloff in manufacturing jobs during that 14-year period, when factories shed about 5 million workers from their payrolls nationally…

The news was not all downcast, especially for metro areas in coastal and border regions that have benefited from the boom in technology, trade and resources…

Among the 229 metro areas, which constitute about 76% of the U.S. population in 2014, there were slightly more areas that saw a bigger increase in the share of upper-income population than lower-income adults. Still, Pew’s Kochhar did not view that as a big win for the American economy. The median incomes of the lower, middle and upper tiers all shrank between 2000 and 2014, he said.

Three quick thoughts:

  1. The continued effect of losing manufacturing jobs cannot be overstated: this has hurt numerous cities for decades. It is not easy for any large city to transition from such jobs to opportunities in new sectors.
  2. Looking at this data at the level of a metropolitan region is helpful because it hints at broad patterns within regions that are often segregated by social class and race. The phenomenon of the rich and poor living right next to each other as well as trendy and wealthy communities getting a lot of attention is not exclusive to cities; similar patterns can be found in suburban areas.
  3. Connected to the second point is that solutions to income issues could come at the level of the entire region rather than within individual communities. How might entire regions help the middle class? Why don’t more large cities and surrounding suburbs work together on these issues? (I know why they don’t but that doesn’t mean that it wouldn’t benefit many local residents.)

Getting big companies to pay more for local infrastructure

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The mayor of Cupertino, California wants Apple to pay more for local roads and other services:

Many people in Cupertino, a 60,000-person town in the heart of Silicon Valley, are beginning to organize around their overburdened city. They claim the region is struggling with aging infrastructure and booming companies whose effective tax rate is often quite low. Frustrated by traffic and noise, some in Cupertino are trying to put a stop to more development, which they argue brings more congestion on the roads, parking and train system. But Chang says limiting new development would damage the regional economy and that the real solution should be higher taxes on the wealthy and companies such as Apple…

Convincing local politicians to battle Apple is hard, Chang said. He recently proposed that Apple – which is building a massive new campus its own employees nicknamed the Death Star, or more favorably, The Spaceship – should give $100m to improve city infrastructure. To move on the proposal, Chang only needed to get a single vote ‘yes’ among the three other eligible council members. He failed to get that vote…Meanwhile, the mayor of Cupertino plans to keep pushing Apple to contribute more to the town. Apple paid $9.2m in tax revenue to Cupertino in 2012to 2013, which was about 18% of the city’s general fund budget, according to an economic impact report. Coincidentally that was also exactly the same amount CEO Tim Cook was paid in 2014.

Chang is now working on proposals for a business employer tax that would make companies with more than 100 workers pay $1,000 per employee. Chang argues the employer tax is less regressive than the competing program: a higher sales tax.

Local politicians are often in a tough position in situations like this. Large companies provide prestige and jobs. Many communities would love to have white-collar offices that contribute property taxes and opportunities for local residents. These are such desirable facilities that states and communities race to the bottom in providing tax breaks. (See an example here as well as contrast this to a rural town rejecting a meat processing plant.) Yet, large companies may make heavy use of local services as well as be perceived as sending most of their profits out of the community. So, what do you do when your town needs to pay for roads or the police department or schools and the majority of residents don’t want to pay higher taxes?

I’m guessing that Cupertino has little leverage, particularly if fellow officials and residents are unwilling to go against the big company. Yet, perhaps sustained pressure and some negative publicity might help; one Chicago suburb and its large hospital reached an agreement to help the community meet basic infrastructure needs.

Just how much historical preservation is too much?

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The source of this information is on one side of the issue but it is an interesting question to consider: just how much historic preservation of buildings is too much?

New York City’s Landmarks Preservation Act was intended to protect about three or four “historic districts”—Brooklyn Heights, Greenwich Village, etc.—preservationist James Van Derpool told the New York City Council in 1964. That’s all “anyone had seriously considered.”

The Landmarks Act  was passed the following year thanks in part to Van Derpool’s testimony. A half-century later the city has protected 138 historic districts. Nearly a third of the structures in Manhattan have been landmarked. As I argued in a Reason TV video published last year, entire swaths of New York City may as well be encased in a life-sized historical diorama. Out-of-control landmarking is undermining the process of creative destruction that made New York, well, New York…

What justifies these two designations? Landmarks Commission Chairwoman Meenakshi Srinivasan was left straining. She lauded the Pepsi sign for “its prominent siting” and “frequent appearances in pop culture.” The Park Slope blocks are part of an area, Srinivasan explained, that “owes its cohesiveness to its tree-lined streets, predominant residential character, and its high level of architectural integrity.”

If “prominent siting,” “tree-lined streets,” “residential character,” and “architectural integrity” are grounds for landmarking, what’s to stop the Commission from declaring every square inch of the Big Apple too precious to ever change?

Here are the two sides of the issue:

  1. The preservationists will argue that buildings and streetscapes need protecting because (1) capitalism and free markets tend to bulldoze meaningful structures for current residents and future generations in pursuit of progress and (2) residents of particular places should expect that features of the location that helped draw them there should remain there.
  2. Reason and others would argue that such restrictions limit the free market, stopping progress and natural processes of neighborhood change. Such regulations constrict the market for property which can drive up prices as well as freeze areas in time even as the world has moved on to better things.

Perhaps there is some middle point or range where both parties can get what they want? This opinion piece suggests nearly a third of Manhattan is simply too much but where is the empirical evidence to support this? Is Manhattan development suffering because of this? As is common in social life, neither side will likely get all that they want – no such designations vs. always having to get approval from the neighbors when building a new structure – so some compromise should be reached.

It would also be interesting to look at the level of historic preservation in wealthier vs. poorer areas. Can more of Manhattan be saved because there are resources to do so versus an inability to save many noteworthy structures in poorer American neighborhoods because there are few organizations who could handle the burden? In other words, perhaps historic preservation is an issue largely faced by wealthier communities who can afford to protect some of their gloried past.

Why small rural towns turn down economic development opportunities

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Not every rural small town wants to add a meat processing plant:

Regional economic development officials thought it was the perfect spot for a chicken processing plant that would liven up the 400-person town with 1,100 jobs, more than it had ever seen. When plans leaked out, though, there was no celebration, only furious opposition that culminated in residents packing the fire hall to complain the roads couldn’t handle the truck traffic, the stench from the plant would be unbearable and immigrants and out-of-towners would flood the area, overwhelming schools and changing the town’s character…

The village board unanimously voted against the proposed $300 million plant, and two weeks later, the company said they’d take their plant — and money — elsewhere.

Deep-rooted, rural agricultural communities around the U.S. are seeking economic investments to keep from shedding residents, but those very places face trade-offs that increasing numbers of those who oppose meat processing plants say threaten to burden their way of life and bring in outsiders…

Nickerson fought against Georgia-based Lincoln Premium Poultry, which wanted to process 1.6 million chickens a week for warehouse chain Costco. It was a similar story in Turlock, California, which turned down a hog-processing plant last fall, and Port Arthur, Texas, where residents last week stopped a meat processing plant. There also were complaints this month about a huge hog processing plant planned in Mason City, Iowa, but the project has moved ahead…

The question of who would work the tough jobs was at the forefront of the debate, though many were adamant they aren’t anti-immigrant. Opposition leader Randy Ruppert even announced: “This is not about race. This is not about religion.”

On one hand, not all jobs are necessarily good jobs. On the other hand, there seem to be larger issues at play: who will get these jobs? What happens when all the workers – who may not share the background of the small town – show up? It would be intriguing to explore what changes to the processing plants would lead to support from community members: guarantees of local hires? Higher wages? No minorities hired?

It would also be worth tracking where these processing plants end up. What one community turns down may be seen as an economic savior in another area. For example, scholars have noted the rise of immigrant populations in American rural areas in recent decades including places like Iowa and Georgia which don’t have the traditional immigrant gateway big cities.

Adaptations to Walmart leaving communities

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Joel Kotkin considers the fate of smaller communities where Walmart has decided to close stores:

None of this suggests that the retreat of big boxes from smaller towns and some urban areas will be painless. Yet those who see this trend as the harbinger of the end of malls or Main Streets may be in for a surprise. Rather than die off, bricks-and-mortar shopping will change, adding new elements and moving from ever greater uniformity to more variety and differentiation, which are critical to independent business’s survival. Much of this change will take place in small towns, but also in suburban areas, which have long been the happy hunting ground of big boxes.

Why not in the big cities? One of the chief ironies of our times is that chains and their attendant sameness now define much of our most sophisticated urban core—Starbucks on every corner, global brands and restaurants serving the same trendy cuisine. The recovery of large cities, suggests New York researcher Sharon Zukin, has also made them more alike by “bringing in the same development ideas—and the same conspicuous textual allusions and iconic corporate logos inevitably affixed to downtown architectural trophies—to cities across the globe.” Efforts to make the city “safer and less strange to outsiders’ eyes”—tourists, expatriates, media producers, and affluent consumers—are making one global city barely indistinguishable from another…

Some small towns—and suburbs even more so—will be transformed by immigrants and millennials, who may want to set up their own unique shops along the very Main Streets once targeted by firms like Walmart. In wealthier communities, this may mean more boutiques and high-end restaurants. But among less affluent areas, other institutions, such as cooperatives—300 already nationwide and another 250 on the way, as well as farmers markets—could provide some of the products that many once found at Walmart…

As the retail world become more digitally focused, and less big-box-dominated, there is a golden opportunity to restore the geographic and local diversity that has seemed doomed for nearly a half-century, but now may enjoy a new burst of life.

There is little doubt that the retail industry will continue to change. Walmart and other large corporations may seem inevitable today but they didn’t exist decades ago and may not have much presence in the future. Yet, Kotkin seems pretty optimistic about online retail which requires its own set of adjustments as well as infrastructure that could be threatened in the future.

For small towns and many suburbs, do these future changes leave much space for residents themselves to create and experience local differences? On one hand, online retail offers customization yet relies on large companies located elsewhere and on the other hand, local diversity in things like restaurants and small stores draws upon local entrepreneurs. Is the secret to promote an experienced based consumption – local culture and food – as opposed to decades of goods based consumption?

An oil bubble and McMansions

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One commentator links the shrinking profits in the oil industry to declining McMansion values:

They lived high on the hog in Bubble McMansions near Houston and elsewhere, the economy tied to the oil industry. And now, a very different story all over Texas.

 

texas

That is not a huge drop in housing prices compared to the changes in other areas in the chart. But, the potential link between oil money and McMansions is an interesting one. Houston has long been known as a major city tied to the oil industry; I remember reading works by sociologist Joe Feagin about the effects of the oil industry on Houston written in the 1990s. The stereotype is that all of this cash was spent on Texas-sized items, like huge homes in sprawling suburbs. However, I’ve never seen data on whether Texas has more McMansions per capita than other metropolitan areas. For example, are there more McMansions in the Houston area compared to the New York area (which has its own money-printing industry in Wall Street)? Or, in the Atlanta or Las Vegas area? Going further with the chart provided, what about McMansions in Midland and Odessa?

Housing flipping now above 2005 levels

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RealtyTrac finds that house flipping levels have increased in recent years:

The report by RealtyTrac found that home flipping in 12 active metropolitan areas last year was above a peak set in 2005, just two years before the U.S. mortgage market started to collapse, leading to a banking crisis and the Great Recession.

Profits generated by home flipping also hit a 10-year high, with home flippers netting an average $55,000 per sale before renovation and transaction costs. Profits topped $100,000 in expensive markets such as New York and Los Angeles…

There were also indications smaller investors were starting to pile in on the action. The number of home flippers rose to levels not seen since 2007, while the number of home flips per individual investor fell at the same time.

“When home flipping numbers go up, it is usually an indication that the housing market is in trouble,” said Matthew Gardner, chief economist at Windermere Real Estate, who was quoted in the report.

I blame HGTV. Seriously though, hasn’t there been a shift in the last decade or so to seeing house flipping as a more normal business that many people could get into? I hear radio ads regularly in the Chicago area for house flipping seminars where supposedly anyone can show up and learn the secrets. On one hand, you have professionals and firms that do this on a mass scale but you also have an increase in the number of flippers as people take on these projects to make some extra money or start a new business.

If this is pushing us toward another burst housing bubble, is there any way to reign in the flippers? Could local governments institute more regulations that would slow this down?

Recovery best in wealthiest zip codes

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A new analysis looks at the recovery of the US economy by zip codes and finds that the wealthiest areas have rebounded the most:

The report found that for the bottom fifth of U.S. zip codes—which the researchers term “distressed”—the medium income only reaches 68 percent of the state-wide median and 27 percent of adults live in poverty. These communities saw employment decline by 6.7 percent during the recovery. Not the recession—the recovery. In the nation’s median and prosperous zip codes, the situation is much brighter. Employment in median zip codes rose by 2.3 percent, while in prosperous communities—the top fifth of U.S. zip codes—employment rose by an incredible 17.4 percent.

EIG’s analysis supports the notion that in the U.S. economic gains continue to be captured by those at the top. “The data outlines two different Americas from an economic standpoint,” said Steve Glickman, the co-founder and executive director of EIG. “The communities taking advantage of the knowledge economy are booming, but the areas where the industrial economy has traditionally held firmest have really suffered. These trends predate the Great Recession, but the recovery has continued to accelerate the fortunes of the most-prosperous areas and the downturn of the most distressed.”

Another piece of evidence to add to plenty of existing material: where people live has a large effect on their lives. And if the United States has persistent residential segregation – particularly by race but also by social class – then these differences by geography will continue to be pertinent.

CNBC: owning a home may be “the new luxury item”

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CNBC suggests the dream of owning a home is becoming less attainable:

Almost half of those people who don’t own a home said their financial situation is standing in the way, according to a report by Bankrate.com released Tuesday. Additionally, 29 percent said they can’t afford a down payment and 16 percent said their credit isn’t good enough to qualify for a mortgage…

“A lot of people could be feeling traumatized by what happened to the housing market and are counting themselves out,” she said…

These days, first-time homebuyers, who are primarily in their 30s, are spending a bigger chunk of their incomes to buy their first house — coughing up about 2.6 times their annual pay; in the 1970s, first-time homebuyers purchased homes that cost only about 1.7 times their yearly salary, according to Zillow.

Tighter lending standards and hefty down payments have further deterred some buyers.

Economic conditions and reasoning can go a long ways to determining who can access parts of the American Dream and when they may do so in life. This reminds me of other analyses I’ve seen in recent years suggesting the delayed age for marriage as well as a decline in marriage is also tied to economics: people want to be more financially secure before they marry. Similarly, buying a home is now being put off – not because Americans don’t want it but because they just aren’t set and the conditions have imposed particular restrictions.

Using smartphones to collect important economic data

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Virginia Postrel describes a new app used in a number of countries to gather economic data on the ground:

Founded in 2012, the San Francisco-based startup Premise began by looking for a way to supplement official price indices with a quick-turnaround measure of inflation and relative currency values. It needed “a scalable, cost-effective way to collect a lot of price data,” chief executive David Soloff said in an interview. The answer was an Android app and more than 30,000 smart-phone-wielding contractors in 32 countries.

The contractors, who are paid by the usable photo and average about $100 a month, take pictures aimed at answering specific economic questions: How do the prices in government-run stores compare to those in private shops? Which brands of cigarette packages in which locations carry the required tax stamp? How many houses are hooked into power lines? What’s happening to food prices? Whatever the question, the data needed to answer it must be something a camera can capture…

The result is a collection of price indices updated much more frequently and with less time lag — although also fewer indicative items — than monthly government statistics. For Bloomberg terminal subscribers, Premise tracks food and beverage prices in the U.S., China, India, Brazil and Argentina, using indices mirroring government statistics. It gets new information daily; Bloomberg publishes new data twice a week. Premise tracks a similar index in Nigeria for Standard Chartered bank, which has made the aggregate data public. (Premise clients can drill down to see differences across products, types of retailers, or regions.) While more volatile than official statistics, the figures generally anticipate them, serving as an early-warning system for economic trends…

Premise has government clients, and it carefully positions its work as a complement to official statistics, as well as to the academic Billion Prices Project, which scrapes massive amounts of price data from online sources but can’t say what cooking oil sells for in a corner shop. Make no mistake, however: Its methods also provide valuable competition to the official data. The point, after all, is to find out what’s actually happening, not what government reports will say in a few weeks.

This is an innovative way to get data more quickly. It would be interesting to see how reliable this data is. Now it remains to be seen how markets, governments, and others will use more up-to-date information.

More broadly, smartphones could be used to collect all sorts of data. See previous posts on using the microphone and the use of additional apps such as Twitter and Waze.