Tag Archives: federal government

Repeat argument: Washington D.C. is the real second city in the United States

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Aaron Renn argues that Washington D.C., and not Los Angeles or Chicago, is the real “second city” in the United States:

During the first decade of the twenty-first century, the Washington metropolitan area overachieved on a variety of measurements versus its peer metro areas—that is, the rest of the ten largest metros in the country, plus the San Francisco Bay Area (which federal classifications divide into two, neither of which would make the Top Ten on its own). Among these regions, Washington ranked fourth in population growth from 2000 to 2010, trailing only the three Sunbelt boomtowns of Atlanta, Dallas, and Houston (see “The Texas Growth Machine”). Washington is currently the seventh most populous metropolitan area in America.The region has performed even more impressively on the jobs front. Since 2001, Washington has enjoyed the lowest unemployment rate of its peer group. Over the course of the entire decade, it ranked second in job growth, trailing only Houston. That wasn’t just because of the federal agencies and gigantic contractors of Washington stereotype. The region has also been a hotbed of entrepreneurship—much of it, to be sure, dependent on federal dollars. During the 2000s, it had 385 firms named to the Inc. 500 lists of fastest-growing companies in America, according to Kauffman Foundation research—by far the most of any metro area. From 2000 through 2011, according to rankings developed by Praxis Strategy Group, Washington’s low-profile but powerful tech sector had the country’s second-highest job growth, after Seattle’s. The region is also one of America’s top life-sciences centers.

Then there’s economic output. During the 2000s, per-capita GDP grew faster in Washington than in any of its peer regions except the Bay Area. Today, Washington’s per-capita GDP is the country’s second-highest—again, after the Bay Area. Unlike Washington, however, the Bay Area hemorrhaged jobs over the course of the decade. Related to Washington’s impressive output is its astonishing median household income, the highest of any metro area with more than 1 million people. A remarkable seven of the ten highest-income counties in America are in metro Washington. And during the 2000s, per-capita income rose in Washington faster than in any of its peer metros.

Finally, Washington’s population is the best-educated in America. Almost half of all adults in the Washington region have college degrees, the highest proportion of any metro area with more than 1 million people. The same is true of graduate degrees: almost 23 percent of Washingtonians hold them…

But what solidifies Washington’s emerging status as America’s new Second City isn’t its economic performance or its emerging global-city profile. Both of those are secondary effects of the real change in Washington: the increasingly intrusive control of the federal government over American life.

Washington has changed in recent decades and Renn highlights some of these shifts. Three things strike me about his analysis:

1. Washington still lags compared to Los Angeles and Chicago in being a world city. According to the 2012 A.T. Kearney Global Cities Index, New York is #1, Los Angeles #6, Chicago #7, Washington #10, and Boston is the next American city at #15.

GlobalCitiesIndex2012ATKearney

This may not be a huge gap but L.A. and Chicago particularly have edges in business activity, human capital, and cultural experience while Washington has the clear edge in political engagement.

2. The choice to build a new capital in the United States back in the late 1700s is still having far-reaching implications today. Imagine New York City as both #1 global city and center of US government. While Renn argues the federal government in Washington is helping propel it up the rankings of cities, I wonder how government centers will fare in the future versus business and trade centers like New York, L.A., and Chicago (which aren’t even the state capitals). We might then benefit from a cross-national comparison with other countries that have similar set-ups.

3. Renn has made this argument before. I wrote a post titled “Washington D.C., not Chicago or LA, the real “second city” of the United States?” back on April 7, 2012 based on Renn’s piece on newgeography.com titled “The Great Reordering of the Urban Hierarchy.” So Renn is making this argument…is anyone else?

h/t Instapundit

Call for more social science modeling for Social Security

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An op-ed in the New York Times explains how poorly financial forecasts for Social Security are made and suggests social scientists can help:

Remarkably, since Social Security was created in 1935, the government’s forecasting methods have barely changed, even as a revolution in big data and statistics has transformed everything from baseball to retailing.

This omission can be explained by the fact that the Office of the Chief Actuary, the branch of the Social Security Administration that is responsible for the forecasts, is almost exclusively composed of, well, actuaries — without any serious representation of statisticians or social science methodologists. While these actuaries are highly responsible and careful and do excellent work curating and describing the data that go into the forecasts, their job is not to make statistical predictions. Yet the agency badly needs such expertise.

With considerable help from the actuaries and other officials at the Social Security Administration, we unearthed how the agency makes mortality forecasts and uses them to predict the program’s solvency. We learned that the methods are antiquated, subjective and needlessly complicated — and, as a result, are prone to error and to potential interference from political appointees. This may explain why the agency’s forecasts have, at times, changed significantly from year to year, even when there was little change in the underlying data.

We have made our methods, calculations and software available online at j.mp/SSecurity so that others can replicate or improve our forecasts. The implications of our findings go beyond social science. As the wave of retirement by the baby boomers continues, doing nothing to shore up Social Security’s solvency is irresponsible. If the amount of money coming in through payroll taxes does not increase and if the amount of money going out as benefits remains the same, the trust funds will become insolvent less than 20 years from now.

Sociologists seem to be looking for ways to get involved in major policy issues so perhaps this is one way to do that. It is also interesting to note this op-ed is based on a 2012 article in Demography titled “Statistical Security for Social Security.” Not too many articles can make such a claim…

Also, I’m sure this doesn’t inspire confidence among some for the government’s ability to keep track of all of its data. Does the federal government have the ability to hire and train the kind of people it needs? Can it compete with the private sector or political campaigns (think of what the lauded 2012 Obama campaign big data workers might be able to do)?

Multiplicity of Illinois governments just symptomatic of American government overall?

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Whet Moser at the 312 Blog links Illinois’ long-standing issue of having lots of government bodies with how government works at the national level:

Yesterday I went on CNBC to talk with Rick Santelli about the unusually large number of governments (not just cities and counties and townships, but school districts and mosquito abatement districts and whatnot) the state of Illinois has. It’s a lot—more than any other state, including states with bigger populations and more square mileage. I wrote about this awhile ago; the BGA did a report last year; it’s been a political issue for awhile, one that both Kirk Dillard and Pat Quinn have floated…

It’s not big government; it’s kludge government. I loved this passage from Teles (emphasis mine):

Conservatives over the last few years have increasingly claimed that America is, in Hayek’s terms, on the road to serfdom. This is ridiculous, for it ascribes vastly greater coherence to American government than we have ever achieved. If anything, we have arrived at a form of government with no ideological justification whatsoever…

This comes from Suzanne Mettler’s “submerged state” thesis. It’s a kludge in action: keeping the political system functioning by burying the actual actions of government under a confusing web of laws. And the greater the number of laws, the more nooks and crannies for the “kludge industry” to embed itself: “having pulled the fundamental knowledge needed for government out of the state and into the private sector, thus becomes nearly indispensable.”

This argument could provide a way between the current debate about whether to have a big or limited federal government: let’s just make sure the system actually works rather than burying itself under a blizzard of rules and exceptions that few people can fully understand. Both small and big government can be run poorly or in less efficient ways.

This also provides good insight into the nature of complex social systems. When institutions become larger and larger (and don’t forget American government today is setting policy for over 300 million people), it is really hard to keep things simple. This reminds me of Max Weber’s warnings one hundred years ago about the threats of bureaucracy. While such systems might be the best way to deal with complex problems on a broad scale, they can become bloated and reified. Weber was pessimistic about the options but the fate of modern nation states like the United States might just depend on being able to cut through some of the complicated structures.

State Budget Crisis Task Force: big debt trouble in Illinois

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Even if politicians in Illinois don’t talk about this much, outsiders such as the State Budget Crisis Task Force are noticing the debt trouble in Illinois:

For years, Illinois has racked up billions in public debt to plug budget holes, pay overdue bills, and put money into its mismanaged pension funds. And for the people who live there, this has resulted in decrepit commuter trains and buses, thousands of unsound bridges, 200 hazardous dams and one of the most inequitable public school systems in America…

The group, led by the former Federal Reserve chairman, Paul A. Volcker, and the former New York lieutenant governor, Richard Ravitch, recommended an overhaul of Illinois’ budgeting practices, to make it harder to kite money from year to year and raid special-purpose funds. It also warned that tax increases may be in store…

Illinois has the lowest credit rating of the 50 states and has America’s second-biggest public debt per capita, $9,624, including state and local borrowing. Only New York State’s debt is bigger, at $13,840 per capita. But Illinois has not been able to use much of the borrowed money to keep its roads, bridges and schools in good working order, because years of shoddy fiscal practices have taken a heavy toll, the report said…

While many states have heavy debt burdens and unfunded pensions, the task force warned that Illinois’ problems had been building for decades and were advanced. The state was “insolvent” even before the financial crisis hit in 2008, the report said, but that was hard to detect because “budget gimmicks became a standard practice.”

Not exactly a rosy outlook.

This could relate to the discussion at the national level about how the federal government doesn’t have to balance its budget while other levels of government do. Well, states and other government bodies can still mess up the process even if they are “balancing the budget.”

A reduced Federal tax break for commuters?

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Many would argue that the United States has clearly privileged the suburbs in its fiscal policies including helping to make mortgages more available and providing money for highway funding. At the same time, buried within Washington’s recent debate over tax cuts is a little tax break for commuters:

The amount of income that commuters who use mass transit will be eligible to shelter from taxes to pay their fares drops on Jan. 1 to $125 a month from the current $230 a month, while the tax-free parking benefit for drivers will increase from $230 to $240 a month, officials said today.

The steep reduction in the transit provision is due to Congress’ failure to renew the higher limit in the Commuter Benefits Equity Act, officials said, adding that they are hopeful lawmakers will approve a higher limit sometime in 2012…

The cut in benefits will have a similar effect as a fare increase because riders whose employers participate in the transit benefits program will be able to shield a maximum of $1,500 in income from taxes in 2012, down from $2,760 this year.

It interesting that these changes would boost the break for parking/driving to work while lowering the benefits for mass transit (perhaps temporarily). I bet this law has a fascinating history.

If the public is not particularly interested in tax breaks for large corporations, are they in favor of tax benefits for commuting? Does the approval for this depend on whether someone claims the tax break?

Thinking about the larger topic, it would be interesting to see how much the average driver benefits or pays for driving and mass transit. How much of a typical tax burden goes for transportation? How much does the average driver or mass-transit commuter get in return for the tax money that they pay in? Of course, we could have a much longer discussion about what the government should promote in its policies but I assume this is not at the top of the discussion pile in Washington.

Why paying off all of the American debt in the early 2000s might have caused problems

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Many people would suggest that the United States needs to tackle its growing debt problem. But a government report from the early 2000s suggests that paying off all the debt could have some negative consequences:

If the U.S. paid off its debt there would be no more U.S. Treasury bonds in the world…

But the U.S. has been issuing bonds for so long, and the bonds are seen as so safe, that much of the world has come to depend on them. The U.S. Treasury bond is a pillar of the global economy.

Banks buy hundreds of billions of dollars’ worth, because they’re a safe place to park money.

Mortgage rates are tied to the interest rate on U.S. treasury bonds.

The Federal Reserve — our central bank — buys and sells Treasury bonds all the time, in an effort to keep the economy on track.

If Treasury bonds disappeared, would the world unravel? Would it adjust somehow?

“I probably thought about this piece easily 16 hours a day, and it took me a long time to even start writing it,” says Jason Seligman, the economist who wrote most of the report…

In the end, Seligman concluded it was a good idea to pay down the debt — but not to pay it off entirely.

So which party or movement would support this? Would it be best to have a more flexible debt (small to large depending on the more immediate economic circumstances) or would it be better to have a more stable, small amount of debt?

I don’t know the intricacies of how this might all play out but it is a reminder of the globalization of finance: doing something that might be viewed as desirable in the United States would not only affect other sectors of American life but how other countries can operate. It would be interesting to know how we got to this point. Does every major country basically have some debt that other countries are counting on?

Are the suburbs a Ponzi scheme?

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While Republican presidential contender Rick Perry drew a lot of attention by saying Social Security is a Ponzi scheme, how about viewing suburbs as a Ponzi scheme?

Indeed, my friend Charles Marohn and his colleagues at the Minnesota-based nonprofit Strong Towns have made a very compelling case that suburban sprawl is basically a Ponzi scheme, in which municipalities expand infrastructure hoping to attract new taxpayers that can pay off the mounting costs associated with the last infrastructure expansion, over and over. Especially as maintenance costs increase, there is never enough to pay the bill, because we are building in such expensive, inefficient ways.

This week, Strong Towns has released a substantial new report analyzing data and arguing that we must change our development approach if we wish to end the current economic crisis. In particular, we must emphasize obtaining a higher rate of financial return from existing infrastructure investments, focusing on traditional neighborhoods where large public investments in infrastructure are currently being underutilized…

In particular, in the report and an accompanying press release, Strong Towns calls on local officials to change course and shed the “dead ideas” of the suburban era, including these:

That local governments can grow without considering the public’s return on investment. Being blind to the financial productivity of our places has led to inefficient use of public infrastructure investments and allowed local governments to assume overwhelming, long-term financial obligations for maintaining infrastructure.
That local budget problems can be solved by creating more growth. More growth in the same unproductive pattern will only increase our economic problems. What is needed is an approach that improves our use of existing infrastructure investments.
That attracting a large employer is the key to local economic prosperity. In an age of globalization, this strategy may provide short-term gains for some local governments, but it is ultimately a race to the financial bottom.
That property owners can develop their property as they see fit while at the same time obligating the public to maintain the new infrastructure. This type of indirect subsidy creates enormous long-term financial obligations for taxpayers, increasing local taxes and reducing local competitiveness.

This is not an unusual argument made by those opposed to sprawl: sprawl is paid for by continuous growth. For example, a growing suburb can finance the services needed for new developments in part by the fees paid by developers constructing new developments. When that new development stops, either because of an economic crisis or because the community has run out of land (reaching build-out) or the community is not attracting development, the cash flow associated with new development stops. Then, local communities are confronted with static or shrinking budgets and the rising costs associated with aging infrastructure. In the end, someone is going to have to pay for this relatively cheap living.

By calling the suburbs a Ponzi scheme, the implication is that it will all implode at some point. I’m not sure about that; people have been arguing this for years (gas will become too expensive, there won’t be enough land, home prices will get out of reach, etc.) and it hasn’t happened yet. Since the suburbs have been partly subsidized by the federal government from the start, there are other sources of money beyond local municipalities (though an economic crisis shrinks everyone’s ability to pay). It would be interesting to see what happens if all state and federal money dries up for suburban interests – then what happens to the necessary infrastructure such as Federal interstates? We haven’t seen true contraction of cities or metropolitan regions just yet though it may be coming in harder hit areas like Detroit, Cleveland, and Youngstown.

However, the need for better longer-term planning is needed in many suburbs. If the era of growth is over or at least has slowed, then suburbs need to look at how this will affect development within their boundaries and their budgets. Assuming that there will always be positive growth is foolish even though there is not much room in the American cultural ideal of the suburbs to admit that they won’t simply keep growing and growing as more and more Americans express their innate desires for the suburban single-family home. Planning for a different, more limited suburban future is not exactly the same as planning for a doomed suburban future.

US government thinking of renting foreclosed homes

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Different people have different opinions about what to do with the glut of foreclosures: perhaps convert them into multi-family units, bulldoze them, or donate them. It appears the federal government might try another route: renting them.

The Federal Housing Finance Agency said Wednesday it is seeking input from investors on how to rent roughly 250,000 homes owned by government-controlled mortgage companies Fannie Mae and Freddie Mac and the Federal Housing Administration. All of the homes are foreclosures…

Converting the homes into rentals may reduce “credit losses and help stabilize neighborhoods and home values,” said Edward DeMarco, acting director of the Federal Housing Finance Agency, which oversees Fannie and Freddie.

Homes in foreclosure sell at a 20 percent discount on average, which can hurt prices of surrounding homes.

It also might meet the growing demand for rentals. Since the housing meltdown, nearly 3 million households have become renters. At least 3 million more are expected by 2015, according to census data analyzed by Harvard’s Joint Center for Housing Studies and The Associated Press.

This sounds like it could turn into a large program with a lot of moving pieces. Would these homes essentially be converted into temporary public housing?

If done well, this could help deal with a rental problem. Even before the economic crisis, a number of metropolitan areas suffered from issues of affordable housing: there simply were not enough cheaper and good units available. Additionally, there was often a mismatch between where these homes were located and where jobs were located. Could renting these foreclosures be a viable solution?

How many communities would be interested in supporting a program like this? I could imagine some interesting battles within better-off suburbs. On one hand, as the article mentions, foreclosures tend to drag down home values. On the other hand, having the federal government actively involved as a landlord in more neighborhoods would make a lot of people nervous.

David Brooks: keep government funding for social science research

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Last Thursday, David Brooks made a case for retaining government money for social science research:

Fortunately, today we are in the middle of a golden age of behavioral research. Thousands of researchers are studying the way actual behavior differs from the way we assume people behave. They are coming up with more accurate theories of who we are, and scores of real-world applications. Here’s one simple example:

When you renew your driver’s license, you have a chance to enroll in an organ donation program. In countries like Germany and the U.S., you have to check a box if you want to opt in. Roughly 14 percent of people do. But behavioral scientists have discovered that how you set the defaults is really important. So in other countries, like Poland or France, you have to check a box if you want to opt out. In these countries, more than 90 percent of people participate.

This is a gigantic behavior difference cued by one tiny and costless change in procedure.

Yet in the middle of this golden age of behavioral research, there is a bill working through Congress that would eliminate the National Science Foundation’s Directorate for Social, Behavioral and Economic Sciences. This is exactly how budgets should not be balanced — by cutting cheap things that produce enormous future benefits.

Here is what I think works in this column:

1. The examples are interesting and address important issues. I wish there were more people highlighting interesting research in such large venues.

2. The idea that a small research investment can have large results.

3. The reminder in the last paragraph: “People are complicated.”

Here is where I think this column could use some more work: why exactly should the government, as opposed to other organizations or sources, provide this money? (See a counterargument here.) Brooks could have made this case more clearly: there are a lot of social problems that affect our country and the government has the resources and clout to promote research. In certain areas, like poverty or public health, the government has a compelling interest in tackling these concerns as there are few other bodies that could handle the scope of these issues. Of course, many of these issues are politicized but that doesn’t necessarily mean that the government shouldn’t address these issues at all.

The difference between a sociologist and a geologist, the “soft” and “hard” sciences

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Comments about sociology can come from anywhere. See this example from a House member discussing FDA guidelines:

The most intense reaction was generated by a provision offered by Rep. Denny Rehberg (R-Mont.) that would block the FDA from issuing rules or guidance unless its decisions are based on “hard science” rather than “cost and consumer behavior.” The amendment would prevent the FDA from restricting a substance unless it caused greater harm to health than a product not containing the substance.

“The FDA is starting to use soft sciences in some considerations in the promulgation of its rules,” said Rehberg, who defined “hard science”, as “perceived as being more scientific, rigorous and accurate” than behavioral and social sciences.

“I hate to try and define the difference between a psychiatrist and a psychologist, between a sociologist and a geologist, but there is clearly a difference,” he told the committee.

Three sets of comparisons are made here: between psychology and psychiatry, sociology and geology, and “hard” and “soft” science. I think it is pretty easy to make the first two distinctions, particularly between geology and sociology. But the third comparison seems a little strange: does Rehberg want to suggest that soft sciences are less true or that they matter less/are less valid for FDA decision making?

Overall, it sounds like Rehberg is suggesting that the “soft” sciences (psychology and sociology) are not as important in crafting FDA policies as the actual science that says whether certain products are good or bad for humans. But it seems somewhat silly to suggest that perceptions and behaviors shouldn’t influence policy decisions. A lot of legislation is driven by perceptions and values in addition to the actual influences in the physical world. Think about some of the major issues being discussed today such as the deficit or taxes: less of the conversation is about the actual impact on the country and more involves ideologies about who should be responsible for funding the government and what is the proper role and/or size of the government. One of the problems presented in this article is instructive: cigarettes are not illegal and yet government bodies are interested in limiting the consumption of them. Therefore, while menthol cigarettes may not be that much more harmful, if it is attractive to younger kids who then take smoking, why not regulate this? Of course, the smoking example is a loaded one and it would be hard to find someone who would suggest more smoking among teenagers is a good thing.

Based on this discussion, would either political party be willing to create legislation only based on “hard science” or is this only a suggestion when the “hard science” supports one’s existing viewpoint? Additionally, are there politicians out there who have publicly supported sociology rather than suggested it is a “soft” science?