Tag Archives: economics

Winston-Salem as a Case Study

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Since moving here in 2004 I’ve found Winston-Salem to be a fascinating study in how to revive a city that had been hit by multiple economic tsunamis in recent decades. It seems that others have taken notice, including a writer who penned a piece for the Christian Science Monitor about how a few US cities can teach the country a little something about democracy (h/t to my Mom for sending me the article). You can find the full article here (second story down), but here’s the segment focused on Camel City:

Winston-Salem, N.C., lost 10,000 jobs in 18 months after R.J. Reynolds moved its headquarters to Atlanta and several other homegrown companies failed in the late 1980s. It was the first of several waves of job losses as the city’s manufacturing base collapsed. Civic leaders chipped in to create a $40 million fund to loan start-up capital to entrepreneurs, hire staff for a local development corporation, and fund signature projects. One of them was the renovation of a 1920s Art Deco office tower into downtown apartments.

This activity helped spur Wake Forest University’s medical school to undertake an ambitious project to create a research park in former R.J. Reynolds manufacturing buildings next to downtown. The school has filled 2 million square feet of empty factories with high-tech companies and world-class biomedical researchers. An adjacent African-American church has turned 15 acres in the area into lofts, senior housing, and businesses. Downtown has attracted $1.6 billion in investment since 2002.

Now people gather to sip coffee, attend concerts, or take yoga classes in a new park in the shadow of the looming chimneys of a former Reynolds power plant. The plant itself is being repurposed into a $40 million hub of restaurants, stores, laboratories, and office space. Students, researchers, and entrepreneurs mingle in the halls and atria of all the former factory buildings, creating the kind of synergetic environment the innovation industry now craves.

Our very own Jeff Smith, of Smitty’s Notes, provides the money quote:

“It wasn’t one person or thing that made it all happen; it was everyone from the grass roots to the corporate leaders coming together,” says Jeffrey Smith, who runs Smitty’s Notes, an influential community news site. “We realized it would take all of us to get this hog out of the ditch.”

Much of the foundation for this renewal had been laid by the time I moved here with my family in 2004, but community leaders have continued to do what’s necessary to keep building upon it. For my job I get to spend a significant amount of time in neighboring Greensboro, a city that is slightly larger but quite comparable to Winston-Salem, and it’s been interesting to see how the two cities have proceeded from their respective economic crises. Winston-Salem has a lot of momentum, and it’s redevelopment seems to be benefiting from consistent collaboration among its community leaders, including elected officials as well as corporate and civic leaders. Greensboro, on the other hand, is making progress but it seems to be in more fits and starts; its progress seems to occur in spite of local leaders’ lack of cooperation and collaboration.

Sure, Winston-Salem has its problems and leaders sometimes disagree on how to proceed, but for the most part its leaders have shown how to lead a community out of the ditch and back on the road. Hopefully we keep it going for decades to come.

If You’re a Poor Kid in Forsyth County Then You’re Screwed

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According to a recently released report Forsyth County, NC is the second worst county in the United States when it comes to income mobility for poor children. From the report in the New York Times:

Forsyth County is extremely bad for income mobility for children in poor families. It is among the worst counties in the U.S.

Location matters – enormously. If you’re poor and live in the Winston-Salem area, it’s better to be in Davie County than in Yadkin County or Forsyth County. Not only that, the younger you are when you move to Davie, the better you will do on average.

Every year a poor child spends in Davie County adds about $40 to his or her annual household income at age 26, compared with a childhood spent in the average American county. Over the course of a full childhood, which is up to age 20 for the purposes of this analysis, the difference adds up to about $800, or 3 percent, more in average income as a young adult…

It’s  among the worst counties in the U.S. in helping poor children up the income ladder. It ranks 2nd out of 2,478 counties, better than almost no county in the nation.

Take a look at this graphic and you can see that there’s a huge disparity between the prospects for poor kids and rich kids in the county:

Source NYtimes.com

Source NYtimes.com

Forsyth’s neighbor to the east, Guilford County, isn’t much better off:

It’s among the worst counties in the U.S. in helping poor children up the income ladder. It ranks 37th out of 2,478 counties, better than only about 1 percent of counties.

While it would be easy to say, “This should be a wake up call to the leaders of our community” I think that would be a cop out. This is the kind of thing that should concern us all because what do we think will eventually happen if we continue to allow a huge segment of our community to live in circumstances in which they perceive little chance of improving their lot in life? What do we think these young people will do when they lose hope?

So yeah, our elected leaders should view this as an early warning that they need to address these underlying causes of this disparity in opportunity, but this is bigger than them. All of us need to get engaged, through our schools, churches, civic groups, businesses and neighborhoods, in order to begin to make any progress in improving the prospects for our kids’ futures. The underlying issues are systemic – broken family structures, poor educational attainment, too many low wage jobs, etc. – and only a concerted effort by the entire community will be able to address them. If we don’t we will have much larger problems on our hands in years to come.

Winston-Salem and Forsyth County have made a great deal of progress in addressing the major economic challenges that were wrought by the declines of the local manufacturing industries, highlighted by the resurgence of downtown Winston-Salem, but now we need to make sure that the tide rises for everyone, not just those lucky enough to be born into well off families.

A Tale of Two States

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The weekend edition of The Wall Street Journal had an article about the burgeoning film industry in Georgia that is likely to make the folks in the film industry here in North Carolina cringe:

ATLANTA—The film industry here has hit the big time, thanks to generous tax credits that have made Georgia one of the top states for movie and television production behind California and New York.

But the growth of what many call “Y’allywood” is being threatened by a shortage of makeup artists and costume and set designers—the rank and file of film and television crews…

In fiscal year 2013, film and television production budgets in Georgia totaled $933.9 million, according to the Georgia Department of Economic Development.

While some states have turned away from incentives, arguing that they hurt budgets, Georgia’s Republican-dominated legislature strongly supports them. Georgia offers film and TV projects transferable tax credits for 20% of production costs, plus an additional 10% if the project agrees to display the state’s promotional logo in its credits. The incentives apply for all workers on a set, whether they are Georgia residents or not.

North Carolina is one of the states that has turned away from incentives, with the state legislature failing to pass the legislation that would have renewed them in 2014. The Hollywood Reporter has a detailed story describing the issue and the probable effect:

One big reason the North Carolina incentive legislation failed is because the Koch Brothers-backed nonprofit Americans for Prosperity bought radio commercials as the debate that slammed film incentives was going on. The ads were part of a larger campaign to eliminate a range of state-funded development programs.

“The money coming in from the outside has hurt the North Carolina programs for business development,” said Rep. Susi Hamilton, a Democrat who fought to retain incentives. “The Americans for Prosperity spent a lot of money to try and end the program and unfortunately they have the ear or our leadership and appear to be successful.”

Hamilton, however, doesn’t believe this means other Southern states will follow suit. In fact, she sees the opposite happening as North Carolina stands to lose more than 4,000 good jobs.

“The implications for other states,” says Hamilton, “particularly in the Southeast, are that they are going to pick up the work that otherwise would have come to North Carolina. That’s good news for the other states.”

Griffin says the irony is that there has been an influx of work into North Carolina in the past three or four years, and 2014 could be a record year.

Hamilton estimates that, in 2013, $360 million was directly spent by productions, while the state paid out $62 million in incentives. And that doesn’t count millions more spent on services and by workers who have moved to the state for jobs that pay an average of more than $65,000 per year.

The article also points out that the legislature did pass a grant program for the film industry, but because of the way it was structured it is “nearly useless.”

As tempting as it is to see everything as black and white, to assume that all Republicans or all Democrats see things the same way, it’s situations like this that reveal how varied the views within a political party can be. Republicans are in charge in both Georgia and North Carolina, but they obviously take very different stances on economic incentives. The folks in the North Carolina film industry are likely to lose out because of it.

Where Efficiency Goes to Die

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"Baumol's disease" provides an interesting explanation for why service businesses like health care can only be so efficient. Can they be more efficient than they currently are? Absolutely, but any improvements made will not bring delivery costs down to the levels found on the product side of our economy. From Steven Pearlstein's column in the Washington Post:

No matter how innovative people were in coming up with new technology and new ways of organizing their work, Baumol and Bowen reasoned, it would still take a pianist the same 23 minutes to play a Mozart sonata, a barber 20 minutes to cut the hair of the average customer and a first-grade teacher 12 minutes to read her class “Green Eggs and Ham.” Based on this observation, the duo predicted that the cost of education and health care would inevitably outstrip the price of almost everything else.

Now, 50 years later, Baumol has updated and expanded his observation with a new book,“The Cost Disease,” which sheds some useful light on our current economic debate.

The basic facts are well-known to most Americans: Over the past 30 years, overall prices have risen 110 percent, median income has risen 150 percent, medical costs have risen 250 percent and college tuitions have risen 440 percent.

To hear the politicians talk, you’d think the rise in tuitions and medical costs was an American phenomenon. But as Baumol points out, the growth rates are pretty consistent across all developed countries.

The whole column is an interesting read, and I would be remiss if I didn't point out that Pearlstein's the Robinson Professor of Political and International affairs at my alma mater, George Mason University. 

The Incredible Shrinking Middle

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One of the underexplored aspects of the current unemployment situation in North Carolina is the movement of people from adequate paying jobs to under paying jobs. A study by the NC Justice Center makes it vividly clear:

The nonprofit group determined there were 356,000 more working-age adults employed in the state in 2001 than in 2010, with manufacturing taking the brunt of the job decline.

The state lost 380,000 jobs in that period, with about 75 percent concentrated in industries with average hourly wages that enabled individuals and families to stay above the living income standard. A family of four needed to earn at least $23.47 an hour in 2010 to have enough money to meet basic expenses, according to N.C. state government standards.

The state's manufacturing workforce, which paid an average of $25.30 an hour, fell by 38 percent during the 10-year period. Manufacturing accounted for 72 percent of the state's job losses…

Where North Carolina did have job growth, it mostly came in low-wage industry sectors, the group said. About 83 percent of the job growth came with average wages of less than the $23.47-an-hour living income standard for a family of four.

For example, 15 percent of the state's job growth from 2001 to 2010 came in the food-services and accommodation sectors, which paid $7.15 an hour.

The state's median household income dropped 9.4 percent during the decade, or from $47,823 in 2001 to $43,326 in 2010.

The center found the number of North Carolinians living in poverty – $22,314 annual income for a family of four – rose by 24.1 percent during the decade.

In a nutshell the middle class is shrinking, and not from upward mobility. You would think that would lead to an outcry against the "corporate class," but outside of a little wrist-slapping at the height of the economic meltdown it just hasn't happened. That's what makes this interview of Mike Lofgren by Bill Moyers so easy to believe (h/t Fec for the link). For those of you expecting an anti-Republican screed you'll be disappointed – he basically argues that both parties have been captured by the corporate class. Enjoy:

Capitalism and Its Discontents

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This is a very interesting interview with economist Richard Wolff (h/t to Ed Cone for the link).  A couple of excerpts provided below, but I highly recommend reading the whole thing.

Barsamian: There’s a certain market fundamentalism in the U.S. that equates capitalism with freedom.

Wolff: Yes, employers are free, in this system, to stop raising workers’ wages. But their exercise of that freedom has deprived the mass of Americans of a rising standard of living to accompany their rising productivity. Employers have kept all the benefits of the productivity increase in the form of profits. So one sector of our free economy has deprived another sector of its due. It’s the paradox of a democratic society: the freedoms of one group limit the freedoms of another. To face this fact requires a more critical notion of freedom and democracy than the happy, cheerleader mentality we have today.

How do you talk about freedom to the 20 to 30 million Americans who currently have no job? Are they free? They’ve been denied a living through no fault of their own. When 20 million Americans suddenly can’t find jobs, that isn’t a problem of individuals being lazy. That’s the problem of an economic system that isn’t delivering the goods…

Barsamian: You mentioned earlier that, although wages became stagnant in the 1970s, American workers continued to become more productive. So someone has benefited from the past thirty years.

Wolff: Yes, it’s been the best thirty years that employers in this country have ever had. More product was being produced, but employers didn’t have to pay workers more. This was impossible before the 1970s, because the labor shortage meant employers had to keep paying more, which is why we had that wonderful growth period from 1820 to 1970.

So after the 1970s profits went through the roof. What I find funny — because I don’t want to cry — is the story the business community told about these profits. They probably knew they were getting the benefit of stagnant wages and rising productivity, but they developed a kind of folklore that said the reason profits were so big in the 1980s and 1990s was that executives were geniuses. We made folk heroes of Lee Iacocca at Chrysler and Jack Welch at General Electric. They became icons, as if some mystical ability of theirs accounted for the profits.

Every economist who looks at the numbers knows executives didn’t suddenly become geniuses — as if they’d been dumb before. Shifts in the economy enabled them to stop raising workers’ wages yet keep getting more out of them. No mystery there. Of course, there was a reason for this fairy tale about ceos: if the executives could convince everyone that they were responsible for the profit increase, then they could demand higher salaries. 

 

Ken Snowden, UNCG Econ Professor, On the Mortgage Mess

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UNCG Econ Professor Ken Snowden is a co-author of an upcoming book about lessons to be learned from the Great Depression that might be applied to our current mortgage mess.  An excerpt can be found at the Freakonomics blog:

For the past four years, the U.S. has faced a housing crisis that shows no signs of ending.  The situation was similar in June 1933 when the Home Owners’ Loan Corporation was created to address the nation’s last severe mortgage crisis.  Some have suggested that a new HOLC could help resolve the current crisis, but their characterizations of the HOLC have been incomplete.  Our goal here is to summarize recent research that provides a fuller picture of the HOLC and its impact on housing markets in the 1930s.        

Between 1933 and 1936 the HOLC bought and then refinanced one million severely delinquent mortgages, representing roughly one-tenth of the nation’s nonfarm owner-occupied homes.  The total amount refinanced was $3 billion, or about 20 percent of the outstanding mortgage debt on one- to four-family homes in 1933.  A program of similar proportions in 2011 would refinance 7.6 million loans worth $2 trillion. 

The Whining 1%

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Paul Krugman's piece, Panic of the Plutocrats, highlights one distinction that I think many people have forgotten – there's a difference between business in the "Main Street" sense and business in the "Wall Street" sense:

What’s going on here? The answer, surely, is that Wall Street’s Masters of the Universe realize, deep down, how morally indefensible their position is. They’re not John Galt; they’re not even Steve Jobs. They’re people who got rich by peddling complex financial schemes that, far from delivering clear benefits to the American people, helped push us into a crisis whose aftereffects continue to blight the lives of tens of millions of their fellow citizens.

Yet they have paid no price. Their institutions were bailed out by taxpayers, with few strings attached. They continue to benefit from explicit and implicit federal guarantees — basically, they’re still in a game of heads they win, tails taxpayers lose. And they benefit from tax loopholes that in many cases have people with multimillion-dollar incomes paying lower rates than middle-class families.

Listen, I get it that we need finance. We need people who can provide capital to the Main Street businesses, and I think there are plenty of fine people working in the financial sector, but just like there are crooks and scam artists working on Main Street there are also crooks and scam artists working on Wall Street. Even if we didn't already have plenty of stories showing that the Wall Street scammers filled their personal vaults while barbequing our Golden Goose, I think the incessant screeching like that currently emanating from halls of power would cause us to say, "The lady (aka the Whining 1%) doth protest too much."

Governments Don’t Rule the World, Goldman Sachs Rules the World

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I have no idea if the guy in the video below is legit or if he's just a blowhard who happened to score a BBC interview, but his comments raise some interesting questions.  Comments like "The governments don't rule the world, Goldman Sachs rules the world" and "For most traders we don't really care that much how they're going to fix the whole situation. Our job is to make money from it" beg the questions, "How do the Goldman Sachs rule the world without a stable society provided by governments" and "At what point do traders and the rest of the players in the financial market put aside their short term (profit) interests and do what's best for society at large?"  For that last question I'll ask those who are more educated in the ways of the economy – is it possible, or even advisable, to ask financiers to forego short term gains for the greater good or is it always in our best interest for them to always pursue what's in their best interest?