Obama's America

Washington, DC: The Real Winner in this Recession

Mon, 13 Jul 2009 01:04:57 -0400

No matter how far the economy falters, there is always a winner. And no city does better when the nation is at the brink of disaster than Washington, DC. Since December 2007, when the current recession formally began, the nation has lost approximately 6 million jobs. Only two states, Alaska and North Dakota, have lost a smaller percentage of jobs than Washington, DC, which has seen a job loss of 0.6%, or 4,400. Simply put, Washington has done better in this recession than 48 of the fifty states when it comes to job performance.

This is not the first time that Washington flourished while the rest of the nation suffered. For the first few, largely prosperous decades of the 19th Century, the district was a backwater, growing more slowly than the national average. It was widely reviled as fetid, swampy place with little in the way of commerce, industry or culture. Even its great buildings were compared to “the ruins of Roman grandeur.”

It was only during arguably our greatest national tragedy – the Civil War – that the District of Columbia grew into an urban center, more than doubling in population from 1860 to 1870. Soldiers from the northern states flocked to the District of Columbia before going to battle, a new military force was established to guard against a Confederate attack, and the management of the war itself became a major federal enterprise. Slavery was abolished in Washington prior to emancipation, and freed slaves added to the District’s growing population.

During the 1930s, FDR created an entirely new set of federal agencies designed to create jobs by financing projects across the country. At the same time, to prevent abuses on Wall Street, Congress created new regulatory agencies, such as the Securities and Exchange Commission, which hired droves of young accountants and lawyers unable to find work in other cities across the country.

The Second World War and the Cold War also played to Washington’s advantage, as a vast military-industrial complex rose to the fore. So it’s not surprising that now, with the nation in the midst of its worst downturn since the Great Depression, that Washington appears about to indulge in yet another orgy of growth.

Washington has always been a one industry town: that’s why it has an intrinsically self-absorbed monotonic culture. Everyone there depends on government for their livelihood. It is fundamentally not a city of competitive industries, but a giant taxpayer-funded office park, surrounded by museums and memorials. The great presidents: Washington, Lincoln, and Jefferson, have their own monuments, while more recent leaders have concert halls and office buildings named after them.

Today Washington, DC appears much as the twenty-first century version of a gold mining town, even if the gold, so to speak, is coming from taxpayers as well as foreign buyers of our increasingly debased US currency. The Bush Administration kicked off this boom when it created the third largest cabinet department, the Department of Homeland Security, (by consolidating unrelated federal agencies into one super-sized department) and made it the employer of airport baggage and security inspectors across the nation. A new federal agency deserves a new headquarters, of course. DHS is now rising on the site of St. Elizabeth’s Hospital in southeast Washington DC, a pre-stimulus stimulus for the District of Columbia.

The passage of the American Recovery and Reinvestment Act may be only slowly stimulating the nation’s economy but it is already working wonders in DC. Everyone wants a piece of the action. There is a surge in the lobbying industry, with every school board, regional transit agency and county government hiring a lobbyist to guide them through the new federal grant programs.

Tourism may be temporarily down in DC, but the hotels are filled with local law enforcement officials, university bureaucrats, and housing advocates all trying to create jobs with federal dollars. The National Telecommunications and Information Administration and the US Department of Agriculture have just nineteen months to spend $4.7 billion on broadband communications.

To evaluate the thousands of proposals for federal funding, expert panels will convene in Washington, DC. Where else? Communities across the country may receive grants, but the hotel and restaurant industry in the nation’s capital will also prosper from this new federal program.

The same process will follow other Obama initiatives. Health care and climate change legislation will produce the same rounds of hearings, a growing cadre of regulators and the corps of tassel-shoed lobbyists who will try to influence them.

The heightened emphasis on transparency in government has compelled every federal department to build sophisticated websites to engage the public, to distribute information, and to conduct the entire process of awarding grants and contracts. The demand for website designers and managers has grown so quickly that a Los Angeles-based interactive advertising agency, “Sensis,” a minority owned and operated corporation, recently opened an office in the District of Columbia just to “capitalize on the federal government’s new interest in digital communications.”

There is one unambiguous measure that signals the growth of business activity within a city. Until recently, taxi fares in the nation’s capital were based on zones. These made it very inexpensive for members of Congress to go to and from the Capital. Today, every DC taxi has a meter and the old-fashioned zone-based system has been abolished. Both the municipal government and taxi drivers understand that there are more dollars to be made from those seeking to influence government than those who actually make the laws.

Ben Smith of Politico.com has recently pointed out that five new Washington-based reality television shows are in the planning stages, with Bravo ready to launch “The Real Housewives of Washington, DC.” It is no accident that the entertainment industry has discovered the District of Columbia. A city that thrives in a recession may become the Fantasyland of our generation.

Mitchell L. Moss is Henry Hart Rice Professor of Urban Policy and Planning at NYU Wagner School of Public Service.

Telecommuting And The Broadband Superhighway

Wed, 08 Jul 2009 01:01:11 -0400

The internet has become part of our nation’s mass transit system: It is a vehicle many people can use, all at once, to get to work, medical appointments, schools, libraries and elsewhere.

Telecommuting is one means of travel the country can no longer afford to sideline. The nation’s next transportation funding legislation must promote the telecommuting option...aggressively.

The current funding legislation, called SAFETEA-LU, is set to expire on September 30. On June 24, a House subcommittee approved a discussion draft of the new funding bill: the Surface Transportation Authorization Act of 2009. U.S. Representatives James L. Oberstar (D-MN) and John L. Mica (R-FL), Chair and Ranking Member, respectively, of the Transportation Committee are now sparring with the Obama Administration about just when Congress should focus on reauthorizing SAFETEA-LU; the lawmakers say now; the Administration says 18 months from now. Regardless of the timetable adopted, the measure the House and Senate ultimately pass must maximize the powerful benefits of internet-based travel.

Whereas the infrastructure for cars, buses and trains consists of roads and rails, the infrastructure required for telecommuting is broadband. Fortunately for the framers of the new transportation package, the stimulus legislation already provides significant funding - over $7 billion - to expand access to broadband. The transportation legislation should provide more. It should also expressly encourage the use of that broadband to telecommute.

Some Congressional leaders have called on their colleagues to recognize telecommuting as a full-fledged transportation mode. On May 14th, twelve members of the House wrote to both the House Transportation Committee and the House Committee on Energy and Commerce, requesting that they consider including some pro-commuter reforms as they design the nation’s new transportation and energy laws. Among their requests were initiatives to incentivize telecommuting.

One strategy these lawmakers proposed for encouraging telework was to condition federal grants to states and localities for transportation infrastructure on their creation of bold incentives for telework. Why impose this condition? Telework limits the wear and tear on new roads and rails, as well as the demand for further construction. Thus, it protects the federal investment in such infrastructure and mitigates future costs.

There is precedent for insisting that the recipients of federal funding for infrastructure focus on telework’s potential to reduce the need for that infrastructure. Federal law provides that executive agencies, when deciding whether to acquire buildings or other space for employee use, must consider whether needs can be met using alternative workplace arrangements such as telecommuting. Requiring state and local governments that seek federal aid for new roads to include telecommuting in their transportation plans would demonstrate the same kind of fiscal responsibility.

Other lawmakers have introduced legislation specifically linking broadband and more conventional kinds of transportation infrastructure. Representative Anna G. Eshoo, a Democrat from California, together with Democratic Representatives Henry A. Waxman from California, Rick Boucher from Virginia and Edward J. Markey from Massachusetts, has sponsored the Broadband Conduit Deployment Act, a bill that would require new federal highway projects to include broadband conduits. Democratic Senators Amy Klobuchar from Minnesota, Blanche L. Lincoln from Arkansas and Mark R. Warner from Virginia have introduced companion legislation in the Senate.

The proposal set forth in the two bills makes economic sense. It would be an unconscionable waste of taxpayer dollars to dig up roadways, expand and repave them and then dig them up again to lay the broadband pipes the stimulus bill made possible. If the pipes are installed while the roadways are under construction, they will be available when broadband providers are ready to get communities online.

If passed, the Broadband Conduit Deployment Act would only strengthen the case that funding for infrastructure projects should be conditioned on state and local government efforts to facilitate telework. If, as they finance highway projects, American taxpayers also fund broadband, they should not then have to struggle to telecommute. They should be able to help contain transportation costs and, at the same time, easily make the greatest possible use of the broadband access they financed.

What kind of steps to promote telework should states and localities be required to take if they want to qualify for federal transportation funding?

Congress should insist that they provide telework tax incentives for both employees and employers; eliminate tax, zoning and other laws that are hostile to telework; and offer both public and private sector employers technical help in developing and implementing robust telework programs. The government grantees should be required to create such programs for their own employees. They should also be required to designate certain high traffic and high pollution days as telework days — days when employees are specifically urged to take the web to work — and to conduct public awareness campaigns about the benefits of telework.

These benefits go beyond transportation infrastructure savings, emissions reductions, and congestion management. Telework can help businesses and government agencies reduce real estate, energy and other overhead costs and use the savings to avoid job cuts or to hire new staff. It can increase employers’ productivity by 20% or more, and enable them to sustain operations if an emergency, such as the recent swine flu outbreak, compels significant absenteeism.

Telework enables Americans who cannot find work in their own communities – and cannot sell their homes – to look for more distant positions. It can help those still employed to lower their commuting costs and juggle competing work and family obligations. It can help older Americans who cannot afford to retire to continue working even when they no longer have the stamina for daily commuting. And it can help disabled Americans with limited mobility join or re-enter the workforce.

When Congress finalizes its new transportation policy, it must exploit the tremendous mileage it can get from encouraging web-based travel. Conditioning funding to state and local governments on investment by those governments in pro-telework measures – and offering meaningful federal funding to promote telecommuting – is a dual strategy that would yield a greener and leaner transportation system.

In the process, this strategy would advance crucial energy, economic, quality of life and contingency planning goals. A clear emphasis on the need for telework in the new transportation bill is essential to help the nation get to where it needs to go.

Nicole Belson Goluboff is a lawyer in New York who writes extensively on the legal consequences of telework. She is the author of The Law of Telecommuting (ALI-ABA 2001 with 2004 Supplement), Telecommuting for Lawyers (ABA 1998) and numerous articles on telework. She is also an Advisory Board member of the Telework Coalition.

View from the UK: The Progressive’s Dilemma

Sat, 04 Jul 2009 00:24:59 -0400

American progressives long have looked upon Britain’s Labour Party as an exemplar of how to prioritize social welfare without entirely alienating business. Unlike their European counterparts, whose overly suspicious view of wealth and overly generous view of social welfare spending make poor role models for America, the British Labour Party has brokered a “partnership” between wealth and welfare over the years more suitable to the American psyche.

Yet today that partnership is nearing collapse. For over a decade Britain’s supercharged financial sector fuelled the growth of an expansive state. But as the financial sector has cooled, Britain’s Labour party is now faced with the stark reality of burgeoning social welfare commitments, unprecedented public debt, and dubious upward mobility prospects for the ordinary citizen. The government has seemed more competent at creating upward mobility for civil servants who service the growing social welfare state than doing the same for the larger population who have to pay for it.

Now the question for Labour – and the UK – is how to maintain an expansive social insurance program by somehow creating the kind of growth needed to pay for it. Once its “wealth creation strategy” of relying on a fecund banking sector fell apart, its project of providing income security rather than fostering income growth for ordinary people appears to be on the verge of failure.

In order to maintain social welfare goals amidst a floundering economy, the UK has financed its shortfall through massive debt – something the average British household knows something about. Between 1997 and 2007 average household debt grew from 105 to 177 percent of disposable income. The US, of course, also experienced an explosion of household debt during the same period but not nearly to the same extent. At the end of 2007 America’s average household debt reached 106 percent of disposable income – essentially where the UK started 10 years earlier.

The UK’s comfort with personal debt has now extended to the public realm. Even before the recession, Britain had $1.2 trillion of public debt, and by next year it will rise to $1.8 trillion, or 81 percent of GDP. If debt payment were a government agency, it would be the fourth largest in Britain. According to the London-based think tank the Centre for Social Justice, 21 percent of total public spending will be devoted to debt service in 2020, compared to 6 percent today. Public debt in the US, by comparison, will reach 60 percent of GDP by next year, and interest on the debt will rise from 4.6 percent to nearly 14 percent ten years from now. Labour’s legacy will be the Mount Everest of indebtedness it has left the current and subsequent generation.

To put this in perspective, we need look no further than historic trends over the past 30 years. Public debt has tracked fairly proportionately with public spending in the UK during this period. During the economic stagnation of the late 1970s, public debt rose to nearly 50 percent of GDP. It hit its nadir at around 25 percent in 1990 after the Thatcher era, and then rose to around 35 percent, where it has remained ever since – until last year. Suddenly, debt has skyrocketed to more than 75 percent of GDP in the past year – an unprecedented level – and will rise to 100 percent by 2012 before swelling to 150 percent by 2020. In order to reduce debt to its 45 percent level of just a few years ago, public spending would need to be cut by a third. Given that one-fifth of all public spending will go to debt service in 10 years, cutting spending will prove politically impossible for a government – and perhaps an entire nation – that identifies ever expanding government-funded services as essential.

Even more disquieting, tax receipts have mainly hovered around 35 percent of GDP regardless of the tax rate during the past 30 years. This means that raising tax rates – such as Labour’s proposal to lift the top tax bracket to 50 percent– have little effect as high earners move away or find other ways to protect their assets. Logically, if it hopes to cope with its debt obligations, Britain should therefore keep taxes as low as possible and cut public spending. But instead the UK drives full-speed ahead into the fog of debt without having any notion of how to service its future obligations.

The UK is therefore faced with a thorny dilemma: on the one hand, it has spent decades creating a social welfare system that reduces risk and promises citizens protection from life’s vagaries, and on the other, it needs people to take risks in order to revitalize the economy. Government spending fostered risk avoidance precisely when Britain most needs an entrepreneurial class that can help diversify the economy away from finance and, to a lesser extent, tourism.

The people most hurt by social welfare are young working class people – the very group Labour purports to represent. In the UK there’s much talk about the NEETs – young people in their late teens who are Not in Employment, Education, or Training. In 2000 there were 630,000 young people between the ages of 16 and 19 in this group. Today, that number totals 860,000, a 36 percent increase in less than a decade. This would be the equivalent of 4.5 million young people in the United States. If NEETs were a city, they would be the third largest metropolitan area in the UK.

Increasing numbers of able-bodied young people dropping out of society altogether reflects a growing sense of hopelessness. According to the Gallup World Poll, only 20 percent of 25-34 year olds, and 25 percent of 35-49 year olds, thought the economic conditions in the UK were good before the current economic crisis. The UK’s NEET problem and economic pessimism were rampant when the going was good – something that can only be worse now.

This is not merely the result of a profligate welfare state. The NEET problem has its origins in complex cultural phenomena. However, it is difficult to argue with the conclusion that an increasing economic resignation among Britain’s younger population is ill-timed for a government betting on future workers to pay the public mortgage.

The US has a more diversified economy than the UK and likely suffers from less economic resignation, but it is beset with a similar dilemma. Despite historically unprecedented levels of public debt, albeit less extreme than Britain’s, the Obama administration appears to be pursuing an economic program that bears similarities to the Labour preoccupation with creating prophylactics against risk and hardship. In a matter of months, the US deficit has risen from 3.2 to 13.1 percent of GDP, according to the Congressional Budget Office.

Even with President Obama’s widely doubted promises to cut the deficit in half, the CBO estimates a yearly shortfall of more than $1 trillion ten years from now. Even worse, there is precious little in the administration’s plans – including its grandiose claims about “green jobs” – that will create the growth necessary to carry such debt in the future. In fact many of the administration’s proposals – from its healthcare program to its auto company ownership and a more heavily regulated financial sector – could serve more to curb growth than encourage it. In addition, increased taxes on “the rich” will hit small businesses most grievously, the most plausible engine for growth.

It appears the administration seems intent on following Labour’s folly of mortgaging the future. Without addressing the issue of how to unleash the entrepreneurial energies of the young generation, it’s hard to see how America will avoid falling into the morass in which its British cousins are now so perilously trapped.

Ryan Streeter is Senior Fellow at the London-based Legatum Institute.

Did Homeowners Cause The Great Recession?

Joel Kotkin — Tue, 30 Jun 2009 00:12:55 -0400

The person who caused the current world recession can be found not on Wall Street or the city of London, but instead could be you, and your next-door neighbor--the people who put so much of their savings and credit to buy a house.

Increasingly, conventional wisdom places the fundamental blame for the worldwide downturn on people's desire--particularly in places like the U.K., the U.S. and Spain--to own their own home. Acceptance of the long-term serfdom of renting, the logic increasingly goes, could help restore order and the rightful balance of nature.

Once considered sacrosanct by conservatives and social democrats alike, homeownership is increasingly seen as a form of economic derangement. The critics of the small owner include economists like Paul Krugman and Ed Glaeser, who identify the over-hot pursuit of homes as one critical cause for the recession. Others suggest it would be perhaps nobler to put money into something more consequential, like stocks.

Homeowners also get spanked by leading new urbanists, like Brookings scholar and urban real estate developer Chris Leinberger. He lays blame for the downturn not on unscrupulous financiers but squarely on aspiring suburban home buyers. "Sprawl," he intones, "is the root cause of the financial crisis."

If only we built more high-density, transit-oriented housing--which, incidentally, is not exactly thriving--the crisis could be happily resolved, he believes. This approach is echoed by big-city theoreticians like Richard Florida, who believes that both homeownership and the single-family house "has outlived its usefulness." In his "creative age," we won't have much room for either single-family homes or owners. Instead, we will be leasing our ever-more-tiny cribs--just like yuppies with their BMWs--as we wander from job to job.

To be sure, many people who bought homes in the last few years should not have qualified. Weak lending standards, promoted by both unscrupulous industry figures like Countrywide's Angelo Mozillo as well as Congress--including the many "friends" receiving cut-rate loans from the disgraced mortgage firm--clearly made things worse.

Yet the recent real estate debacles should not obscure the tremendous positives associated with homeownership. Widespread and diffuse ownership of property has been a critical element in successful republics, from early Rome and the Dutch Republic to the foundation of the United States. Jefferson held that "small land holders are the most precious part of a state." In the ensuing generation, progressives embraced widespread ownership of property as central to democratic aims. Lincoln's Homestead Act stands out as a prime example.

Even by the 1940s, this model was only partially realized. Barely 40% of the population owned their homes. Homeownership remained confined largely to small-town denizens and the urban upper classes. No one in my mother's family--growing up in the tenements of Brownsville, Brooklyn--even considered homeownership an achievable goal. It was hard enough simply to pay the rent and put food on the table.

Yet by the 1960s, rising prosperity and government-subsidized loans helped most of my numerous aunts and uncles own their residence.

Presidents from Roosevelt to Clinton all identified homeownership as a critical social goal. Government loan programs exploded as housing starts doubled in the post-war era. By 2005, the homeownership rate was approaching 70%.

This trend also took place in other advanced countries, from the U.K. and Australia to Canada and Spain. It reflected what the Italian urbanist Edgardo Contini once referred to as "the universal aspiration." In some cases, such as Japan, societies that had been divided between landlords and peasants for millennia now boasted a huge, and growing, cadre of small owners.

In virtually every country, this was largely a suburban phenomenon. People bought houses where land was cheaper, stores and schools newer. Here, too, people could transcend the often confining social limits of the old neighborhood. It was also, as the novelist Ralph G. Martin, noted "a paradise for children."

Through all this, the chattering class never lost its contempt for homeowners and their suburban refuges. Old gentry long disliked the idea of dispersed ownership of property--even if many got rich selling their own estates to developers. Aesthetes disliked the seemingly banal housing tracts "rising hideously," as Robert Caro put it, from the urban periphery. This critique was applied not only to Queens and Long Island but also to places like Milton Keynes or Basildon outside London, and greater Tokyo's Chiba prefecture.

Along with the fashion police, the new owners also took criticism from their urban betters, many of them also owners of country homes, for deserting the city. Some on the left feared the homeowners as a bastion of conservative politics. Architects, planners and developers identified them as opponents of their grand plans to refashion suburbia into a denser, more rental-oriented environment.

Yet, despite the disdain, the dream of homeownership survived. Many boomers, who in their 1960s radical phase denounced suburban tracts as sterile and racist, meekly ended up buying homes there. So, increasingly, did middle-class minorities, whose rates of homeownership rose faster after 1994 than that of whites.

To be sure, the financial crisis has led to a sharp drop in levels of homeownership, as occurred in the last big recession of the early 1990s. In the future, some suggest that aging boomers will force the home market to collapse even more due both to the current mortgage meltdown and changing demographics.

Yet there are limits to how far homeownership will drop. Urban boosters, apartment-builders and greens--all advocates of expanding the renter class--tend to ignore several key facts. For one thing, the vast majority of boomers are holding onto their mostly suburban homes far longer than ever suspected. Many will remain there until forced into assisted living, nursing homes or the cemetery.

Then we have the X generation, who, if anything, has favored large homes and exurbs in large numbers. In addition, behind them lie the large cohorts of millenials, who according to surveys conducted by generational chroniclers Morley Winograd and Mike Hais, prioritize the ownership idea even more than their boomer parents do.

No doubt, the weak economy will slow this generation's push into the home market. However, by the next decade, as this generation enters the late 20s and early 30s, they will find their economic footing and be ready to enter the market for houses in a big way.

The real question then will become which companies and regions will meet the expanding demand. Over the past decade, we saw the demand for housing push middle-class families toward destinations as varied as Las Vegas and Phoenix, Austin, Houston, Dallas and Atlanta. Others have started heading to more affordable markets in the nation's heartland, to the metropolitan areas like Kansas City, Des Moines and Sioux Falls.

Rather than a source of economic weakness, this renewed quest for homeownership could underpin a sustainable recovery. As prices fall to reasonable levels, more people will qualify for reasonable loans. First, the empty houses and somewhat later, the condominiums now on the market will find buyers, in most places in a matter of a few years.

This shift will create huge opportunities for a diverse set of geographies. For urban areas like New York or Los Angeles, there will be a unique--perhaps once in a generation--chance to induce middle-class people to settle down in big-city homes or condominiums. If they become homeowners, they will be more likely to stay than move elsewhere to the suburbs or other regions when the time comes to buy a home.

Other, more affordable, less regulated and often more economically dynamic places like Texas and the Great Plains may realize even greater gains. Over time, we will likely see a recovery in some now-suffering parts of the Sunbelt. The renewal of home demand could also help revitalize many of our hardest-hit sectors, including construction and manufacturing.

Sadly, some policymakers in Washington seem less than enthusiastic about this prospect. Many close to President Obama seem to dislike single-family homes and suburbs. Some embrace the policy which the British called "cramming," essentially forcing people into ever smaller, denser units. Energy Secretary Steven Chu recently praised the notion of small apartments with numerous people. "You know, body heat keeps a lot of the apartment warm," he suggested. You can't do this in a big apartment with a few people."

My suspicion is that most Americans are not quite ready to become their own heaters, any more than modern farm families like having farm animals live with them--although they, too, generate warmth. Instead, we should explore less unpleasant ways to cut energy use though such things as incentives for decentralizing work, promoting home-based labor, more tree planning and effective insulation.

An administration that places itself at odds with the "universal aspiration" that has driven growth in the advanced world for over a half-century could delay a full recovery unnecessarily. Advocacy of what amounts to declining living standards and a return to feudalism might also prove a less than successful political strategy.

This article originally appeared at Forbes.

Joel Kotkin is executive editor of NewGeography.com and is a presidential fellow in urban futures at Chapman University. He is author of The City: A Global History. His next book, The Next Hundred Million: America in 2050, will be published by Penguin early next year.

Amid Obama's Change is More of the Same

Joel Kotkin — Fri, 26 Jun 2009 09:45:09 -0400

The Obama administration has been, so far, hierarchical and even conservative in its thinking. Following and even surpassing the Bush administration’s reliance on an M.B.A.-trained elite, which drove the country nearly to ruin, the Obama approach seems to boil down to finding the smartest guy in the room, rather than utilizing people with hands-on experience or acquired wisdom.

This fixation on hierarchy has been unexpected for an administration whose stock sold on the notion of being something other than the same old, same old. Yet as it turns out, the Obamanians seem to be as narrow, if not narrower, than their much-disdained predecessors.

Early on, President Barack Obama’s magical mystery tour gained power in places you would not expect it to — winning critical victories in overwhelmingly white, socially conservative Great Plains and Midwestern states. Yet today, he has built one of the narrowest administrations, both ideologically and regionally, in recent memory.

This trend became apparent in a new National Journal study of the administration’s top 366 officials. To be sure, the Obama team has more Hispanics, African-Americans and women than its predecessors. But beyond gender and color, the Journal reports, this is an administration of remarkable sameness.

For one thing, people with practical business experience — outside of finance — have little role in formulating economic policy. This differs from the Bush administration’s tilt toward traditional autocracies; this is more rule by the cognitive elites. A history of real problem solving seems to matter less than the quality of university pedigrees; the Obama team appears to be a bit like a giant law review, drawing on only the best and brightest from places such as the University of Chicago, Oxford, Harvard and Stanford, as well as some elite think-tank denizens.

This narrow gauge is even clearer geographically. There are few people around the president who come directly from exurbs or small towns; virtually all the inner circle hail from a handful of locales — Washington, Chicago, New York, Boston and the Bay Area. Remarkably, according to the National Journal, only 7 percent worked last year in a state carried by John McCain. Red appears to be one color that does not pass diversity muster for this administration.

The danger here is not so much inexperience but a vision clouded by similar experiences and prejudices from the liberal wing of the baby boomer generation. The president remains broadly popular with the young, yet his administration is actually older than that of President George W. Bush. Obama may be a millennial matinee idol, but his administration appears boomer-dominated in its point of view.

This may explain why Obama has focused so much on the old obsessions of left-leaning boomer elites — health care, civil rights, pacifistic foreign policy — and less on the issues, notably job and wealth creation, that matter most to those younger than 50. Even on the environment, an issue with great appeal to millennial Americans, his approach has been less community-based and consensual and more dogmatically and centrally directed than might appeal to a generation shaped by social networking and the Internet.

Of course, Obama still could change course and evolve into the bold, innovative leader needed for these fast-changing times. However, to get there, he must be more than merely articulate. This president needs a surer and more current approach to dealing with epochal challenges whether on the public squares of Tehran or on this country’s Main Streets.

This article first appeared at Politico.

America’s Energy Future: The Changing Landscape of America

Fri, 26 Jun 2009 01:17:57 -0400

During the first ten days of October 2008, the Dow Jones dropped 2,399.47 points, losing 22.11% of its value and trillions of investor equity. The Federal Government pushed a $700 billion bail-out through Congress to rescue the beleaguered financial institutions. The collapse of the financial system in the fall of 2008 was likened to an earthquake. In reality, what happened was more like a shift of tectonic plates.

History will record that the tectonic plates of our financial world began to drift apart in the fall of 2008. The scale of this change may be most visible in who controls the energy that powers our world.
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May 2008 brought with it the highest price on record for Brent Crude Oil – $148 per barrel. At the pump that translated into prices in excess of $4.00 per gallon. A sixteen gallon fill-up of a Toyota Prius in Los Angeles cost its owner $72.00 and a fill-up of a twenty-five gallon Cadillac Escalade set its owner back more than $100.00. The largest transfer of wealth in the history of mankind was underway and consumers were feeling the pinch.

The countries that border the Persian Gulf produce and export 20,000,000 barrels of oil per day. At its peak in May of 2008, the Persian Gulf producers (Saudi Arabia, Iran, Iraq, Kuwait, Qatar and the U.A.E) were receiving $3 billion per day, $90 billion per month and $1 trillion per year in revenues from the industrialized nations of the world, including the EU, North America and, most importantly, the rising powers of India and China.

These Persian Gulf nations are mostly monarchies controlled by individuals, royal families or at best a few power brokers. American consumers abandoned their love affair with the SUV and Detroit’s assembly lines began to grind to a halt. New car sales which peaked at 17 million units in 2007 plummeted to a rate of 9.2 million within six months. The inventory of unsold vehicles built up and led inexorably to the bankruptcies of Chrysler and General Motors.

At the same time, the airlines began charging for checked bags and discontinued the ubiquitous bag of peanuts as they reeled under the cost of jet fuel. Bellicose despots in oil rich lands outside the Middle East used their new found wealth to rattle their sabers. Russia, the world’s second largest oil producer after Saudi Arabia, began flying their venerable Backfire bombers to the American coast. Hugo Chavez of Venezuela, the world’s ninth largest oil producer, used his oil wealth to turn himself into an icon of the anti-gringo sentiment always beneath the surface throughout Latin America.

Politicians, who placed America’s coastline off limits for drilling, were forced to recant their precious moratorium under the growing chorus of “Drill here and drill now”. Environmentalists, who destroyed the nuclear power industry with fearmongering over its safety, were increasingly on the defensive. T. Boone Pickens invested millions of his own money to promote wind farms – and more importantly natural gas – across America’s heartland. Sales of little known Jatropha seeds, a plant indigenous to India that produces an oil clean enough to run a diesel engine, skyrocketed. By the fall of 2008, the financial markets were buckling under the strain.

As the economies of the world contracted, demand for oil plummeted and the price of crude collapsed. Terrified by the apparent mismanagement of the economy by the Republicans, Americans elected an untested junior Senator to the most powerful position in the world. Predictably, plans for alternative energy withered as prices plummeted and gas dropped to $1.50 per gallon. Russia, whose cost to develop crude is $50 per barrel, lost its swagger as its currency and stock market collapsed with the price of crude. The collapse of oil to $35 per barrel even silenced Hugo Chavez, at least for a moment.

Sadly, the America public lost interest in energy as they were distracted by a 40% loss in their 401ks, corporate bankruptcies and the growing numbers of lay-offs. Politicians quickly shifted their focus from drilling, nuclear energy and independence from imported oil and began espousing the Obama administration mantra of “green energy” and “green collar jobs”. Unfortunately, these words are just a chimera since they are likely, even with massive subsidy, to produce only a small fraction of the nation’s energy for at least decade or two.

These ephemeral goals only mask the real problem: America’s dependence on imported oil. The world demand for oil averages 85 mbd (million barrels per day). In the darkest days of the global financial crisis during the spring, when we stood at the abyss of The Great Depression, demand dropped to just 82.3 mbd. Conversely, world oil supply peaked at 87 mbd in 2007. This relative parity between supply and demand eliminates the elasticity that puts some control on prices. With literally no elasticity, speculators know that buyers will purchase every barrel of oil and prices rise. The proof of this market force is visible at the pump where gasoline has crested $3.00 per gallon in California and more than $2.66 per gallon nationwide. The United States consumes 20,000,000 barrels of oil per day or 24% of the world’s supply. In previous decades this was not a problem because the United States was a major producer of oil. But our peak production was reached in the 1970s when the US imported just 35% of its oil. Today we import more than 66% and no longer can influence the price of black gold. That price is now determined by despots in the Persian Gulf, Russia and Venezuela.

This problem is not going away soon. According to the Energy Information Agency of the U.S. Government, the world demand for oil will require an additional 44 million barrels of oil every day to meet projected demand. The increase of demand is not going to come from the American or European markets. The developed nations through conservation, fuel standards, a reinvigorated nuclear power industry and, over time, the push for alternative fuels will actually reduce their consumption over the next twenty years. The push will come from India, Russia, Brazil, and of course China.

India, with a population over one billion, has announced its version of the Interstate Highway System that opened America to its great Middle Class. After the acquisition of Jaguar and Land Rover, Tata Industries has begun production of the Nano, a car that sells for $2,000 in India. The demand for oil to power the cars for an educated and increasingly affluent Indian society will keep pressure on oil prices for years to come. India uses just 2.7 mbd today but expects that demand to grow to 4.5 mbd by 2030.

There are now more than a billion Chinese. China consumed just 2 mbd of oil in 1990. Oil consumption jumped to 7.6 mbd in 2007 and is projected to grow to 15 mbd in 2030. The Chinese automobile industry grew at 21% last year while the US auto industry contracted by 40%. China displaced Germany as the third largest auto producer and will soon eclipse the damaged US auto industry which is contracting to a mere shadow of its former self. Chinese brands such as Chery and Geely, unknown to American consumers, may soon become as well known in America as Nissan or Hyundai.

Demand will push oil over $100 barrels again. Vast capital will pour into the Persian Gulf, Russia and Venezuela once again. Into this tempest comes America with a thirst for 20,000,000 barrels each day. The major oil producers in the Middle East, Russia and Venezuela are not America’s friends. Russia will use its oil wealth to thwart the US and veto in the United Nations any effort to subdue the North Koreas and Irans of the world. China, with its surplus of US dollars, will continue to harvest natural resources around the world, and forge strategic alliances with the likes of Iran as it secures the flow of oil and natural resources to its industries for years to come.

Meanwhile our politicians ignore our growing dependence on unfriendly nations and our weakening credit rating in the world to chase the chimera of green collar jobs and a green economy. Wind and solar will never power more than a minuscule fraction of America’s engines. America needs the equivalent of the Apollo moon project, a national challenge to move America off its dependence on foreign oil. We need simultaneous development of domestic oil and natural gas drilling, nuclear power, development of hydrogen fuel cells and clean coal technologies along with wind and solar power plants.

A year from now the landscape of America will be forever changed. Five years from now, will American find the fortitude to grasp its energy independence? Or will our weak politicians in both parties keep their heads buried in the sand until China and India emerge to deny us what we are no longer in a financial position to demand?

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This is the third in a series on The Changing Landscape of America. Future articles will discuss real estate, politics, healthcare and other aspects of our economy and our society. Robert J. Cristiano PhD is a successful real estate developer and the Real Estate Professional in Residence at Chapman University in Orange, CA.

PART ONE – THE AUTOMOBILE INDUSTRY (May 2009)

PART TWO – THE HOMEBUILDING INDUSTRY (June 2009)

Why Attitude Matters: How Nebraska is Reaping the Stimulus

Susanne Trimbath — Thu, 25 Jun 2009 01:23:24 -0400

In what are tough times for most states, conditions for business remain surprisingly good in Nebraska. Like other states in the “zone of sanity” Nebraska is especially supportive of small businesses.

Nebraska is one of a series out of mid-American outliers. In 2008 – a year of a severe national contraction – the state experienced a 3.6 percent growth in gross domestic product. Its current unemployment rate of just 4.4 percent stands at less than half the U.S. rate of 9.4 percent (latest available from Bureau of Labor Statistics).

The state itself is in good financial shape, with a cash reserve over $500 million (including a $20 million to $30 million operating surplus every year since 2001). I believe there are two important factors fundamental to Nebraska’s health. The first lies in cooperation across levels and borders – which was described in my piece on regional cooperation in the Omaha World-Herald. This positive attitude toward growth and economic development in Nebraska extends through every level – you find it at the state, regional, county and city level. A supportive attitude toward development plays an important role in making things work.

The second and perhaps more important factor critical to fostering an environment supportive of growth and prosperity lies with a broad acceptance of the benefits of on-going economic development as a source of continued quality of life. This attitude can be described – as opposed to the traditional NIMBYism seen so often in more crowded, coastal states – as “Yes, In My BackYard” or YIMBYism. Nebraska has pockets of pro-development populations, like Sarpy County, on the southern border of the city of Omaha.

Before moving to Omaha, my business was based in Santa Monica, California. With a population of about 89,000, Santa Monica is a beautiful city consisting of smart people who often make foolish choices. Many residents in Santa Monica, like those in Portland and other NIMBY-areas of the country, oppose development in their neighborhoods.

Many who live in million-dollar single-family homes in Santa Monica were opposed to building new middle-class jobs and homes in their neighborhood, although they often favor building homes for the poor, albeit somewhere not in their bailiwick. This promotes a “haves versus have-nots” social order, and also doesn’t make sense from a personal point of view. Whenever the growth debate was on the table (which it often is in Santa Monica), I would tell people, “Wouldn’t you like to build jobs and housing so your children can work and live in Santa Monica, too? Do you want your grandchildren to move to Texas? Because I assure you they are building middle-class jobs and housing in Texas.”

In contrast I’ve found some pro-growth Nebraskans who relentlessly seek making development happen. For the mayors of the United Cities of Sarpy County, the emphasis is on cooperation as a path to success. Recent developments around my adopted hometown of Bellevue, Nebraska – home to Offutt Air Force Base and U.S. Strategic Command – provide a simple, straight-forward example of how YIMBYism works in practice.

About seven years ago, the City of Bellevue, along with the Bellevue Chamber of Commerce, funded an economic development plan that could be used to set a community agenda for growth. The resulting plan highlighted several locations where development was feasible, desirable and likely to lead to greater growth. One of the initial designated areas is a 6.5 mile corridor along Fort Crook Road. “Fort Crook Road,” says Megan Lucas, President of the Bellevue Chamber of Commerce, “is the spine of Bellevue. Other nodes of economic development will fill-in around Fort Crook when it is ready to move forward.”

The City and the Chamber then devised a development plan specific for the Fort Crook Road Corridor. The Fort Crook Road Plan was approved as part of a new comprehensive plan for City development – with zoning updated to accommodate retail development along the entire length. The long-range plan is to shift the road west, closer to an existing active railroad line, and to create a linear park along the median strip to connect two existing trail systems – the Lewis & Clark in the north and the Bellevue Loop of the Keystone Trail on south end.

Two points make this specific example interesting. The foresight in developing the comprehensive plans for the area positioned it perfectly for the current environment. A good chunk of the Fort Crook Road Corridor is currently occupied by an abandoned concrete production facility. These blighted structures need to be demolished to get the property ready for development. But since the City already owns the property and a comprehensive development plan is in place, the project is “shovel ready” – those magic words that qualify any development project for federal stimulus funding under the American Recovery and Reinvestment Act of 2009.

In contrast, there are hundreds of worthy projects in every state that will not qualify for Stimulus money because they fail to meet the “shovel ready” requirement. Part of the Fort Crook Road Plan made it through the initial review stages for stimulus funding in Nebraska. The project ranked in the top three in the state for eligibility and suitability. According to Mayor Ed Babbitt, some stimulus funding has been allocated to revise traffic signals in the corridor; funding to remove blighted structures will likely come later this year from an environmental clean-up fund.

The second point that makes the Fort Crook Road Corridor an interesting example is that one of its biggest proponents – Megan Lucas – lives in the Corridor. The development and expansion of Fort Crook Road is in her backyard. She and many other residents in Bellevue are saying, “Yes, In My Backyard.” Even more recently, three cities in Sarpy County vied to be the location of a Triple-A ballpark to be built in cooperation with the Omaha Royals of the Pacific Coast League. YIMBY-ite residents far out-numbered the NIMBY-ites at every public forum on the choice of location. A positive attitude toward economic development has emerged as a major factor in getting ready for the stimulus – something many in the Obama bastions in the blue states might want to consider.

Susanne Trimbath, Ph.D. is CEO and Chief Economist of STP Advisory Services. Her training in finance and economics began with editing briefing documents for the Economic Research Department of the Federal Reserve Bank of San Francisco. She worked in operations at depository trust and clearing corporations in San Francisco and New York, including Depository Trust Company, a subsidiary of DTCC; formerly, she was a Senior Research Economist studying capital markets at the Milken Institute. Her PhD in economics is from New York University. In addition to teaching economics and finance at New York University and University of Southern California (Marshall School of Business), Trimbath is co-author of Beyond Junk Bonds: Expanding High Yield Markets.

Why The Left Is Questioning Its Hero

Joel Kotkin — Tue, 23 Jun 2009 00:23:45 -0400

Much has been made by the national media and the markets about the emergence from our desiccated economic soil of what President Obama has called "green shoots." But although the economy may already be slowly regenerating (largely due to its natural resiliency), we need to question whether these fledglings will grow into healthy plants or a crop of crabgrass.

The political right has made many negative assessments of the president's approach, decrying the administration's huge jump in deficit spending and penchant for ever more expansive regulatory control of the economy. Polling data by both The New York Times and the Wall Street Journal shows some growing unease about both the expanding federal role in the economy and the growing mountain of debt.

But this conservative critique, which includes sometimes shrill accusations of nascent "socialism," isn't the most important counter to Obamanomics. Perhaps more on point – and politically risky for the administration – are criticisms coming from his supposed bedfellows further to the left.

One recent example comes from a new report issued by my old colleagues at the liberal-leaning New America Foundation called "Not Out of the Woods: A Report on the Jobless Recovery Underway." It amounts to a blistering, if largely unintentional, critique of the administration's policies, providing a sobering antidote to manufactured euphoria peddled by both presidential spin-meisters and some Wall Streeters.

The report baldly asserts that the president's programs are simply not sufficient to make up for a "huge job creation deficit" that is getting worse by the day. It estimates the country needs to generate 125,000 or more new jobs a month just to keep pace with population growth – something few see happening for at least several years.

Even with little immediate hope for such employment gains, the report does cite government and private-sector projections of upward of 10% unemployment well into next year. More worrisome still, the authors assert that the administration's current program is unlikely to create a return to a "normal" level of joblessness – to between 4% and 5% – until after the president's first term.

The New America report then goes on to make some even scarier observations. It claims unemployment rates are far higher in reality than official statistics reveal, citing calculations by Chairman of New America's Economic Growth Program Leo Hindery of what they call "effective unemployment." This also includes the millions now working part-time but seeking "full-time and productive work."

Hindery is no conservative. He was an adviser to John Edwards and, more recently, to the president himself. Yet his prognosis is grimmer than the ones offered by most right-wingers. He calculates that the real unemployment rate in the country last month was not 9.3%, which is the figure that was reported, but rather closer to an alarming 16.8%. By that measure, more than 30 million people are effectively out of work. That's nearly one-fifth of the labor force.

Given current economic policies, the report suggests, we can expect "a six-year recovery for what has been to date only a year-and-a-half recession." Hiring by government and green industries are clearly not going to make up for the massive losses in productive sectors like manufacturing, business services, energy and agriculture.

Against this grim background, the president's program seems inadequate and even chimerical. To be sure, the massive bailout of institutions such as the big banks – as well as Chrysler and General Motors – has provided some reassurance to Wall Street that paper assets may continue their recent upward climb.

Yet that will do precious little to make a dent in unemployment elsewhere in the economy. Treasury Secretary Timothy Geithner, chief economic guru Larry Summers and others might see "green shoots" for investors, but those could turn out to be more like crabgrass for the rest of us.

In fact, finance is surviving the recession remarkably unscathed. Just compare the numbers. Since 2007, manufacturing (and other blue-collar-dominated sectors) lost 13% of its employment, while construction payrolls have plunged over 16%. Meanwhile, finance, the industry arguably most responsible for the economic meltdown, has dropped a mere 5% of its jobs. Today unemployment in the financial sector stands at less than 5%, compared with nearly 20% in construction and over 12% for manufacturing.

So as hundreds of thousands of construction and factory workers are being sacrificed, many grandees of finance – like top executives of Bank of America and Citigroup – remain in their plush perches. Even proven financial demolition experts like Mark Walsh, who led Lehman Brothers' disastrous march into toxic properties, are now being paid to clean up the mess they so brilliantly created.

No wonder some factions of the left are becoming uneasy with their hero. Some privately admit that the administration – despite its pro-middle class rhetoric – has adopted an economic program that makes Ronald Reagan seem like the vox populi. One wonders how they will react later this year, when continued high unemployment meets massive, perhaps even record, Wall Street bonuses.

This state of affairs, as the New America report correctly suggests, does not lead us down a path toward "a strong and sustained recovery." Clearly, we need something more. For one thing, the country needs to reassert its ability to produce more of what it consumes. (See Joel Kotkin's earlier column, "We Must Remember Manufacturing.")

Others on the left are also making this point, perhaps none more effectively than an article in the Nation called "The Case for Kenosha." The piece, in short, skewers the Obama administration's manhandling the auto industry and manufacturing sectors. It accuses Obama of taking the old industrial belt on a "wild ride" that will lead to more plant shutdowns and increased outsourcing to foreign factories. "With 'fixes' like these," the article states, "it's hard to imagine how Obama plans to fulfill his campaign promise to 'revive and strengthen all of American manufacturing.'"

This is not to say that the entire left side of the political spectrum opposes the administration's economic policy. There is now more than one left in this country, and the gaps between these lefts are every bit as wide as those between, say, small-government libertarians, social conservatives and messianic global interventionists.

To date, the administration has listed toward the agenda of what may be best described as the left's gentry wing. These include activists at universities, urban planners and liberal nonprofits, many of whom see in Obama's pro-green policies and multicultural agenda the fulfillment of their long-time fantasies.

This, at times, puts them at odds with large parts of the middle- and working-class base of the Democratic Party. The administration's plans to"coerce" people out of their cars for the alleged good of the environment probably does not offer much "hope" for those working at auto plants. Highly dependent as they are on stocks and asset inflation for their income, the gentry are not likely to object to the administration's coddling of large financial institutions.

Then there is the party's populist contingent, whose inspiration comes more from FDR and Harry Truman than from the likes of Barney Frank and Nancy Pelosi. They are less likely to see much of a difference between a Timothy Geithner or a Hank Paulson. To them, the two Treasury secretaries have both been useful servants for the nation's "economic royalists."

Of course, most conservatives might despair over the populists' tendency to embrace statist solutions to our economic problems. But would-be inheritors of the Reaganite mantle should at least sympathize with their goal to restore broad-based upward mobility and close-to-full employment. Indeed, if the Republican Party figures out how to take command of the issues like job creation and social mobility, they could even become relevant once again.

Right now, though, critiques from the left may be more effective than yammering from the still-clueless right. The president knows that talk of green shoots makes people and markets feel better. But unless those shoots show some staying power, the long-term economic consequences – and ultimately political ones, too, for the president and his party – could prove unwelcome indeed.

This article originally appeared at Forbes.

GM, Business, and The Age of Small

Dennis Powell — Sun, 21 Jun 2009 00:24:15 -0400

At its peak, General Motors employed 350,000 people and operated 150 assembly plants. It defined “big business” for America and the world.

But GM was not always big. It grew through the acquisitions that it made in the early decades of the twentieth century. In those days, the automotive industry was populated by entrepreneurial small businesses led by people like Ransom Olds and Henry Ford. There were more than 200 automobile companies in the United States in 1920. By 1940, only 17 had survived.

As with all businesses, success and failure was measured by a company’s ability to manage and adapt to change. Change in consumer expectations and demographics. Demands for lower prices and more features. Underlying all of this was the need to constantly improve, to challenge core assumptions, and attend to customer needs. The early automobile companies that could not adapt were driven out of business or forced to merge. In the end, we had the “Big Three” in control of all major American automotive brands.

And so it was, but only for a time. Our economy is dynamic. It is always changing. This is why consumer products are always adding “new and improved” to even their most popular and profitable labels, and why companies produce competing products — like laundry detergents and cereals — within their brand. Control of shelf space is vital in retail, and an expanded offering of products maintains a company's all-important market share.

In a free economy, “Big” has some advantages. It has more resources and reach. “Big” companies can define a market and, to a point, control entry into it. But “Big” also has many disadvantages. It is unwieldy, bureaucratic, inflexible, slow to react and unresponsive to small events. This is why in a dynamic free economy “Big” gives birth to “Small”, which forces innovation and change, and ushers in the next Big Idea.

Apple was started in a garage to challenge the giant IBM. Microsoft was founded by a college dropout who ran with a platform (Windows) that Xerox created and discarded. Hechinger’s was the first big box hardware store. It was overtaken by The Home Depot, which pioneered a better way to service clients with an even bigger box.

America is all about good, better, best. Google is now the dominate internet search engine. A small part of its success has been its ability to become part of the vernacular. How many of us have said, “Let me Google that?” Microsoft is not sitting back and accepting Google’s success as a given. It recently launched “Bing”, with features not available on Google. Is Bing the next newer, better search engine? The market will determine if it is, once consumers take it out for a search or two and decide whether or not they like the results.

The American automobile industry has reached the end of “Big.” GM recently sold its Saturn brand to Roger Penske, a former auto racer turned entrepreneur. Penske will likely bring new energy and focus to a brand that was only a small cog in a giant corporation. I bet that the brand will reemerge stronger in the marketplace. A Chinese company bought Hummer. SAAB is still looking for a new home. The remaining GM brands, including Cadillac and Buick, will be part of a newer and smaller company. This is the natural economic cycle. It is what would have taken place months ago, and saved the American taxpayer billions of dollars had we simply let GM go into an orderly Chapter 11 bankruptcy.

The problem is that our federal government is attempting to control this process in order to achieve a desired result. Yes, looking at saving GM as a short term federal jobs program is a valid argument (albeit a God-awful expensive one). But we should not let these actions, taken in the midst of a crisis, instill the belief that government control of markets is a viable alternative to free markets that respond to consumer demand.

The natural flow of our economy is big to small to big again. We are now entering an 'Age of Small' throughout our economy. It is an era in which new ideas will drive innovation, and the nimble will overtake the weak. The only thing that can derail this process is the permanent entry of big government into the mix.

Government is the antithesis of a market economy. It is unwieldy, bureaucratic, inflexible, slow to react, and unresponsive to small events and to its own consumers.

It is Big when we are at the right moment for Small.

Dennis M. Powell is president and CEO of Massey Powell, an issues management consulting company located in Plymouth Meeting, PA.

Europe: No Longer A Role Model For America

Joel Kotkin — Tue, 16 Jun 2009 00:20:44 -0400

For decades many in the American political and policy establishment--including close supporters of President Obama--have looked enviously at the bureaucratic powerhouse of the European Union. In everything from climate change to civil liberties to land use regulation, Europe long has charmed those visionaries, particularly on the left, who wish to remake America in its image.

"There is much to be said for being a Denmark or Sweden, even a Great Britain, France or Italy," wrote political scientist Andrew Hacker in his 1971 book The End of the American Era .This refrain has been picked up again more recently by the likes of Washington Post reporter T.R. Reid and economist Jeremy Rifkin. Just last year, international relations scholar Parag Khanna shared his vision of a "shrunken" America lucky to eke out a meager existence between a "triumphant China" and a "retooled Europe."

But the tendency to borrow from the European toolbox may be somewhat questionable, particularly given that a growing number of Europeans are either uninterested--barely 40% bothered to vote in E.U. Parliament elections last week--or in open revolt against their own system of government. In the elections, for example, parties generally opposed to expanding E.U. power gained ground in countries as diverse as Hungary, Slovakia and the Netherlands. In Britain, the relatively small U.K. Independence Party, which even opposed membership in the U.N., out-polled the Labour Party and trailed only the Conservatives, who announced their own shift toward a more euro-skeptic point of view.

Although the E.U.'s current top-down bureaucratic approach is clearly losing support, these recent events don't necessarily mean the E.U. is doomed. It's just that people who might be happy to accept a customs union and perhaps even a common currency are simply proving loath to hand over land use controls and environmental standards, much less foreign policy, to Brussels-based bureaucrats. At its root this move represents both a cry against control and a cry for greater autonomy.

For the Obama administration, there may be some significant lessons here. Compared with Europeans, Americans are disposed to dislike too much central control. Turning Washington into a new Brussels, with regulations to cover virtually any human activity, could backfire both on the president and his party.

But it's also critical not to see Europe's new tilt as affirming Reaganite cowboy capitalism. Many European countries, particularly the northern ones, are justly proud of the "social" models of capitalism they embrace. There are many policies--such as Danish incentives for industrial firms to greenify themselves, efficient universal health care and tough fuel economy standards for cars--that should be discussed and perhaps even adopted in some form in the U.S.

In one sense, we should understand that Europeans are trying to protect their preferred standards when it comes to culture, social structure and lifestyle. They remain, if you will, fundamentally conservative in their efforts to preserve their well-established welfare states.

But overall the anti-E.U. vote should make it clear that Europe's overall economic system makes for a poor role model for our country. When the current economic crisis first hit, many European leaders--and their American fans, like Harvard economist Ken Rogoff--saw vindication for the E.U.'s economic policy and a much tougher road for the U.S. over the next year or two. Yet in reality, Europe already has suffered as much as we have from the downturn, and recovery there may also be even slower to emerge. In some countries, such as Greece and France, social unrest has been far more evident than here in the U.S.

Simply put, European models do not necessarily work better--and when they do, they have occurred in part due to shifts away from strict welfare-state policies. As Sweden's Nima Sanandaji and Robert Gindehag have argued the recent return to growth in places like Sweden came only after some modest reforms in both taxes and social benefits.

Yet at the same time, even successful European countries--as well as the whole E.U.--generally experience slower growth than the U.S. with respect to measures like gross domestic product and job growth. This makes it an example of limited utility for America, a country that needs strong economic growth in order to maintain both its quality of life and overall social sustainability.

The biggest source of divergence between the U.S. and the E.U. lies in demographic trends. For the most part, Europe is aging far more rapidly, and its workforce is shrinking. As demographer Ali Modarres notes, America's population over the second half of the 20th century grew by 130 million, essentially doubling, while the populations of France, Germany and Britain together increased by 40 million, or 25%.

As a result, there is virtually no European equivalent for cities like Houston, Phoenix, Las Vegas or Atlanta. American cities sprawl--and will likely continue to do so--because they are newer and because they are growing much faster in a country that is much vaster. Even with 100 million more people, the country will still be one-sixth as crowded as Germany.

These differences will only become more stark. Opposition to immigration--from both Muslim countries and the E.U.'s own eastern periphery--is growing even in historically tolerant places like Great Britain, Denmark and Holland. Over time, migration into Europe is destined to slow. In Barack Obama's wildly multicultural America, strong restrictionist sentiments have not gained much political ground, and, at most, efforts are directed not at reducing legal immigration but rather shifting it toward a more meritocratic model.

So we can expect America's population to continue growing at close to the highest rate in the advanced industrial world while Europe remains among the most rapidly aging places on earth. America's fertility rate is 50% higher than Russia's, Germany's and Italy's. By 2040, for example, the U.S. could have a greater population than the first 15 member nations of the European Union. Compare that prediction to 1950, when America had only half the population of Western Europe.

These numbers point toward separate destinies for the U.S. and the E.U. Throughout history, low fertility and societal and economic decline have been inextricably linked, affecting such once-vibrant civilizations as ancient Rome, 17th-century Venice and, now, contemporary Europe.The desire to have children also reflects a fundamental affirmation of faith in the future and in values that transcend the individual. This is particularly true in affluent societies, where it is socially acceptable to remain childless and technology has made the decision not to have children easier to enforce.

The U.S.' demographic vitality will allow it to emerge from the current economic doldrums with more rapid growth than Europe--continuing a trend that has generally held for most of the past two decades. Innovation, largely a product of youthful indiscretion, also will continue to emerge more quickly stateside. Indeed, according to one recent European Commission survey, at the current rate of innovation, it would take 50 years for the E.U. to catch up to the U.S.

Largely thanks to these demographic pressures, we could see an American economy twice the size of the E.U.'s by 2050. Unlike Europe, we have better prospects for growth, since there's really no sustainable alternative for our society. In contrast, 40 years from now Europe's economic growth rate is expected to fall 40%, due directly to the shrinking size of both its labor force and its internal market.

We can ultimately expect two very different courses to develop. In America, the emphasis needs to be on sustained growth to prevent a massive decline in living standards. In contrast, Europe may be able to maintain a steady level of prosperity--even with lower growth, since its population will be either stagnant or declining--at least until the looming costs of maintaining a welfare state impose onerous economic burdens.

Environmentally, Europe will become a "green" hero--because lower economic growth means a natural reduction in energy consumption and dreaded greenhouse gas emissions. Americans, on the other hand, will need to depend more on technological fixes--some of them from Europe--and embrace less economically damaging paths to growth. (These include promoting such things as working close to or at home and developing more fuel-efficient cars.)

Neither Europe nor America--particularly given a much-reduced E.U. bureaucracy--has a better or worse model. We just have to recognize that these are, in the end, increasingly different societies: The former is focused on preservation of its hard-won peace and prosperity; the latter is challenged more by constant, major and sometimes even frightening change.

Some may still hold out the hope that wise men in the old continent will present us with a road map to the future. But given the revolt going on against this mega-European ideal, we should understand that even many across the pond are having second thoughts about a future controlled by Brussels. Perhaps it's better to recognize that most solutions to America's problems--now and in the future--will be concocted not in Brussels, Berlin or Paris, but at home.

This article originally appeared at Forbes.