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The Future of Unions in the Post-Scalia Era

“The ‘Scalia Dividend’ Is a Rare Opportunity for Unions.”
– Shaun Richman, In These Times, February 16, 2016

The implications of Antonin Scalia’s sudden and tragic death have already been painstakingly explored by anyone involved in union reform. There’s not much to add. But what members of the labor movement have to say about this new reality may be worth a look. And despite the title of the above-noted article by Shaun Richman, for the pro-labor publication In These Times, most pro-labor pundits are not optimistic about the future of the labor movement. Richman writes:

“Labor’s crisis predated Friedrichs and will live on after it. The ‘Right to Work’ agenda, and the gutting of public sector collective bargaining laws, will continue to be pressed at the state level. And if the general financial commitment and philosophical approach to new union organizing remains the same, union density will surely continue to decline.”

In the pro-labor publication Workday Minnesota, in a commentary entitled “Unions could still lose Friedrichs – even if we win,” Dave Kamper writes:

“The existential threat to unions isn’t going away. We remain as we have for years: one court decision, one bad national election, or one right-wing victory away from annihilation.”

In both of these articles, virtually no acknowledgement is made of the profound difference between private sector unions, which have been in decline for years, and public sector unions, which with only a few significant exceptions are stronger than ever. Private sector unions in the United States have been engaging in soul searching for a long time, trying to come up with ways to remain relevant in a nation where hard won and comprehensive laws already exist to protect workers. The decline in middle class wages in the United States has relatively little to do with the decline of labor activism, and everything to do with globalization, automation, and financialization. Even if every worker in America belonged to a union, with all that power they still wouldn’t know exactly how to manage these mega-trends, because nobody does.

What America’s labor movement must primarily confront is not a right-wing attack machine intent on their demise, but their own failure to reinvent themselves to remain relevant in the 21st century. Here are some suggestions for those leaders of the labor movement who actually care about the American worker:

(1) Recognize that public sector unions aren’t unions in any legitimate sense of the word. Public unions exist because they automatically collect dues from government workers, who are paid via taxes earned by private businesses and individuals in a competitive market. Public unions exist through political coercion. They elect their own bosses. And they flourish when the power of government expands, regardless of whether or not that expansion is for desirable ends or is managed cost-effectively.

(2) Have the courage to stand up to the extreme environmentalist lobby, a special interest that has artificially raised the price of basic necessities – energy, water, homes, and transportation – to unaffordable levels. Understand that environmentalist inspired artificial scarcity creates asset bubbles, which enrich already wealthy special interests, but harm ordinary workers, who cannot, for example, afford to pay 50% of their net income on rent.

(3) Take a first step towards reforming America’s overbuilt financial sector by recognizing low interest rates as the reason people have borrowed more than they can ever hope to pay back, and the reason there is no place left for an ordinary saver to earn a respectable, risk-free return on investment. Understand that the biggest problem workers face isn’t high interest rates, it’s high prices, caused by artificially induced scarcity.

(4) Accept that right-to-work laws do not harm any union that is willing to be accountable to their members. If support for a union withers away, it is because the grievances that gave rise to that union have been satisfied. States that have implemented right-to-work laws still have effective unions. Accepting right-to-work as part of the regulatory environment unions operate in would make unions stronger, not weaker, because they would have to attract their members instead of coerce them.

(5) Become aware of what writer and researcher Joel Kotkin calls the “upstairs-downstairs coalition,” because to ignore it results in a naive and destructive policy agenda. Kotkin writes: “The modern Democratic Party fuses two dissimilar groups: the ‘upstairs’ well-educated gentry, with their urbanist and green politics, and the broader, but less-influential ‘downstairs’ working-class element, concerned about jobs, making more money and likely aspiring to own a home in the suburbs.” Kotkin believes this coalition, “papered over for years by focusing on social and racial issues,” is coming apart. Unions should pay attention. The upstairs-downstairs coalition’s policies harm everyone, except for the politically connected, wealthy elite.

(6) Make hard choices. For starters, you cannot have unrestricted immigration into a welfare state. If you want the government to offer a generous assortment of welfare and entitlements, then you have to restrict the flow of destitute individuals into the nation, since they will also become recipients and bankrupt the system. If, on the other hand, you wish to support an unrestricted flow of immigrants and refugees into the nation, then you have to scale back entitlements. You can’t have both.

The death of Antonin Scalia has put the issue of his replacement onto center stage for the duration of the 2016 election season. It will bring discussions of unions, since the unresolved Friedrichs case is so pivotal, back into the political dialog. But as even their own supporters acknowledge, the future of America’s unions has never been more uncertain. If they can abandon their partisan blinders and disassociate themselves from their public “union” allies – which are neither unions nor allies – they may yet play a vital role in these wondrous, turbulent times.

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Ed Ring is the President of the California Policy Center.

America’s Opportunity City

David Wolff and David Hightower are driving down the partially completed Grand Parkway around Houston. The vast road, when completed, will add a third freeway loop around this booming, 600-square-mile Texas metropolis. Urban aesthetes on the ocean coasts tend to have a low opinion of the flat Texas landscape—and of Houston, in particular, which they see as a little slice of Hades: a hot, humid, and featureless expanse of flood-prone grassland, punctuated only by drab office towers and suburban tract houses. But Wolff and Hightower, major land developers on Houston’s outskirts for four decades, have a different outlook. “We may not have all the scenery of a place like California,” notes the 73-year-old Wolff, who is also part owner of the San Francisco Giants. “But growth makes up for a lot of imperfections.”

A host of newcomers—immigrants and transplants from around the United States—agree with that assessment. Its low cost of living and high rate of job growth have made Houston and its surrounding metro region attractive to young families. According to Pitney Bowes, Houston will enjoy the highest growth in new households of any major city between 2014 and 2017. A recent U.S. Council of Mayors study predicted that the American urban order will become increasingly Texan, with Houston and Dallas–Fort Worth both growing larger than Chicago by 2050.

The Grand Parkway, Wolff points out, continues Houston’s pattern of outward development. The vast ExxonMobil campus being built in the far northern suburbs—and surrounded by its own master-planned community, Springwoods Village—will eventually be the nation’s second-largest office development, after Manhattan’s Freedom Tower. Houston is already home to numerous planned communities with bucolic-sounding names: Cinco Ranch, Bridgeland, Sienna Plantation, the Woodlands, and Sugar Land. “Open space is the most precious amenity,” says Wolff, a primary developer of the Energy Corridor, a Houston neighborhood boasting 22 million square feet of office space and housing the headquarters of such key energy firms as BP America, ConocoPhillips, and CITGO. “What we are creating here is a place where business can grow and people can afford to live. This is the key to Houston.” Indeed, the Houston model of development might be described as “opportunity urbanism.”

20140909_Houston_satelliteHouston from Space – America’s Opportunity City

Houston’s economic success over the past 20 years—and, more remarkably, since the Great Recession and the weak national recovery—rivals the performance of any large metropolitan region in the United States. For nearly a decade and a half, the city has been adding jobs at a furious pace—more than 600,000 since early 2000, and 263,000 since early 2008. The greater New York City area, by contrast, has added just 103,000 jobs since 2008, and Los Angeles, Chicago, Phoenix, Atlanta, and Philadelphia remain well below their 2008 levels in total jobs. In fact, Los Angeles and Chicago, like Detroit, have fewer jobs today than they did at the turn of the millennium.

And many of Houston’s jobs pay well. Using Praxis Strategy Group calculations that factor in the cost of living as well as salaries, Houston now has the highest standard of living of any large city in the U.S. and among the highest in the world. Indeed, the average cost-of-living-adjusted salary in Houston is about $75,000, compared with around $50,000 in New York and $46,000 in Los Angeles. Personal household income has risen 20 percent since 2005 in Houston, compared with 14 percent in New York, 11 percent in Los Angeles, and less than 9 percent in Chicago. Former Federal Reserve economist Bill Gilmer notes that, except during the energy bust of the mid-1980s, Houston’s per-capita income growth has outpaced the nation’s since the late 1960s.

Not surprisingly, given Houston’s reputation as an oil town, much of the job growth in its metro region (known as Greater Houston) is tied to energy—particularly, to the technological revolution now reshaping that industry. Once widely derided as a “colony” of California- and New York–based companies, Houston has increasingly become the location of choice for American energy firms. In 1960, for example, Houston was home to only one of the nation’s top energy firms; by 2013, it was home to 22 from the Fortune 500, more than all other cities combined—and that doesn’t include major non-headquarter locations for ExxonMobil, Shell, Chevron, and BP. This past spring, Occidental Petroleum, Los Angeles’s last major energy firm, announced plans to move to Houston’s Uptown district, near the famed Galleria.

Since 2001, the energy industry has been directly responsible for an increase of 67,000 jobs in Houston, and it now employs more than 240,000 people in the area. These jobs include many technical positions, one reason that the region now boasts the highest concentration of engineers outside Silicon Valley. Since 2001, Houston has seen a 24.1 percent growth in STEM (science, technology, engineering, and mathematics) employment, compared with less than 5 percent growth in New York and San Francisco. The jobs should keep coming: Gilmer estimates that $25 billion to $40 billion in new petrochemical facilities is on its way to Greater Houston.

“Oil and gas used to feel old, but that’s changing,” suggests Samina Farid, cofounder of Merrick Systems, a 25-year-old oil-services firm with 45 employees. “Younger people are coming into the business because they see opportunities to use new technologies that can really make a difference.” Farid’s firm is one of the thousands of smaller companies—including a group of new, tech-savvy start-ups—that serve the energy industry. Allison Lami Sawyer, the 29-year-old president of Rebellion Photonics, is part of a movement of younger professionals clustering in the area, many of them in the city’s inner ring. “I came here kicking and screaming,” said the British-educated Alabama native, whose nine-person company, mostly engineers and scientists, provides image-sensing equipment to firms such as Exxon. “But this was the place to be—it works well to be in the oil and gas capital of the world if that’s who you are selling to.”

Houston has embraced not only the energy industry’s white-collar professional jobs but also its well-paying blue-collar industrial positions. The city has seen a surge in mid-skills jobs (usually requiring a certificate or a two-year degree) in fields such as manufacturing, logistics, and construction, as well as energy. Many of these jobs pay more than $100,000 a year, and since 2007, according to calculations derived from the Bureau of Labor Statistics by the Praxis Strategy Group’s Mark Schill, Houston led the 52 major metropolitan areas in creating them, at a rate of 6.6 percent annually. In contrast, these jobs have declined by more than 10 percent in New York, Los Angeles, Chicago, and San Francisco, which have not been friendly to such industries.

Trade is robust. The Port of Houston, connected with the Gulf of Mexico by the 50-mile Houston Ship Channel, is now the nation’s Number One export hub, feeding off the energy revolution and expanding economic exchange with Latin America. Mexico and Brazil are by far the port’s largest trading partners. Houston’s port business has grown almost fourfold since 2000—far faster than either New York’s or Los Angeles’s. Port officials estimate that the trade sector contributes $500 billion in economic activity and more than 1 million jobs to the state of Texas annually.

20140909_Houston_harborThe Port of Houston – The Number One Export Hub for the United States

Houston is also home to the Texas Medical Center, the largest concentration of hospitals and research institutions in the world and, by itself, the metro region’s third-largest source of jobs—employing 106,000 people, including 20,000 physicians, scientists, and other professionals. Fifty-two separate medical institutions are located on the campus, equal in size to Chicago’s Loop. It currently has over 28.3 million square feet of office space, more than the downtowns of both Houston and Los Angeles. By the end of 2014, TMC top officials predict, the area will be the nation’s seventh-largest business district.

Houston is neither the libertarian paradise imagined by many conservatives nor the antigovernment Wild West town conjured by liberals. The city is better understood as relentlessly pragmatic and pro-growth. Bob Lanier, the legendary three-time Democratic mayor who steered the city’s recovery from the 1980s oil bust, when the metro region bled more than 220,000 jobs in just five years, epitomized this can-do spirit. Lanier was more interested in building infrastructure and promoting growth than in regulation and redistribution. That focus remains strong today. “Houston is getting very comfortable with itself and what it is,” says retired Harris County judge Robert Eckels. “We are a place that has a big idea—supporting and growing through private industry, and that’s something everyone pretty much accepts.”

Low taxes are part of that idea. Texas has no income tax, as Governor Rick Perry frequently points out to businesses in other states, and its average state and local tax burden is 11th-lowest in the nation. New York, New Jersey, and California, by contrast, impose the three highest state tax burdens in the nation. The friendly tax environment is one reason that Houston ranked as the most affordable city to do business in a recent survey of global metropolitan areas by PricewaterhouseCoopers and the Partnership for New York City. It means a lot more money in their employees’ pockets, too. A family of three making $150,000 moving from New York City to Houston would save upward of $8,000 in taxes, an analysis conducted by the District of Columbia found.

An even bigger component of Houston’s growth, however, may be its planning regime, which allows development to follow the market instead of top-down government directives. The city and its unincorporated areas have no formal zoning, so land use is flexible and can readily meet demand. Getting building permits is simple and quick, with no arbitrary approval boards making development an interminable process. Neighborhoods can protect themselves with voluntary, opt-in deed restrictions or minimum lot sizes. Architect and developer Tim Cisneros credits the flexible planning system for the city’s burgeoning apartment and town-home development. “There are a lot of people who come here for jobs but don’t want to live, at least not yet, in the Woodlands,” he notes. “We can respond to this demand fast because there’s no zoning, and approvals don’t take forever. You could not do this so fast in virtually any city in America. The lack of zoning allows us not only to do neat things—but do them quickly and for less money.”

The flexible planning regime is also partly responsible for keeping Houston’s housing prices low compared with those of other major cities. On a square-foot basis, according to Knight Frank, a London-based real-estate consultancy, the same amount of money buys you almost seven times as much space in Houston as it does in San Francisco and more than four times as much as in New York. (See “Houston, New York Has a Problem,” Summer 2008.) Houston has built a new kind of “self-organizing” urban model, notes architect and author Lars Lerup, one that he calls “a creature of the market.”

Some cities—such as Los Angeles—grow as a progression of larger communities around a relatively small core. Others—such as New York and Chicago—form dependent communities surrounding a dynamic central core. Houston is different: it revolves around a patchwork of centers, such as the aforementioned Woodlands, home to some 40,000 residences and more than 50,000 jobs. Other centers exist within the city limits, but Houston also retains a strong core that never imploded, as did those of so many American cities. The city turns the whole debate that dominates urban thinking today—whether to grow the suburbs or downtown—on its head. Rather than advocate one kind of housing, Houston prides itself on providing choices. In fact, as the city’s outer suburban ring has grown—last year attracting roughly 80 percent of all new home buyers—the downtown has also boomed. The city’s vibrant inner ring, notes demographer Wendell Cox, grew 3 percent during the last decade—four times the average in the top 15 metropolitan areas and more than Chicago, Los Angeles, New York, and Philadelphia. “Most cities would die for our in-fill,” says Jeff Taebel, director of Community and Environmental Planning at the Houston-Galveston Area Council (HGAC). No one would mistake downtown Houston for midtown Manhattan, true; but it represents 6 percent of the region’s jobs—a proportion 2.5 to 4.5 times greater than one finds, say, in downtown Los Angeles or Phoenix. Houston’s experience refutes the popular notion that urban density and central city development require heavy regulation.

Houston’s housing-market flexibility has also benefited some of the city’s historically neglected areas. The once-depopulating Fifth Ward has seen a surge of new housing—much of it for middle-income African-Americans, attracted by the area’s long-standing black cultural vibe and close access to downtown as well as the Texas Medical Center. Rather than worry about gentrification, many locals support the change in fortunes. “In Houston, we don’t like the idea of keeping an image of poverty for our neighborhood,” explained Rev. Harvey Clemons, chairman of the Fifth Ward Community Redevelopment Corporation. “We welcome renewal.”

By allowing and encouraging development in the inner ring and on the fringe, the city increases its attractiveness to younger people, who want to live close to the urban core, while also providing affordable suburban housing. “Houston thrives because it has someplace for young people to stay inside the city but also offers an alternative when they get older. Just because you grow up doesn’t mean you have to leave the region,” notes Gilmer, now head of the Institute for Regional Forecasting at the University of Houston.

Houston’s explosive economic growth has engendered another kind of boom: a human one. Between 2000 and 2013, Greater Houston’s population expanded by 35 percent. In contrast, New York, Los Angeles, Boston, Philadelphia, and Chicago grew by 4 percent to 7 percent. These figures reflect emerging migration patterns. Texas once sent large numbers of people to California and the East Coast, but now, considerable numbers of New Yorkers, San Franciscans, and Los Angelenos are picking up stakes and heading for Houston, Dallas, Austin, and San Antonio.

As it grows, Houston’s ethnic demography is shifting. Two decades ago, Houston struggled to attract foreign-born immigrants, as did Texas generally. But since the 1990s, Texas’s immigration rates have surpassed the national average. Over the past decade, Houston added 440,000 foreign-born residents, the second-most in the country, while New York, with more than three times the population, added 660,000. In a dramatic sign of changing trends, Houston attracted more than three times as many foreign-born immigrants as did Los Angeles, which is more than double its size. “This is the big deal for immigrants,” suggests HGAC’s Taebel. “We are a very attractive place for working-class people to settle.” The immigrant surge has turned what was once a conventional Southern city into a multiracial melting pot. Indeed, a 2012 Rice University study claimed that Greater Houston is now the most ethnically diverse metro region in America, as measured by the balance between four major groups: African-American, white, Asian, and Hispanic. Hispanics alone constitute nearly half the core city’s population, while the Asian population has surged almost fourfold; whites constitute barely a quarter of the total. The entire Greater Houston metro region—roughly 6.3 million people—is now 60 percent nonwhite, up from 42 percent in 1990.

Houston’s new diversity is not confined to one neighborhood or district. Suburban Sugarland is over 35 percent Asian and home to one of the nation’s largest and most elaborate Hindu temples. “This place is as diverse as California,” notes David Yi, a Korean-American energy trader who moved to the city from Los Angeles in 2013 and lives in the suburb of Katy, west of the central core. “But it is affordable, with good schools. Our kids, who are learning Spanish, can afford to stay and have a house, which is not the case in California.” Pearland, located 17 miles south of downtown, has also become a draw for upwardly mobile minorities and immigrants. “This is very different from Dallas, where I grew up, which was very segregated,” notes African-American entrepreneur Carla Lane, president of Lane Staffing, which works with energy, construction, and other local firms. “My daughter has a totally different experience—many of her friends are white, Hispanic, or Asian. Living out in Pearland, you can have that experience, and then you cross Highway 6 and you see people with big hats, boots, and straw in the mouth. That’s Houston to a tee.”

Immigration is driving growth but also creating new challenges. Though skilled immigrants are beginning to flock to Houston, observes former state demographer Steven Murdock, Texas’s immigrants also include many lower-skilled workers, primarily because of the state’s proximity to Mexico. Leaders in the petrochemical and construction industries complain about looming shortages in the skilled trades. A dearth of plumbers and electricians is already affecting construction of new housing, offices, and industrial facilities, impinging on developers’ ability to expand, despite a thriving housing market. “We have all these jobs but not the people in the pipelines,” says Marshall Schott, associate vice chancellor at Lone Star community college. “Sure, we have need for more geologists and engineers; but by an order of magnitude, we need skilled workers such as welders and machinists. These jobs pay $80,000 a year, a lot better than being a barista at Starbucks.”

To address these shortfalls, many companies have invested in workforce training programs, some in collaboration with local high schools as part of “cooperative education,” where students go to school part-time and work part-time. “This is a typically Houston solution—very pragmatic,” Mike Temple, director of the Gulf Coast Workforce Board, points out. “We are trying to tell kids that it’s not only what you know but also what you can do.” Enrollment at Houston’s largest community college, Lone Star, has exploded 58 percent, to 78,000 students, in just the past five years, and the college expects it to reach 100,000 students by 2018.

Often attacked for under-investing in education, Houston has actually shown encouraging educational progress. Many of the schools in the outer rings, often predominantly white and Asian, perform well in state performance rankings. Houston Independent School District, the largest district in Texas and seventh-largest in the country, has won the Broad Prize for urban education twice. Houston has also been called “the Silicon Valley of education reform,” with several highly successful charter school networks such as KIPP, Harmony, and YES Prep setting up shop in the city.

These schools and others within the Houston Independent School District will have much to do with Houston’s future success, which, in Murdock’s view, will come down to “how well minorities are going to do.” Murdock is optimistic, in part, because Houston’s minorities share the city’s basic culture of faith in hard work as a means of upward mobility. According to Rice University’s Houston Area Survey, 85 percent of Houstonians—including 79 percent of blacks and 89 percent of Hispanics—agreed with the statement “if you work hard in this city, eventually you will succeed.” Nationwide, this sentiment is shared by only 60 percent of those surveyed.
LYNN JOHNSON/NATIONAL GEOGRAPHIC
Encompassing scientific and technical jobs as well as blue-collar work, Houston’s energy industry is booming.
Not everyone is impressed by Houston’s growth and prospects. Critics dismiss the city’s development model as a disaster for the environment, quality of life, and civic culture. For the most part, they regard Houston as a cultural desert—a throwback to the sprawling postwar model of many American cities. “When one asks to see the social center of Houston,” scoffs architect Andrés Duany, “one is taken to the mall.”

But such statements don’t reflect a city where opportunity urbanism is shaping an impressively vibrant cultural landscape. A 2012 survey by Economic Modeling Specialists International (EMSI) of the city’s creative economy found 146,000 jobs, generating an annual economic impact of $9.1 billion. Houston is projected to have the largest gain in arts-related jobs by 2016 of any city in the study. Arts and culture expenditures totaled almost $1 billion per year in 2010, with total event attendance topping 16 million—numbers sure to grow, with almost 150,000 people per year moving into Greater Houston. The city boasts permanent professional resident companies in all of the major performing arts, including opera, ballet, symphony, and theater, and its theater district has more seats than any rival in the country, except for New York’s. Houston’s 18 museums attract 8.7 million visitors a year. This is no cultural backwater.

With their higher real incomes and lower taxes, Houstonians dine out substantially more than residents of any other major American city—and they’ve got lots of options. “You used to go to New Orleans for food and music,” notes Chris Williams of Lucille’s, a cutting-edge Houston restaurant that serves sophisticated Southern food. “Now you go down the block.” Taylor Francis, a 24-year-old advertising executive who moved recently from the Bay Area, points to restaurants like Underbelly, a popular Beard Prize–winning restaurant in the fashionable Montrose district. “My friends in the Bay Area rarely go out because it’s too expensive,” he said. “All their money goes to rent—but here, I can live in a roomy place and go out. There’s something attractive about that.” Houston’s leaders hope to lure more young people like Francis away from coastal cities such as Portland, Boston, New York, and Los Angeles. The city is building one of the nation’s most extensive bike systems and constructing a $215 million park system along its long-disdained bayous.

Marcus Davis, who grew up in the hardscrabble Fifth Ward, says that growth is simply part of the Houstonian ethos. “This place is pure opportunity, including for African-Americans,” he said at his successful and usually crowded restaurant, the Breakfast Klub, just outside downtown. Davis’s customer base includes young professionals and middle-class families. “This is a place where everyone wants to figure out how to do business. And since Houstonians like to do things over food, having a restaurant can be very lucrative.” The growth-friendly attitude is what holds everything together in Houston, and it will be crucial whenever the next slowdown comes—when oil prices could drop, say, to below $100 a barrel. It remains to be seen whether a large influx of newcomers to Greater Houston from the ocean coasts will clamor, as they have elsewhere—notably, in Colorado—for a more controlled, high-regulation urban environment.

For now, though, most Houstonians see the city as a place that works—for minorities and immigrants, for suburbanites and city dwellers—and few want to fix what isn’t broken. “The key to Houston’s future is to keep thinking about how to be a greater city,” notes David Wolff as he passes a new set of towers off the Grand Parkway. “This road, it wouldn’t be built in many places. People might talk about these things, but in most places, they don’t get done. In Houston, we don’t just talk about the future—we’re building it.”

Joel Kotkin is executive editor of NewGeography.com and Distinguished Presidential Fellow in Urban Futures at Chapman University, and a member of the editorial board of the Orange County Register. He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study, The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA. This article first appeared  in City Journal and is republished here with permission.

America's New Industrial Boomtowns

David Peebles works in a glass tower across from Houston’s Galleria mall, a cathedral of consumption, but his attention is focused on the city’s highly industrialized ship channel 30 miles away. “Houston is the Chicago of this era,” says Peebles, who runs the Texas office of Odebrecht, a $45 billion engineering firm based in Brazil. “In the sixties you had to go to Chicago, Cleveland and Detroit. Now Houston is the place for new industry.”

With upward of $35 billion of new refineries, chemical plants and factories planned through 2015 for Houston and the surrounding Gulf Coast, companies like Odebrecht, which runs chemical plants and is working on a new freeway in the area, have converged on the nation’s oil and gas capital. They are part of the reason why the Texas metropolis ranks first on our list of the best large cities for manufacturing.

Houston, with 255,000 manufacturing jobs, is not yet the country’s largest industrial center; it still lags behind the longtime leaders Los Angeles, with 360,000 manufacturing jobs, and Chicago, home to 314,000. But it is clearly on a stronger trajectory. Since 2008, Houston’s manufacturing workforce has expanded 5% while Los Angeles has lost 13% of its industrial jobs and Chicago’s factory workforce has shrunk 11%.

20140623_KotkinHouston is poised to overtake Los Angeles as the largest industrial center in the U.S.

Why Manufacturing Matters

Whether America is on the path to a sustainable industrial expansion or is just seeing a weak bounce back has been widely debated, but the recent numbers are impressive. Since 2010 the U.S. has added 647,000 manufacturing jobs. New energy finds have led to the construction and expansion of pipelines and refineries, and has sparked foreign industrial investment reflecting electricity costs that are now well below those in Europe or East Asia. Besides Houston, also ranking high on our big cities list are two other energy towns, No. 5 Oklahoma City and No. 10 Ft. Worth, Texas. Our mid-sized cities list is led by Lafayette, La., with nearby Baton Rouge in 11th place.

Evangelists of the “information economy” may think that industrial jobs are passé, as epitomized by a recent Slate article that recommended that working-class people from places like Detroit should move to areas like Silicon Valley or Boston where they can make money cutting the hair and walking the dogs of high-tech magnates. But the notion that U.S. manufacturing is doomed, and that the jobs are of lower quality than those in high-tech centers, is largely bogus; even in Silicon Valley the majority of new projected jobs are expected to pay under $50,000 annually. In contrast manufacturers pay above-average wages, in some cases due to unionization, but in many others because of the increasing sophisticated skills required by today’s factories.

Although we will likely never see a boom in factory employment on the scale experienced in the last century, the demand for blue-collar skills is projected to increase in future years. Among all professions for non-college graduates, manufacturing skills are most in demand, according to a study by Express Employment Professionals. By 2020, according to BCG and the Bureau of Labor Statistics, the nation could face a shortfall of around 875,000 machinists, welders, industrial-machinery operators, and other highly skilled manufacturing professionals.

Southern Comfort

Our research suggests that much of this growth will be in metro areas in the South and the Great Plains that are known for friendly business climates. New industrial investment is tending to go to places that are largely non-union, and feature lower taxes and light regulation. Epitomizing this trend is the No. 2 city on our large metro area list, Nashville-Murfreesboro-Franklin, Tenn., where manufacturing employment is up 6% since 2008. Nashville has become a hotbed for foreign investment in manufacturing, with the expansion of the Nissan facilities in nearby Smyrna, as well as a host of suppliers.

This is occurring, in part, because some large companies are shifting production to America from China in response to rising Chinese wages as well as sometimes unpredictable business conditions there.

Investment inflows, both from overseas and domestic companies, have boosted other standout southern industrial hubs, as well as the smaller metro areas on our mid-sized city list, notably Mobile, Ala. (third place), with its expanding industrially oriented port, and No. 14 Charleston-North Charleston-Summerville, S.C., which has been a beneficiary of major new foreign investment as well as the expanded presence of U.S. aerospace giant Boeing. The South also is home to our No. 1 small manufacturing city, Florence-Muscle Shoals, Ala.

The Resurgence of the Rust Belt

The progress is not confined to the Sun Belt. The resurgence of the U.S. auto industry has revived the economy of Warren-Troy-Farmington Hills, Mich., also known as “automation alley.” The home to many parts suppliers, engineering and tech support for the car industry, this area has enjoyed an impressive 12.7 percent growth in manufacturing jobs since 2008, placing it third on our big cities list.

Detroit, the center of the auto industry, ranks a respectable 16th on our big city list, but the big improvements in the Rust Belt are occurring in mid-sized cities such as Lansing-East Lansing, Mich. (eighth), Grand Rapids (ninth) and Ft. Wayne, Ind. (10th).

But arguably the strongest Rust Belt recovery has occurred in Elkhart-Goshen, Ind., third on our small cities list. Since 2008 Elkhart’s industrial employment — much of it in the recreational vehicle industry — has expanded 30%, one of the most dramatic employment turnarounds of any place in America. Unemployment has fallen to 5% from a recession high of 20.2%.

Western Exposure

The South and the Great Lakes may be America’s industrial heartland, but there are several strong pockets in the West. One region that is doing particularly well is the Pacific Northwest, led by Seattle-Bellevue-Everett, which has experienced 11% manufacturing employment growth since 2010.

Boeing is key here, but the Pacific Northwest’s industrial expansion has also been fueled by low electricity rates, largely due to the area’s strength in hydroelectricity. Portland-Vancouver-Hillsboro OR-WA (11th) is usually associated more with hipsters, but manufacturing growth has taken off, particularly with the expansion of Intel’s large semiconductor facility in suburban Hillsboro.

Another Western industrial hotspot is Utah, a state with low energy costs and business friendly regulation. Salt Lake City, 12th on our large metro area list, has enjoyed a 5.7% increase in industrial jobs since 2010. Growth has been even stronger in two other Utah cities, Provo -Orem and Ogden-Clearfield, which rank fifth and seventh, respectively, on our mid-sized cities list.

One surprising place where manufacturing is making a mild comeback is in the Bay Area, which for years has exported high-tech manufacturing jobs to places like Utah as well as the rest of the world. Despite ultra-expensive electricity, high labor costs and some of the world’s most demanding environmental laws, San Jose (13th on our big metros list) San Francisco-San Mateo-Redwood (15th) have posted solid industrial growth after years of decline. Yet both remain below their 2008 levels, and may find new growth difficult once the current tech bubble collapses.

Laggards

Two of the worst performers on this list are the big metro areas that have for decades been the country’s largest industrial hubs, Los Angeles-Long Beach-Glendale (55th) and Chicago-Joliet-Naperville (56th). It appears they lack the cost competitiveness and specialized focus of America’s ascendant industrial regions.

Another clear loser is the Northeast, which accounts for seven of the eight lowest ranked big metro areas. Since 2008, Philadelphia (62nd) has lost 21% of its once-large industrial job base, while New York City, which has been losing industrial jobs for decades, ranks 45th. Here, too, high costs and regulation are a factor, as well as the loss of industrial know-how resulting from long-term erosion of their manufacturing bases.

Of course, some information age enthusiasts may argue that losing such jobs is something of a badge of honor, since “smart” regions do not focus on the gritty business of making things. Yet if you look across the country, you can see that many of the strongest local economies, from Houston and Nashville to Seattle, have taken part in the U.S. industrial resurgence. It seems this is one party more worth joining than avoiding.

View the Best Cities for Manufacturing Jobs 2014 List

Joel Kotkin is executive editor of NewGeography.com and Distinguished Presidential Fellow in Urban Futures at Chapman University, and a member of the editorial board of the Orange County Register. He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study, The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA. This article first appeared at Forbes.com and is republished with permission from the author.

Reversing American Decline

Across broad ideological lines, Americans now foresee a dismal, downwardly mobile future for the country’s middle and working classes. While previous generations generally did far better than their predecessors, those in the current one, outside the very rich, are locked in a struggle to carve out the economic opportunities and access to property that had become accepted norms here over the past century.

20140604_Kotkin-1

This deep-seated social change raises a profound dilemma for business: Either the private sector must find a way to boost economic opportunity, or political pressure seems likely to impose policies that will order redistribution from above. It is doubtful the majority of Americans will continue to support an economic system that seems to benefit only a relative few. Looking at our unequal landscape, one journalist recently asked: “Are the bread riots finally coming?”

By 2020, according to the Economic Policy Institute, almost 30% of American workers are expected to hold low-wage jobs, with earnings that would put them below the poverty line to support a family of four. The combination of high debt and low wages has some projections suggesting millennials may have to work until their early 70s.

But our new pessimism and widening class divide stems not only from the concentration of wealth and power, but from the persistence of weak economic growth.

Neo-populist groups on the left and the right have risen to employ political pressure to try and assure a decent quality of life. Ideologically robust liberals, like New York Mayor Bill de Blasio, have emerged as national symbols of a movement in which cities have pushed strong moves like a $15 minimum wage (Seattle) and benefits for workers. Ironically, these are often the same places where wealth is most intensely concentrated and where the middle class has shrunk as a newly dominant, Obama-aligned Clerisy of public employee unions, government officials, academics and artists has gained the preponderance of political power.

The same sense of limited opportunity that drives the new progressives also motivates the popularity of libertarian and Tea Party activism on the right. Instead of state intervention, these groups have been attracted to the notion that removing barriers to economic growth will increase social mobility more effectively than redistribution by political fiat.

But these economic arguments that could generate more widespread support have been married with increasingly unpopular, often backward-looking social agendas that have allowed the Clerisy to portray them as fringe movements.

This has allowed Obama, de Blasio and others shape a new conversation centered on inequality, rather than growth. Oddly enough, it’s a model that relies on Europe’s example even as the continent’s own economic prospects appear dismal, and mainstream political parties there are registering their lowest levels of popular support in decades.

Though it can help some in the short run, there is little reason to think that more redistribution by the state would improve material conditions over the long term for our working and middle classes, let alone expand them. Rather, it might end up expanding our underclass of technological obsolete and economically superfluous dependents. The 50-year War on Poverty, for example, has achieved few gains since the 1960s despite fortunes spent. Instead, the only significant gains in poverty reduction, at least among those working, have come when both the economy and the job market expand, as they did during the Reagan and Clinton eras.

Clearly, as both those Presidents recognized, the best antidote to poverty remains a robust job market.

Yet even this progress has not helped the poorest of the poor, many of whom are marginally, if at all, connected to the workplace. Since 1980, the percentage of people living in “deep poverty”-with an income 50% below the official poverty line — has expanded dramatically. Despite now spending $750 billion annually on welfare programs, up 30% since 2008, a record 46 million Americans were in poverty in 2012.

It is possible that, as Franklin Roosevelt warned, a system of unearned payments, no matter how well intended, can serve as “a narcotic, a subtle destroyer of the human spirit” and reduce incentives for recipients to better their own lives.

The activist welfare-based philosophy, following the European model, would likely include not only historically poor populations, but part-time workers, perpetual students, and service employees living hand to mouth, who can make ends meet largely only if taxpayers underwrite their housing, transportation and other necessities. This trend towards an expansive welfare regime could be bolstered by our falling rates of labor participation — now at its lowest level in at least 25 years, and showing no signs of an immediate turnaround.

And the European model shows little evidence of the benefits of redistribution given the persistently high rates of unemployment, particularly among the young, across most of the EU; indeed much of the continent’s youth are widely described as a “lost generation.” Pervasive inequality and limited social mobility have been well-documented in larger European countries, including France, which has one of the world’s most evolved welfare states. It is even true in Scandinavia, often held up as the ultimate exemplar of egalitarianism, but where the gap between the wealthy and other classes have increased in Sweden four times more rapidly than in the United States over the past 15 years.

To be sure, progressive, or even ostensibly socialist approaches can ameliorate the worst impact of economic decline on lower-income people. But under left-wing governments — Socialists in France, New Labour in Britain and the Obama Administration in the U.S. — class chasms have increased markedly under leaders who insist their policies will reduce inequality. Much the same has occurred in countries with more conservative approaches.

In the absence of a focus on growing economies more rapidly and broadly, both political philosophies fall short.

But maintaining the prospect of upward mobility is central to the very idea of America. For generations, the surplus working class populations of the world have flocked here in search of opportunities unavailable in their home countries. In contrast, there remain few places for America’s aspirational classes to go.

Fortunately, the capitalist system, particularly under democratic control, allows for the possibility of reform. Take Great Britain, the homeland of the industrial revolution. In response to mass poverty and serious public health challenges during the 19th century, social reform movements led by the clergy and a rising professional class organized to address the most obvious defects caused by economic change. It is one of history’s great ironies that at the very time that Karl Marx was composing Das Kapital in the library at the British museum, life was rapidly improving for the British working class. Far from having “exhausted its resources” and precipitating all-out class war, the inequality so evident in mid-19th Century Britain began to narrow through natural economic forces and the growing power of working-class organizations. The working-class revolution in Britain, which Friedrich Engels insisted “must come,” never did.

Similarly, the Depression, brought on by what Keynes called “a crisis of abundance,” was addressed more by measures to spur mass demand than relying on redistribution. The New Deal, and then the Second World War, expanded government support for public works, education and housing, as well as infrastructure and research and development. Programs enacted then and after the war also encouraged widespread property ownership.

This state expansion was generally aimed at increasing economic opportunity-for example, by developing technologies that could stimulate new industrial sectors, new firms, and create new wealth. Today’s, on the other hand, is simply transferring income from one group to another.

Whatever criticisms can be made of mid-century America, during this period the nation transformed what had been a strongly unequal country into one where the blessings of prosperity were more broadly shared. In the 1950s, the bottom 90% held two-thirds of the wealth here. Today they barely claim half.

Sparking beneficial economic growth requires a shift in priorities, and thus presents a challenge to the new class order dominated by Wall Street, the tech oligarchy and their partners in the Clerisy. It is not enough merely to blame the so-called 1%, but to shift the benefits of growth away from the current hegemons, notably in the very narrow finance and high-tech sectors, and towards those involved in a broad array of productive enterprise.

The American economy’s capacity for renewal remains much greater than widely believed. Rather than a permanent condition of slow growth, the United States could be on the cusp of another period of broad-based expansion, spurred in part by its rapidly growing natural gas and oil production — a once-in-a-lifetime opportunity as cheap and abundant natural gas is luring investment from manufacturers from Europe and Asia, and providing good-paying American jobs.

This, along with growth in manufacturing, could spark better times for the middle class, as would the re-igniting of single-family home construction.

If America really wants to confront its growing class divide, it needs to spark such broad-based economic growth, rather than simply feathering the nests of the already rich, privileged and well-connected.

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About the Author:  Joel Kotkin is executive editor of NewGeography.com and Distinguished Presidential Fellow in Urban Futures at Chapman University, and a member of the editorial board of the Orange County Register. He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study, The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA. This story originally appeared at New York Daily News and is republished here with permission.

The City of Villages – Los Angeles

Los Angeles is unique among the big, world-class American cities. Unlike New York, Boston, or Chicago, L.A. lacks a clearly defined core. It is instead a sprawling region made up of numerous poly-ethnic neighborhoods, few exhibiting the style and grace of a Paris arrondissement, Greenwich Village, or southwest London. In the 1920s, the region’s huge dispersion was contemptuously described—in a quotation alternately attributed to Dorothy Parker, Aldous Huxley, or H. L. Mencken—as “72 suburbs in search of a city.” Los Angeles’s lack of urbane charm led William Faulkner to dub it “the plastic asshole of the world.” But to those of us who inhabit this expansive and varied place, the lack of conventional urbanity is exactly what makes Los Angeles so interesting. My adopted hometown is the exemplar of the modern multipolar metropolis: less a conscious city than a series of alternatives created by its climate, its diversity, and a congested but still-functional system of freeways that historian Kevin Starr calls “absolute masterpieces of engineering.”

20140416_Kotkin-1Photographs by Ted Soqui

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Transplants from the East Coast make great sport of belittling Los Angeles as an adolescent New York or a second-rate Chicago. Developers and city boosters, eager to counter that image, placed their hopes on big projects such as the region’s ultraexpensive rail system. Yet billions of investment dollars have done almost nothing to increase the L.A. Metro’s ridership, which remains stuck at 6 percent of city population. By contrast, a majority of New Yorkers and about a quarter of Chicagoans use their cities’ public transportation. Critics also (rightly) depict the downtown residential revival as a misguided attempt to create a mini-Manhattan. That’s not in the cards: downtown L.A.’s 50,000 or so residents—about on par with San Fernando Valley neighborhoods such as Sherman Oaks and suburban areas such as San Bernardino County’s Eastvale—are a drop in the bucket for a region of some 18 million people. And despite billions in direct and indirect public subsidies, downtown boasts barely 3 percent of the region’s jobs. In the minds of most Angelenos, the only reason to go downtown is for jury duty or the occasional sporting or cultural event.

20140416_Kotkin-2626 Night Market, at the Santa Anita track

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The “real” L.A., as experienced by most residents, exists at the neighborhood level. Spread across the region, a multiplicity of neighborhoods offers an unusual variety of housing options in a great global city. Gardener Aurelio Rodriguez and his family choose to live in Sylmar, where he keeps a lush half-acre filled with fruit trees, tropical plants, and aging farm equipment, while remaining within the Los Angeles city limits. It’s the kind of place where pedestrians need to keep an eye out for more than just cars. Like Juan, some residents amble through the narrow streets on horseback.

20140416_Kotkin-3Juan on horseback in Sylmar

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Los Angeles’s myriad little villages are enjoying a new surge of interest. City politics are at a low ebb—with voter turnout in 2013 the tiniest ever for a contested citywide election—yet neighborhood groups proliferate, including some 90 neighborhood councils. People may not be passionate about what goes on at City Hall, but they care deeply about where they live.

I live in Valley Village, a tree-lined corner of Los Angeles made up of single-family houses built on lots that range from 5,000 to 20,000 square feet. Enclosed between four major thoroughfares, my part of Valley Village manages to be both diverse and highly cohesive—a city within a city. Crime tends to be limited to petty thefts from cars. Monthly neighborhood-watch meetings draw middle-class families as well as gay and childless couples. Armenians and orthodox Jews live side by side. The local markets have an ethnic flavor. At the Cambridge Farms supermarket on Burbank Boulevard, signs are posted in English and in Hebrew. Oxnard Boulevard has an Armenian feel, with a functioning lavash bakery and restaurants selling kabobs.

“We fell in love with the neighborhood once we got settled in,” says Grettel Cortes, who lives in a modest house several doors down with her husband, Efraim, and her three young children, Gaea, Eva, and Benjamin. “There’s a great family feeling here. If I need something, I ask Patty across the street. It’s a great place for kids to grow up.” Cortes manages the neighborhood’s heavily trafficked Shutterfly site. A recent article about a coyote devouring a local cat was big news for weeks.

The hot topic in Valley Village these days is the rise of the McMansions. New homes are going up on a scale that feels out of sync with the neighborhood’s low-rise character. One of the larger parcels has sprouted a gigantic, two-and-a-half-story monstrosity that neighbors have christened “the hotel.” During construction, the property’s owner chopped down several trees, some of which may have been protected by city ordinances. Only relentless protests from the locals kept him from further destruction.

“We love the neighborhood but hate the mansionization,” notes Tim Coffey, a 30-year resident whose wife, Chary, led the fight to save the trees. “To us, chopping down trees ruins what this place is all about.”

Despite the McMansions, Valley Village has remained mostly unchanged since I moved here over a decade ago. The area’s appeal lies in the quality of its private spaces—backyards, front yards, gardens—and its neighborliness: people actually say hello to strangers on the street. The many trees also provide an ecosystem for a vast array of birds, from hawks to hummingbirds, as well as various mammals, including raccoons, opossums, and, as we now know, the occasional coyote.

As neighbors, we share a fierce determination to protect and preserve our shaded enclave. Yet the people here are not your stereotypical suburbanites. Chary, for example, sells her own line of lingerie. Grettel is a website developer. Many others work in the entertainment industry. Studios such as Disney, CBS Radford (where Seinfeld was produced), NBC, Universal, and Warner Brothers are all a ten- to 15-minute drive away. Many of my neighbors work from home, including a voice-over artist, a scriptwriter, several actors and musicians, and even a magician. It turns out that Hollywood people want many of the same things from a neighborhood that the rest of us do.

20140416_Kotkin-4Grettel Cortes’s neighbor Patty

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20140416_Kotkin-5Blind Melon guitarist Brad Smith

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Native Mississippian Brad Smith, a successful songwriter and performer with the band Blind Melon, sees Valley Village as a refuge from the insanity of the entertainment business. Brad and his wife, Kim, a Michigan native, like the homey and familiar feel. They have lived here since 2000 and are raising a young daughter, Frankie. They have a dog and a trampoline out back. “In L.A., a lot of places seem like you can live there but never leave the car,” he says as he strums a tune in his backyard. “But here, it’s different. You come home from tour, and you come to a neighborhood with dogs, cats, and kids. It makes living in the big city far more palatable, even for someone from a small town.” This is one of L.A.’s enduring charms: the option to live in a quiet neighborhood in the heart of an important city.

Los Angeles is constantly reinventing itself, combining and recombining people and neighborhoods from the ground up. Out of its crazy quilt of ethnic enclaves, new districts arise all the time, often spontaneously, notes Thomas Tseng, a native of the suburban San Gabriel Valley and a student of urban planning. Take the neighborhood now known as “Little Osaka,” which follows along Sawtelle Boulevard in West Los Angeles. Forty years ago, when I lived there, the area was home mostly to working-class Japanese and Mexican families. The few modest restaurants were far from fashionable, mostly offering ethnic home-style cuisine. But over the past few years, Tseng says, many of the old families—as well as investors from Korea, Taiwan, and China—have opened new restaurants, bars, and clubs in the neighborhood. Far from the downtown hotspots and the Hollywood scene, Little Osaka’s streets bustle with young people, a majority of them Asian. Many live in the area or attend nearby UCLA. “There was nothing planned,” says Tseng, who has been getting his hair cut and belly filled in the area for years. “It just happened.”

20140416_Kotkin-6Little Osaka

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20140416_Kotkin-7Little Osaka

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Even more impressive is the 626 Night Market in the parking lot of the Santa Anita Track. Every month, some 160 food vendors descend on the place. You can get everything from preserved fertilized eggs to sea-urchin rice balls (my favorite), lamb skewers, stinky tofu, and grilled squid. Up to 40,000 people gather in this monthly celebration of L.A.’s entrepreneurial grassroots food scene. After all, Los Angeles invented the food truck—the perfect analogy for a city perpetually on the road and spanning hundreds of neighborhoods.

Los Angeles may lack the kind of dynamic urban core that we associate with traditional great cities. But to most of its residents, the city is an urban feast on a gourmet scale. We wouldn’t trade it for the world.

About the Author:  Joel Kotkin is executive editor of NewGeography.com and Distinguished Presidential Fellow in Urban Futures at Chapman University, and a member of the editorial board of the Orange County Register. He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study, The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA. This story originally appeared at City Journal and is republished with permission. Photographs are by Ted Soqui.

Pension Funds and the "Asset" Economy

“You can’t build a society on artificially inflated asset values, because that accelerates the class division. Immigrants know that even if they work in a low-paying job in a hotel in Houston the chances they can save and buy a house are infinitely better than in California. If you want to have an asset based economy then accept we’re going to have feudalism because the price of entry is just too high.”
– Joel Kotkin, CPPC Interview, January 4, 2014

What Kotkin is referring to is the result of decades of increasing legislative restrictions on cost-effective land and energy development, combined with Federal Reserve policies designed to minimize the cost of borrowing. In the first case, prices for land and energy, the building blocks of a healthy economy, are artificially inflated through constraints on supply. In the second, the supply of borrowed money is artificially increased via ultra-low interest rates.

This so-called “asset economy” might also be called a “bubble economy,” because it cannot be sustained indefinitely. For a while, inflated values of real estate, privately owned natural resources and business inventories provide collateral for additional borrowing at low interest rates, which puts even more money into circulation, bidding the price of assets up even further. Meanwhile, environmentalist legislation of increasing severity continues to restrict supplies of land and energy, driving prices of marketable land and energy higher still. And the bubble grows.

This is the real reason California is unaffordable for working families. Anywhere within 100 miles of the California coast, homes “priced to sell” at $400,000, cost more than six times California’s median household income of $61,400. Thanks to their inflated price, these homes will come with a hefty property tax bill – including local assessments – of over $5,000 per year, and if they were built anytime in the last 20 years or so, there’s a good chance you can tack another several thousand per year of “Mello Roos” assessments – property taxes by any other name.

Who benefits from the asset economy? The answer may surprise you.

The obvious beneficiary of inflated asset values is the proverbial Wall Street crowd. Every time the closing bell rings on an uptick, the trading minions in lower Manhattan clink their martini glasses and bellow with predatory glee. We get that.

Who else benefits from the asset economy? Consider this statement, courtesy of the SEIU, found on their “Fact Check on Public Employees’ Pensions” website page:

“Are taxpayers the ones who foot the bill for public workers’ pensions?

In a word, no. The modest amount the average public worker takes home is covered largely through investment returns–not the emptying of taxpayers’ pockets.”

This quote, “investment returns,” lies at the crux of the disagreement over both the financial sustainability of public sector pensions, and whether or not they constitute an unfair burden on taxpayers. Because in this low-interest rate economy, where the prime lending rate is 3.25% and the 30 year fixed rate mortgage is 4.25%, public employee pension funds are investing all over the world, essentially loaning money at 7.5% interest.

You heard that right. They are loaning money at 7.25% interest. Because the only real difference between an investment and a loan is when investments don’t return the expected rate to the investor, the “borrower” doesn’t have to pay the money back.

One primary reason pension funds have the expectation they can earn 7.5% interest per year is because they are placing more and more of their investments with private equity firms and hedge funds, whose charter is to beat the market – at great risk. Most of the rest of their funds are invested in publicly traded equities or real estate assets – i.e., profitable corporations and corporate holdings whose values currently appreciate at unsustainable rates, thanks to ultra-low interest rates and artificial constraints on supplies in markets where they have monopolistic power.

And in one very important sense, pension funds may be explicitly considered lenders, not investors, because if they fail to earn 7.5% per year on their investments, they have the power to increase the required contributions from the government employers of their beneficiaries. The taxpayers, you see, guarantee those 7.5% annual returns.

It would be hilarious if it weren’t so dangerously prolonging an honest reckoning – the ability of public sector union spokespersons to demonize pension reformers as “tools of Wall Street.” Because it is their pension funds who pour more money into Wall Street than any other financial special interest, and who carry the unique power to cover their losses on the backs of taxpayers. Equally significant, but far more subtle, is that pension funds depend on artificially high costs of living, through artificially appreciating asset values, to ensure their high returns and continued precarious solvency, also on the backs of working people.

Blue-Collar Hot Spots: The Cities Creating The Most High-Paying Manufacturing Jobs

It’s a common notion nowadays that American blue-collar workers are doomed to live out their lives on the low-paid margins of the economy. They’ve been described as “bitter,” psychologically scarred and even an “endangered species.” Americans, noted one economist, suffered a “recession” but those with blue collars endured a “depression.”

Yet in recent years, according to research by Mark Schill of the Praxis Strategy Group, there’s been a strong revival in higher-paid blue-collar industries in many of our largest metropolitan areas, and the momentum is, if anything, building. Schill analyzed employment changes from 2007 to 2013 among a group of higher-paying blue-collar industries: oil and gas and mining; construction; manufacturing; and wholesale trade, transportation, warehousing and waste handling. Compensation in these sectors average $58,000 a year; in oil and gas, pay tops $100,000. In any case, these fields pay far better than alternative sources of employment for people without college degrees, such as retailing ($27,500), food service ($16,000), hospitality, or the arts ($31,000). Nationally, this cross section of higher-value blue-collar industries employs 31.3 million people, just more than a fifth of the nation’s workforce, up 1.3 million jobs since 2010.

This blue-collar resurgence seems likely to be more than a merely cyclical phenomenon. The U.S. edge in energy and manufacturing, increasingly linked, has sparked major new investments by both domestic and foreign producers. The new energy finds have created employment in the construction and operation of such things as pipelines and refineries, and have also led manufacturers to plan new factories here due to electricity and feedstock costs that are now well below those in Europe or East Asia.

The Boston Consulting Group suggests other factors sparking this revival. This includes rising wages in China as well as sometimes unpredictable business conditions that are leading some large U.S. companies to move some production to America from China.

Overall, since 2010 the number of high-value manufacturing jobs is up 167,000 in the 52 largest metropolitan areas while energy extraction added 50,000 positions. (Heavily subsidized renewables enjoyed a much smaller increase.) The wholesale trade and material handling sectors have added almost 300,000 jobs in that time. And as the economy has recovered somewhat, demand for housing, including in some once distressed exurban areas, has sparked a nascent revival in higher-paying construction employment. This key blue-collar sector, devastated by the recession, has gained roughly 200,000 jobs since 2010.

This revival is not evenly spread. The big winner is the Houston metro area, in large part due to the energy industry, which has added 23,000 jobs since 2010. It also reflects local growth in the high-wage manufacturing (up 30,000 jobs) and trade and transport sectors (up 26,000), while construction employment has surged nearly 20,000, a number matched only by the much larger New York metro area. Houston tops our list of the cities creating the most good blue-collar jobs. (Our ranking is based 50-50 on growth from 2007-13 and 2010-13.) Not far behind in second place is Oklahoma City, which has clocked a similarly broad increase, led by 28% growth in energy employment, 6% in construction and 15% in manufacturing.

Many of the other metro areas in our top 10 fit the same mold — traditionally business-friendly Sun Belt locales with strong energy sectors, and expanding manufacturing.

A Surge In The West

The Intermountain West also continues to create manufacturing and trade jobs at a rapid rate. This region’s blue-collar star is Salt Lake City, which places seventh on our list, led by a strong expansion in energy sector employment and trade and transport, with decent growth in manufacturing.

It’s not merely a “red state” phenomena. Progressive-dominated Denver places 11th on our list, with 32% growth in energy jobs as well as a 10% increase in construction employment. Similarly Portland (9th) and Seattle (10th) have produced more opportunities for blue-collar workers. This has been paced largely by strong growth in manufacturing, aided by low energy costs from hydro. Intel is building a large new factory near Portland, while Boeing has continued to add jobs in the Seattle area – its headcount in Washington State is up 17% since 2010.

Construction has also been healthy, in part due to migration from more expensive California, as well as trade, which ties into the region’s close ties to the Pacific Rim.

In contrast the “big enchilada” economies of California have lagged, and overall employment in high-paying blue collar sectors remains well below 2007 levels. But since 2010, there has been a modest uptick in manufacturing and construction in San Jose/Silicon Valley, which ranks 13th on our list, while San Francisco (16th) has seen some recovery in the transportation and trade sectors.

The Revival Of The Rust Belt

No part of the country is more associated with high-paid blue-collar work, and its decline, than the Rust Belt. Employment in most Rust Belt cities is well below 2007 levels, but since 2010 there has been a resurgence in high-paying manufacturing industries, led by the third-ranked Detroit area, which added 37,000 jobs.

This is clearly tied to the recovery of the U.S. auto industry. The East and West Coast media love to yammer about the demise of the car, but the industry’s production has returned to 2007 levels and automakers are investing in the region. GM has committed to spend over $1.3 billion to upgrade five factories in Ohio, Indiana, Detroit and the nearby Michigan cities of Flint and Romulus.

It’s more than an autos story in the region. Grand Rapids, which has a highly diverse manufacturing sector, including many furniture companies, has increased industrial employment 16% since 2010, putting it fourth on our list. Other Rust Belt metro areas making a blue-collar comeback are Louisville, Ky. (12th), Minneapolis (15th), Columbus, Ohio (18th), and Pittsburgh (19th).

The Laggards

Some metro areas have continued to lose high-wage blue-collar jobs, led by Las Vegas (down 4.2% since 2010), Orlando (-13.6% since 2007), Providence, Rochester and Philadelphia. Our two largest industrial metro areas, Chicago and Los Angeles, have seen slow growth, ranking 25th and 28th, respectively. Rapidly de-industrializing New York ranks 35th, despite the metro area’s surge in construction employment.

Yet overall, demand is rising for highly skilled workers at U.S. industrial and energy companies.

At a time when the wages of college graduates have been falling, it might behoove more young people to realize that, in many cases, a degree in art is not worth as much as a certificate for machining, welding, plant management or plumbing. Some metro areas are bolstering their efforts in this area, notably New Orleans, Columbus, Nashville and even creative class-oriented Portland.

To be sure, the golden days for working-class employment are over, but the future may prove to be a lot less dismal, particularly in some regions, than generally proclaimed by those who have rarely seen in the inside of factory or a refinery.

Blue Collar Industry Growth Index

20140210_Kotkin

Data source: QCEW Employees, Non-QCEW Employees & Self-Employed – EMSI 2013.4 Class of Worker. Analysis by Mark Schill, Praxis Strategy Group, mark@praxissg.com. The analysis covers 37 “blue collar” industry sectors at the 3-digit NAICS classification level, each averaging at least $40,000 in average annual pay (including benefits). Industries include oil and gas extraction, utilities, heavy and specialty construction, most manufacturing, merchant wholesale industries, most transportation sectors, warehousing and storage, and waste management.

This story originally appeared at Forbes.com and is republished here with permission from the author.

About the Author:  Joel Kotkin is executive editor of NewGeography.com and Distinguished Presidential Fellow in Urban Futures at Chapman University, and a member of the editorial board of the Orange County Register. He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study, The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA.

Anti-Sprawl Policies Threaten America's Future

Among university professors, government planners and mainstream pundits there is little doubt that the best city is the densest one. This notion is also supported by a wide number of politically connected developers, who see in the cramming of Americans into ever smaller spaces an opportunity for vast, often taxpayer-subsidized, profiteering.

More recently density advocates cite a much-discussed study of geographic variations in upward mobility as suggesting that living in a spread-out city hurts children’s prospects in life. “Sprawl may be killing Horatio Alger,” quipped economist and New York Times columnist Paul Krugman.

Yet the study actually found the highest rates of upward mobility not in dense cities, but in relatively spread-out places like Salt Lake City, small cities of the Great Plains such as Bismarck, N.D.; Yankton, S.D.; and Pecos, Texas — all showed bottom to top mobility rates more than double New York City. And we shouldn’t forget the success story of Bakersfield, Calif., a cityColumbia University urban planning professor David King wryly labeled “a poster child for sprawl.” Rather than an ode to bigness, notes demographer Wendell Cox, the study found that commuting zones (similar to metropolitan areas) with populations under 100,000 — smaller cities that tend to be sprawled by nature  —  have the highest average upward income mobility.

“Sprawl” did not kill Detroit, as Krugman suggests in his previously mentioned column, the city did that largely to itself. Another like-minded critic, historian Steven Conn,  blames the auto industry for the city’s problems, perhaps not recognizing Detroit would be little more than a more southerly Duluth without it.

There are at least three major problems with the thesis that density is an unabashed good. First, and foremost, Census and survey data reveal that most people do not want to live cheek to jowl if they can avoid it. Second, most of the attractive highest-density areas also have impossibly high home prices relative to incomes and low levels of homeownership. And third, and perhaps most important, dense places tend to be regarded as poor places for raising families. In simple terms, a dense future is likely to be a largely childless one.

Let’s start with something few density advocates consider: what people want and what they would choose if they could. Roughly four in five buyers, according to a 2011 study commissioned by the National Association of Realtors, prefer a single-family home. This preference can be seen in the vastly greater construction of single-family houses in the past decade: Between 2000 and 2011, detached houses accounted for 83% of the net additions to the occupied U.S. housing stock.  The percentage of single-family homes in the total housing mix last decade was more than one-fifth higher than in the 1960s, 1970s and 1980s.

Contrary to the conventional wisdom, the pattern is not likely to end, barring a longer-term recession or government edict. As the number of households once again begins to rise and birthrates tick up, single-family homes are once again leading housing growth.

Buyers of single-family homes are not necessarily embracing exurban lifestyles so much as reacting to basic economic factors. In many cases the nicest single-family districts closest to work and amenities are prohibitively expensive — think Beverly Hills or Studio City in the L.A. area, Bethesda near Washington, or Evanston outside Chicago. People move further out in order to afford something better than an apartment.

The last decennial Census shows us definitively that people tend to head toward the periphery. Barely 6% of Americans live in densities of over 10,000 per square mile, and the fastest-growing central cities between 2000 and 2010 — such as Raleigh, Charlotte and Austin — have average densities less than a third as intense as places like New York, Chicago, Or Los Angeles.

Overall, domestic migrants tend to be moving away from these denser metropolitan areas. Between 2000 and 2010, a net 1.9 million people left New York, 1.3 million left Los Angeles, 340,000 left San Francisco, while 230,000 left San Jose and Boston. In contrast, some of the largest in-migration has taken place over the past decade, as well as since 2010, in relatively sprawling cities, including Houston, Dallas, Ft. Worth, Tampa-St. Petersburg and Nashville.

Our perceptions of density are often distorted by media coverage, which tends to revolve around city centers. To be sure many downtown areas have experienced impressive growth, but this accounted for less than 1% of the 27 million expansion in the U.S. population between 2000 and 2010. In reality virtually all net population growth in the nation took place in counties with under 2,500 persons per square mile. The total population increase in counties with under 500 people per square mile was more than 30 times that of the growth in counties with densities of 10,000 and greater.

Some inner suburbs may be struggling adjacent to some hard-pressed cities, as is often highlighted by density advocates, but they are thriving in areas where prices are reasonable and the economy is strong. In Houston, arguably America’s most economically vibrant big metro area, over 80% of homes sales in 2012 were outside Beltway 8, the city’s second ring. The city’s inner ring, inside the 610 loop, has experienced an impressive revival, but still it only accounted for 6% of home sales last year.

There is clearly a growing chasm between affordable, family-friendly cities and those that, frankly, are not. Until the 1970s, in virtually all American metropolitan areas, a median-priced home cost roughly three years’ median income. This equilibrium was smashed by the imposition in some states of “smart” land-use policies that seek to limit or even prohibit suburban building, huge impact fees, as well as in some markets,  massive investment from speculators.

As a result, many of the metro areas beloved by density advocates, such as New York and San Francisco, now have median home price multiples well over 6 or 7; if current trends continue, they could, as occurred during the last housing boom, reach upward of 10. Not surprisingly, these areas all have low rates of homeownership compared to the national average.  For example, in New York and Los Angeles, the homeownership rate is half or less than the national figure of 65%. This is particularly true among working class and minority households. Atlanta’s African-American home ownership rate is approximately 40% above those of San Jose and Los Angeles, approximately 50% higher than Boston, San Francisco and Portland, and nearly 60%  higher than New York.

All these factors are particularly relevant to one group: families. Much of contemporary urban theory rests on the idea of weakening family connections: fewer marriages and lower birthrates will decrease the appetite for lower-density housing. Families do not make up the prime market for dense housing; married couples with children constitute barely 10% of apartment residents, less than half the percentage for the population overall.

Families also generally settle in less dense parts of cities, suburban or exurban areas;  the places with the lowest percentage of households with children include favored abodes of the  density lobby such as New York (particularly Manhattan), as well as Chicago, San Francisco and Seattle. In contrast the metropolitan areas with the strongest growth in their child populations — Raleigh, Austin, Charlotte, Dallas, Houston, Oklahoma City — have much lower densities and far smaller urban cores.

This flight from density among families is not merely an American phenomena. There are far higher percentages of families with children in the suburbs of Tokyo, London and Toronto than within the inner rings. The ultra dense cities of East Asia — Hong Kong, Singapore and Seoul — have among the lowest fertility rates on the planet. Tokyo and Seoul now have fertility rates around 1 while Shanghai’s has fallen to 0.7, among the lowest of any city ever recorded, well below China’s “one child” mandate and barely one-third the number required simply to replace the current population.

Some have suggested that the Obama administration is conspiring to turn American cities into high-rise forests. But the coalition favoring forced densification — greens, planners, architects, developers, land speculators — predates Obama. They have gained strength by selling densification, however dubiously, as what planner and architect Peter Calthorpe calls “a climate change antibiotic.” Not surprisingly, there’s less self interest in promoting more effective greenhouse gas reduction policies such as boosting  work at home and lower-emissions cars.

The density agenda need to be knocked off its perch as the summum bonum of planning policy. These policies may not hurt older Americans, like me, who bought their homes decades ago, but will weigh heavily on the already hard-pressed young adult population. Unless the drive for densification is relaxed in favor of a responsible but largely market-based approach open to diverse housing options, our children can look forward to a regime of ever-higher house prices, declining opportunities for ownership and, like young people in East Asia, an environment hostile to family formation. All for a policy that, for all its progressive allure, will make more Americans more unhappy, less familial, and likely poorer.

Joel Kotkin is executive editor of NewGeography.com and Distinguished Presidential Fellow in Urban Futures at Chapman University, and a member of the editorial board of the Orange County Register. He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study, The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA. This article originally appeared in Forbes Magazine and is republished here with permission from the author.

Paradise Lost – California is not too big to fail

One early December morning, Las Vegas police moved in on the Silverton Hotel and Casino, just off the Strip and known for its 117,000-gallon aquarium. There, having located a getaway black Audi with no license plates, they arrested 31-year-old Ka Pasasouk—a Laotian immigrant with a violent history who had eluded deportation as well as imprisonment. The Dragnet-style work came less than 24 hours after police back in Northridge, a Los Angeles suburb known for a state university campus, discovered what they called a “very grisly tableau.”

Outside an overcrowded boarding house, described in press accounts as unlicensed, lay the bodies of two men and two women, whom Pasasouk has now been charged with murdering. The story captured attention up and down the already tense state, where the phrase “grisly tableau” could easily have found wide use in the ubiquitous conversations about California’s economic, political, and social decay. America’s promised land has turned dystopian.

Especially in the movies, Californians do love to imagine how the forces of darkness could bring an Armageddon-like end to their earthly paradise. That is because, as they leave the theater, it has always still been paradise. Lately, however, life outside the cineplex has also turned dark.

The image of idyllic California, as cable watchers from coast to coast know, took another devastating blow in mid-February, when the disgruntled former LAPD officer Christopher Dorner went on his wild, manifesto-driven killing spree. In the frantic, weeklong manhunt, during which police officers managed to shoot innocent civilians who stumbled in their way, a sense of unloosed anarchy descended.

Dorner and Pasasouk. The first a crazed ex-cop who, amid his quadruple murders, managed to tweak a race-troubled LAPD history into a PR campaign that stymied public information officers and even, appallingly, gathered a measure of public admiration. The second a near-perfect symbol of the breakdown of liberal institutions. Both accentuating the sense that everything is falling apart in the storied state.

A civic unease runs through California these days. Premonitions abound of terrible things ahead. Not the space invaders or blade-runners of cinematic imagination, but padlocked -public services, interminable DMV lines, closed classrooms, off-limits recreational areas, public employee strikes, inadequate or nonexistent police, fire, and medical responses.

Just days before the Northridge slaughter, San Bernardino city attorney Jim Penman addressed a crowded city council meeting in the wake of an elderly woman’s murder, telling residents of the bankrupt municipality to “lock their doors and load their guns.” Penman was not alone among California city officials forced to slash law enforcement budgets. Nor did he back down amid the predictable media tut-tutting: “You should say what you mean and mean what you say.”

California voters in November overwhelmingly pulled the lever for a one-party state. Democrats control the governorship, statewide offices, and veto-proof legislative majorities—all beholden to powerful state employee unions. If the recent standoffs with such unions in Wisconsin and Michigan seemed dramatic, just wait for the coming epic in California, a state known for manufacturing drama. No prospective Scott Walker or Rick Snyder, the governors of Wisconsin and Michigan, appears on the political horizon. But that doesn’t mean peace with the unions—the money to buy it doesn’t exist. So there will be a budget war of multiple battles and skirmishes. With Republicans already prostrate, some joke darkly—this, mind you, in the land of Reagan and “sunny optimism”—of adopting a Leninist approach: Let it all collapse .  .  . break the whole egg carton .  .  . build on the ruins .  .  . make lots of morning-after omelets. A dark scenario indeed, but name another more likely for Republicans.

To be sure, and before the joke is taken seriously, Lenin actively instigated disorder and turmoil, the better to erect his totalitarian structure and, yes, his one-party state. The gallows humor of California Republicans is strictly passive; they are resigned to let nature take its course, the better to dismantle failed structures and launch productive, pluralistic systems consistent with freedom. The state’s new political dispensation gives Republicans no alternative other than to be ready with workable proposals after the fall.

The grim conversations begin and end with public safety, but every conceivable policy issue—the economy, education, the environment—has made its way into the crucible, testing whether a state can survive with a prosperous, enlightened populace under the political left’s expensive, freedom-killing programs. Our Burkean libertarianism tells us that California’s current travails will prove it cannot.

Take Ka Pasasouk (please). Now charged with orchestrating four homicides, the Laotian had stuck his thumb in the eye of California’s criminal justice and immigration bureaucracies for more than five years. Charged with felonies ranging from auto theft and assault to illegal drug possession, Pasasouk, against probation department recommendations, last September was moved from jail to a drug diversion program by the Los Angeles District Attorney’s Office. Upon his release from state prison in 2008, authorities sought to deport him but failed to file requisite paperwork, the Southeast Asian thus becoming emblematic of government failure to serve and protect the public.

With California already under a U.S. Supreme Court mandate to relieve inmate overcrowding by multiple thousands, the Pasasouk case pricked the anxieties of a public already alarmed by what violent crimes may await them. At the end of the year the Sacramento Bee reported that gun sales had jumped dramatically—600,000 last year alone, up from 350,000 in 2002. Giving credence to the argument that more guns equal fewer crimes, gun injuries and deaths also plummeted over a corresponding period, the latter by 11 percent, though the Bee, not without an ideologically satisfactory explanation, attributes the improved numbers to “a well-documented, nationwide drop in violent crime.” Sure.

More recently, reports the San Francisco Chronicle, Oakland police last year arrested 44 percent fewer suspects on violent and other charges than in 2008—not because of shrinking crime rates but because of a triage policy adopted in the face of lower budgets. Notoriously, Oakland maintains the state’s highest crime rate. Last year saw “a 23 percent spike in murders, muggings and other major offenses.”

The political left may chortle that gun purchasers are panicking, but the reality is that more municipalities are likely to fall into bankruptcy (Moody’s warns of 30 more, joining Stockton and San Bernardino), severely cutting police, court, and jail budgets. State Treasurer Bill Lockyer, a man of the left, in December commissioned an economist and a research group to create a “default probability model” for city bonds.

Stirred into the state’s social instability are the swelling legions of school-aged youths now taking to the streets. Oakland-based Children Now’s research director Jessica Mindnich reports that, over the past dozen years, the number of young people neither in schoolrooms nor in workplaces has grown by 200,000, or 35 percent, disquieting to those who assumed that future generations, if cradled in good intentions, would surpass the achievements of their elders.

In a recent Google search of “prisoner release,” before we could finish typing the second, perfectly appropriate word, the screen suggested instead “prisoner realignment,” which is the Democrats’ euphemism for their response to the Damoclean order by the Supreme Court from May 2011. The idea was to shift “non-violent, non-serious, non-sex offenders” from the state’s prisons into already over-burdened county jails or alternatives such as home detention.

Some 9,000 prisoners were released under the program, with projections of more than three times that number to be freed. Over the nine months before the Public Safety Realignment Act of 2011 was enacted, according to law enforcement officials, property crimes had dropped 2.4 percent. In the nine months following its passage in early April of that year, property crimes rose 4.5 percent. Naturally, scholars are available to tutor the public on the difference between correlation and causation. The public—not to mention the law enforcement community—is not reassured.

Which brings us to the governor, 74-year-old Jerry Brown. Before defeating Republican Meg Whitman in 2010, Brown put in time as state attorney general and mayor of the aforementioned Oakland, not to mention two antic terms as governor back in the 1970s and ’80s—when many who voted for him this time around were not yet born. They might have heard about him as a colorful, iconoclastic, “Zen” chief executive who slept on the floor and dated a rock star, and who at least was not the dread millionaire Meg Whitman. But they knew little else and took the leap.

Unless they were public employees voting out of gratitude, the new-generation, low-information voters likely didn’t know it was Brown who, in his moonbeam years, allowed state workers to unionize in the first place, a decision that propelled the Golden State into decades of budgetary troubles and brought it to its current precipice. Besides placating unions, he also saddled businesses with a slew of environmental regulations and halted highway construction, the makings of a 30-year plague.

Let it not be said that Brown fails to tease and confound commentators, who need him to be fresh. Even in his first gubernatorial incarnation, as he marched to the left, he could come across as a kind of New Age conservative, pinstriped and looking for all the world like a young Churchill in the glow of a parliamentary speech. On alternate days he would make his “small is beautiful” philosophy seem to apply to state government, which to the sober-minded raised questions about his credibility.

In this January’s “State of the State” speech to the legislature, Brown, strangely complimenting his audience for their fiscal discipline, treated us to more of his philosophical eclecticism. He quoted the biblical story of Joseph, cited the Catholic principle of subsidiarity, and, as the pièce de résistance, offered this from Montaigne: “The most desirable laws are those that are the rarest, simplest, and most general; and I even think that it would be better to have none at all than to have them in such numbers as we have.”

Such messages may quicken the libertarian pulse, but only the most naïve could imagine the governor means to roll back big government rather than spread confusion about his direction. Last November, when voters approved his Proposition 30 to raise both income and sales taxes by $50 billion, he spread confusion to a national audience. CNN’s Candy Crowley, invoking the state’s property tax-limiting Proposition 13 of 1978, asked if he thought the birthplace of the tax revolt could now be “the start of a tax-increase sweep.” Brown answered:

Yeah, I do. I was here in 1978, when [the late Prop. 13 author] Howard Jarvis beat the entire establishment, Republican and Democrat, because the property taxes had just gotten out of control. Now the cutting, the cutting and the deficits are out of control. Our financial health, our credibility .  .  . as a nation that can govern itself, is on the chopping block.

Of course, he didn’t specify any “cutting” or “chopping” that he had in mind. Californians with long enough memories know that he was a ferocious opponent of the Jarvis amendment. Once voters overwhelmingly approved it, the “maverick” young governor miraculously remade himself into the measure’s chief exponent and champion. That sort of fast footwork made him legendary and, on occasion, a presidential contender, if usually too clever by half.

He’s still capable of the occasional magic act. A mere month after last fall’s election he announced—abracadabra!—a balanced budget. A “breakthrough,” he called it, pretending his ingenious abstemiousness had taken a giant step toward restoring California’s economic health. One Facebooking schoolteacher even suggested the governor was more frugal-minded than that notorious Republican budget cutter, Wisconsin representative Paul Ryan. Oddly enough, no disgruntled public employees emerged to produce a television spot of Governor Brown wheeling Grandma over a cliff.

Why not? Well, for one thing, Brown claimed that, while balancing the books, he had managed to find $2.7 billion more for schools and an extra $500 million for the university system while keeping a $1 billion reserve fund. Truly, a miracle worker. Moody’s, on record as expecting municipal meltdowns, was sufficiently impressed to keep the state’s ranking at A1—with the caveat that the presumed surplus would be used to pay down the debt. Standard & Poor’s upgraded its rating by a single notch.

Only one problem. The vanished deficit may be the least credible trick Jerry Brown has pulled in his cynicism-breeding career. Wyatt Buchanan of the San Francisco Chronicle explained the “convenient budget trick that helped make this possible.”

Over the past decade, lawmakers have balanced the state budget in part by borrowing money from special funds, revenue that’s raised by specific fees and taxes. Lawmakers have borrowed from those funds in the very lean times, and promised to pay them back.

Brown did this as well, and although he had planned last year to pay back special funds by $5.2 billion in the 2013-14 year, he now proposes to pay $4.2 billion. Turns out, says H.D. Palmer, spokesman for the California Department of Finance, that those special funds “had higher balances” or fewer needs than had been projected.

Buchanan also found a November projection by the Legislative Analyst’s Office that California would see a deficit in 2013-14 of $1.9 billion, “absent the lower debt payments to special funds.”

There remains, as the governor acknowledged, a “wall of debt” amounting to $28 billion. Brown straight-facedly presented a timeline, beginning this July and lasting into 2017, in which the wall would be knocked down in payment increments from $4.2 billion to $7.3 billion.

But that $28 billion, reported the Los Angeles Times, constitutes only a small, if delectable, appetizer to be served up to the Debt Monster over the next four years. The Times:

Numerous reports by state agencies, think tanks and academics have shown the wall of debt to be many stories higher than $28 billion—hundreds of billions of dollars over the next few decades. Brown’s repayment plan does not significantly reduce the sizable debt to Wall Street or account for promises the state has made to its current and future retirees but is not setting enough money aside to cover.

The amusing idea that Brown could play the moderate, or, in the words of the Orange County Register, put “a stop sign in front of his fellow Democrats in the California Legislature,” could turn grim, as disgruntled teachers and state employees, their guaranteed pensions suddenly in doubt, grab their pitchforks and pivot in the direction of the septuagenarian wonderboy. There’s still time to produce those TV spots of Grandma at the cliff, with Brown pushing.

It will not take much for the state union leadership to ally with the more ideologically committed legislators, of whom there are many, to create dramatic tensions and turmoil in Sacramento. And those of us who want to restore California’s fiscal health, not to mention the California dream, cannot count on a Scott Walker-style standoff. There is no Scott Walker, only Jerry Brown, who, loving to confound, could conceivably stand his ground. But that scenario strikes us as pure Hollywood. Brown does owe his political life to the unions, after all.

The governor’s giddy idea that his successful tax increase could sweep the nation runs up against another, more disturbing, trend: The looming municipal meltdown is not just a California problem but one faced by all the big-spending, high-taxing states, such as Illinois, Connecticut, Maryland, and New York. A day of reckoning is likely “at the national level,” according to University of Chicago economist Brian Barry, “no matter what happens to federal taxes or health care spending.”

We’re talking about as much as $4 trillion in unfunded pension liabilities courtesy of these financially troubled big states, whose governors doubtless hope to pass on their woes to Washington. The ever resourceful conservative idea man Grover Norquist, picking up on Barry’s prediction, suggests congressional Republicans exact from acquiescent Democrats a trade. He would exchange for bailout funds a plan to block-grant Medicaid and other entitlements to the states, thereby eliminating the costly, one-size-fits-all federal requirements that so bedevil state budget-makers. It could help.

As could a plan circulated by renowned supply-side economist Arthur Laffer, who would, among other solutions, have California march back to the Jarvis era, reversing Brown’s tax-hike bandwagon. He would moreover have California—in some rankings the worst state in which to do business—leave the 26-state bloc of forced unionism and join the 24 right-to-work states, many of which enjoy higher productivity, personal income, and population growth than their progressive counterparts. Sacramento as currently constituted won’t allow any of it.

Meanwhile the malaise. The once-Golden State now has the country’s highest poverty rate, more than 23 percent. Also depressing: California, whose population is 12 percent of the nation’s, is home to a third of the country’s welfare recipients. A hardened underclass, as Chapman University urbanologist Joel Kotkin has put into uneasy relief, is emerging as a source of social, economic, and political strife.

Laudably, Kotkin wants to see the unemployed raised up via a blue-collar boom, with housing, infrastructure-building, and energy, where the promise of undeveloped natural gas fields could lead the way. Again: Not bloody likely if Sacramento has any say.

Already, as Kotkin points out, the once-prosperous middle class has shrunk essentially to state retirees and those still living in homes protected by the Proposition 13 property tax limits. Allergic as they have historically been to class analysis and warfare, Republicans must answer by showing how a vigorous, free-enterprise economy can jump-start growth, spread prosperity, and lessen the chasm between the hyper-successful creative class on the coasts and the lumpenproletariat left behind on public assistance.

When multimillionaire golfer (and Republican) Phil Mickelson grumbled about his tax burden and threatened to leave the state, he found little sympathy among the suffering Californians who, their personal finances far more modest, are thinking of joining the growing out-migration of middle-class producers. A rebuilding GOP of necessity will have to direct its message to them and to ethnic groups, from the inner cities to the Central Valley, for whom the California dream of self-advancement still resonates.

The class anxieties were forced into relief when Texas’s Republican governor Rick Perry, in radio spots and personal appearances, put the welcome mat out for struggling businesses. As Perry knows, enclaves of California expats are mushrooming in Dallas and Austin suburbs. With exquisite symbolism, the national financial newspaper Investor’s Business Daily announced its plan to relocate its production facilities to the Lone Star State—not the first business to do so.

Brown’s inelegant response? Perry’s ad was but a “fart.” California’s glorious coastline, majestic mountains, and fair climate, reasoned the governor, would keep businesses slaving under his spell. But Perry, the bumbling cowpoke of last year’s presidential debates, has outfoxed him, perhaps having taken Benjamin Franklin’s counsel to “fart proudly.” Let the coastal breezes do their work.

What then, as Lenin might say, is to be done? We may dream that this rhetorically gifted performer might retire, perhaps to join his predecessor, Arnold Schwarzenegger, in a box-office stinkaroo. He does have plenty of experience with make-believe crime-fighting, always a Hollywood favorite.

Other than that, the political choices are excruciatingly limited. Republicans can marshal the constructive ideas of the Laffers and Kotkins while rebuilding an opposition party, but it will require quiet patience and resolve not to join the multitudes of out-migrants. The California we love always offers the most sensual solaces; Brown is not wrong about its natural glories. We must cherish them. That, and sit back serenely in our cushioned movie-house loges, popcorn at the ready, and watch as the horror show unfolds.

Shawn Steel, a former chairman of the California Republican party and current member of the Republican National Committee, is an attorney in Los Angeles. K. E. Grubbs Jr. is a longtime California journalist, now based in Washington, D.C. This article originally appeared in the Weekly Standard and is republished here with permission from the author.

The Seismic Shift in Voter Sentiment Against Government Unions Has Begun

In the aftermath of the June 5th elections, a dramatic round that included the unsuccessful Governor Scott Walker recall in Wisconsin, and the landslide victories for pension reform in San Jose and San Diego, California, countless pundits have weighed in with their own versions of what it all means. Earlier this week, a heavier than usual lineup of UnionWatch Highlights hopefully captured some of the best of these. Here are a few excerpts from the best of the best, chosen because they epitomize a change in sentiment regarding public sector unions that is national in scope, and animates Democrats as much as Republicans. In the battle to reform public sector unions, Americans may rediscover a political center, both because the polarizing politics of unions will be diminished, and because by recognizing the intrinsic conflict between the union agenda and the public interest, the larger issue of what size government is financially sustainable attracts serious bipartisan attention.

One crucial realization that is spreading across the American electorate like a wind driven wildfire burning on tinder dry tall grass is this: There are crucial differences between public sector unions and private sector unions. Writing for NewJersey.com in a June 10th guest opinion column entitled “Greedy labor unions deserved outcome of Black Tuesday election,” here is how a self-described “recovering socialist,” Matthew Bastian, describes this:

“It is intellectually dishonest to implicitly lump private and public-sector unions together, or to not acknowledge the differences between the two. In the public sector, there is no natural counterweight to labor demands. With union war chests, endorsements and get-out-the-vote efforts serving as one big carrot, the people on the management side of the table — politicians — are incentivized to give the unions what they want.

And unlike private-sector unions, where the continued health of the company is in the best interest of both labor and management, everyone in the public sector is playing with house money. When “profit” isn’t a concern, and instead replaced with higher debt, taxes and fees, the natural inclination is to keep the game going. It’s a game that taxpayers may finally be on to.”

And here is what Jeff Jacoby, in a June 10th opinion column appearing in the Boston Globe entitled “The end is near for public-sector unions,” had to say about the unique problems with unions in the public sector:

“There was a time when even pro-labor Democrats like Franklin D. Roosevelt would have regarded it as obvious that collective bargaining was incompatible with public employment. Even the legendary AFL-CIO leader George Meany once took it for granted that there could be no ‘right’ to bargain collectively with the government.

When unions bargain with management in the private sector, both sides are contending for a share of the private profits that labor helps produce — and both sides are constrained by the pressures of market discipline. Managers can’t ignore the company’s bottom line.

But when labor and management bargain in the public sector, they are divvying up public funds, not private profits. Government bureaucrats don’t have to worry about losing business to their competitors. There is little incentive to hold down wages and benefits, since the taxpayers who will be picking up the tab have no seat at the table.

In 1959, when Wisconsin became the first state to enact a public-sector collective-bargaining law, it wasn’t widely understood what the distorted incentives of government unionism would lead to. Five decades later, the wreckage is all around us. The privileges that come with government work — hefty automatic pay raises, Cadillac pension plans, iron-clad job security, ultra-deluxe health insurance policies — have in many cases grown outlandish and staggeringly unaffordable.”

Joel Kotkin, a writer who reinforces his observations on political and economic issues with astute insights into the underlying demographic and geographic realities, writing on June 11th in Forbes in an article entitled “Is Perestroika Coming to California?,” offered his big-picture take on the seismic shift in voter sentiment towards public sector unions. He writes:

“California’s ‘progressive’ approach has been enshrined in what is essentially a one-party state that is almost Soviet in its rigidity and inability to adapt to changing conditions. With conservatives, most businesses and taxpayer advocates marginalized, California politics has become the plaything of three powerful interest groups: public-sector unions, the Bay Area/Silicon Valley elite and the greens. Their agendas, largely unrestrained by serious opposition, have brought this great state to its knees.

California’s ruling troika has been melded by a combination of self-interest and a common ideology. Their ruling tenets center on support for an ever more intrusive, and expensive, state apparatus; the need to turn California into an Ecotopian green state; and a shared belief that the ‘genius’ of Silicon Valley can pay for all of this.”

Kotkin alludes to a key realization, one that inevitably follows the realization that public sector unions are not acting in the public interest, namely: Crony capitalists, i.e., monopolistic corporations – especially the large government contractors and public utilities – have an identity of interests with government unions – both seek rents from taxpayers, both avoid competition, both manipulate our laws to favor their agenda. These are special interests that are not in opposition, they are in detente, if not outright cahoots. They work together. Kotkin goes on, however, to challenge voters and policymakers who have realized a new political paradigm is called for, to come up with one:

“Clearly, the conditions for a California perestroika are coming into place. Still missing is a coherent vision — from either Independents, centrist Democrats or Republicans — that can unite business, private-sector workers and taxpayers around a fiscally prudent, pro-economic growth agenda.”

This is the crucial next step. This is the valid criticism that anyone defending the status-quo may legitimately level at those who want to reform government unions and big government in general. To some extent, Kotkin answers his own question when he identifies the culprits as not just government worker unions, but “the Silicon Valley elite and the greens.” How many Silicon Valley entrepreneurs, to the extent they aren’t developing games and social networking applications, are building products that they intend to sell on the competitive free market to voluntary buyers? And how many of them are building products that nobody would ever buy if they weren’t subsidized both during manufacture and through the purchase, and indeed mandated by legislation, all in the name of being “Green”?

The debate over how to shrink government, save the middle class, and stimulate economic growth starts with reining in public sector unions. But it ends with a discussion over “externalities,” and whether or not we should intentionally raise the price of basic commodities – energy, water, land, transportation – in an attempt to save the environment. To what extent are these externalities contrivances of crony green capitalists, and to what extent are they genuine imperatives? The answer is not clear, but the debate has been one-sided in favor of the greens, their allies in the Silicon Valley – people who have forgotten their roots – and their political enablers and symbiotic partners, the public sector unions.

One writer who offered a constructive, centrist proposal for regulating public sector unions was Conor Friedersdorf, a staff writer for the Atlantic. In his in-depth article on June 7th entitled “The Problem With Public Sector Unions—and How to Fix It,” he describes his own realization that public sector unions have acquired too much power and are acting in their own interests instead of the public interest. He goes on to propose reforms that preserve many prerogatives of government labor interests, but attenuate those powers that he suggests have been the most harmful. He writes:

“I am not ready, however, to outlaw all public employee unions. Instead, I’d preserve the right to bargain collectively while limiting the scope of that right. Public employees unions should be able to negotiate compensation packages, but only the total amount of compensation owed each employee for a period no longer than an election cycle, which would make the costs a lot more predictable and transparent, and build political accountability into the process. As a nudge, the package would be structured, by default, with prudent percentages going to health care and retirement savings, but if the union or the individual employees wanted to override that mix, it would be their business. The municipality would only be in the business of negotiating the total amount it allocates up front to compensate an employee for a given year.

Public employee unions could also negotiate for improved job safety, a core good unions facilitate. But not for job security or seniority requirements (though government employees would enjoy all of the protections against wrongful termination from which folks in the private sector benefit). Especially when it comes to public safety employees and teachers, it’s vital that the worst can be fired easily. The public’s welfare must be a more urgent priority than job protections so robust that they jeopardize it. (Wrongful termination in the private sector is hardly a huge problem.)

These several reforms address the most problematic effects of public employee unions that we’ve observed in the real world, while preserving the ability of government workers to negotiate collectively for better compensation, and when necessary, to address safety issues pertaining to their jobs. They are neutral on the question of how much public employees ought to be paid. And they give elected officials greater flexibility to grapple with the changing finances of their jurisdictions. Surely that’s at least an improvement over a status quo that is bankrupting many.”

California is run for the Rich, the Poor, and the Public Employees

A new USC study pointing to a much-slower population growth rate in California has been greeted by demographers and urban planners as good news, in that it supposedly gives our state’s leaders a little breathing room to plan better for the future. The rate of growth has slowed to about 1 percent a year, the result of fewer immigrants coming here and so many Californians heading to other states.

“The cooling pace means the state, city and county governments and other entities will have more time to prepare for a bigger population than they did in years past, allowing for more effective planning,” according to the Los Angeles Times, paraphrasing the study’s authors. “That could ensure that new roads and parks, for example, are put in areas where they are most needed and where growth is likely to be sustained, they said.”

That’s an absurdly optimistic spin. California’s elected officials have been doing as little planning as possible, unless one counts planning to spend tens of billions of dollars the state doesn’t have on a high-speed rail line that will partially replicate what the airlines already do now. Our leaders are battling new water-storage facilities and punishing farmers with absurd water restrictions. They impose roadblocks toward building new highway systems and land-use regulations make it nearly impossible to build the homes and businesses necessary to meet the needs of a growing population. One can hardly call that planning.

The state is still growing, but this decline in the rate of growth is symbolic news: The California Dream is over. People don’t want to come here even though this is, with little question, the most beautiful state in the union. Americans — even those who like to mock our state — ought to think about what this means.

California has always been a magnet — a land that has called people from across the country and the world. It’s a place that was known for its entrepreneurial spirit and open culture. But it has been turned into a regulatory and tax nightmare, a place where those who already have their money can live in their coastal palaces and enjoy the splendor of the landscapes, but where it’s unnecessarily difficult to move one’s way up the economic ladder. The USC study doesn’t reveal anything new as much as it confirms trends already apparent.

Four million more people have left California for other states than have come here from other states in the past two decades, according to demographer Joel Kotkin. The population growth has been coming mainly from immigrants and births from people already living here, but now the USC study shows that immigrants are going elsewhere. A cynic might say that California’s liberal elites have ended the state’s contentious battles over illegal immigration by destroying opportunities here.

Kotkin, an old-time liberal, sees troubling trends. “Basically, if you don’t own a piece of Facebook or Google and you haven’t robbed a bank and don’t have rich parents, then your chances of being able to buy a house or raise a family in the Bay Area or in most of coastal California is pretty weak,” he said in a recent Wall Street Journal interview. “The new regime wants to destroy the essential reason why people move to California in order to protect their own lifestyles.” He says the state is run for the benefit of the very rich, the very poor, and public employees.

This is not a healthy society. And the demographic changes point to an aging population. Far from reducing the burdens on the state government, this will increase them. State officials are not building to meet future needs, but they have been squandering future dollars on excessive pay and pension packages for public employees. Look for a coming battle between services for lower-income Californians and retirement benefits for the most powerful special interest group in the state, public employees.

There’s no chance the state’s most serious fiscal issues will be solved or even addressed soon. Earlier this month, Democratic Assembly leaders announced that they have no time to deal with the governor’s modest pension reform plan. They do have time to deal with hundreds of other bills, most of which range from the silly to the crazy. What’s the chance they will handle any of the other issues restricting California’s economy?

Gov. Jerry Brown points to economic growth in Silicon Valley as evidence of the success of his policies, but that area is an anomaly. The rest of the state is struggling. The anti-business, anti-growth policies pursued by Brown’s party will not make the situation better. People fleeing California are small business owners, young families, and tax-producers. They also tend to be more Republican, which means that as the exodus grows, so too grow the state’s tax and political problems. There will be fewer taxpayers and less political competition.

California’s leaders want a slower-growing population. Many Californians, even more conservative ones, will be happy that there will be fewer people and less development. But it’s disturbing that California’s official policy has been to punish people who want to pursue their dreams here. The state’s draconian land-use policies involve limiting growth, thus inflating the cost of property near the coast and pushing less-affluent people inland and to other states.

“What I find reprehensible beyond belief is that the people pushing [high-density housing] themselves live in single-family homes and often drive very fancy cars, but want everyone else to live like my grandmother did in Brownsville in Brooklyn in the 1920s,” Kotkin added, pointing to the “smart-growth” policies that dominate development decisions across California.

California remains a beautiful place, but it no longer is the destination for entrepreneurs, free-spirits, and dreamers. These are the fruits of modern-day progressive policies. This should be the cause of much sadness.

Steven Greenhut is vice president of journalism at the Franklin Center for Government and Public Integrity.