Category Archives: News commentary

In 1959, Kalamazoo, MI, was the first city to respond to suburban shopping malls by turning downtown streets into pedestrian malls. Since then, more than 100 cities have followed Kalamazoo’s example.

In the vast majority of cases, the malls proved to be a disaster for local businesses. Department stores and other shops were boarded up or replaced by low-rent thrift stores or antique malls. The planners who created the malls typically refused to admit failure, and it took decades for the cities to reopen the streets to autos.

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Despite the fact that his state was facing a $15 billion deficit (and the fact that he vowed not to sign any laws until the legislature solved the deficit crisis), California Governor Arnold Schwartzenegger signed legislation to put high-speed rail on the ballot on August 26. If voters approve, this bill will immediately add at least $650 million to the state’s annual deficit, and in the long run (assuming voters later decide to build more than from San Francisco to San Jose) much more.

Last week, on the eve of House passage of the $700 billion bailout bill, Schwartzenegger sent a letter to Treasury Secretary Paulson warning that California will need its own bailout soon. Supposedly, this is solely due to the credit crunch. But if the state were not spending so much beyond its means, it wouldn’t have this problem.
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This suggests that voters can approve the high-speed rail proposition this November with complete confidence that, when California defaults on the bonds, the U.S. will step in and bail it out. If the measure passes, federal taxpayers can look forward to adding at least $10 billion, and possibly $430 billion, to their future obligations.

Now that is is pretty clear that we are in a recession, the natural question to ask is: how long will it last? Will it be as long as the Great Depression, or as short as the post-dot-com-crash recession?

According to a couple of economists who write for Forbes and work for an investment firm, “any velocity-driven economic slowdown will likely be very short lived.” They predict a “one-quarter slowdown” followed by “a relatively quick recovery in 2009.” Thus, they suggest you take advantage of today’s low stock prices and buy buy buy now now now!

But then, they also say the problem was caused by the Fed cutting interest rates last year, and their solution is for the Fed to cut interest rates now. Say what?

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Google has proposed a detailed plan for the U.S. to move to cleaner energy in 22 years. Significantly, the plan does not promise that the U.S. will achieve “energy independence,” instead setting a target of reducing oil imports by a mere 22 percent.

The price tag? $4.4 trillion. Google estimates that investing this amount will allow us to save $5.4 trillion in the long run. But that assumes someone will be willing to pay $1.1 trillion for carbon credits. It also assumes we somehow find the $4.4 trillion to invest in the program.

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Some people think the bail out bill passed by the Senate on Wednesday was unconstitutional, as only the House of Representatives is allowed to initiate tax legislation. The vote was scheduled for Wednesday because Senate leaders expected the House to pass the bill on Monday. When the House failed to do so, the Senate merely attached the bailout bill to another bill (dealing with mental health) that had already passed the House. With flexibility like that, who needs a Constitution?

To make the bill even more politically attractive, the Senate added nearly 300 pages of tax breaks and other special-interest legislation costing $150 billion (partly offset by $40 billion in spending cuts or tax increases elsewhere in the bill). The tax breaks go to such vital sectors of the economy as Puerto Rican rum makers, auto race tracks, bicycle commuters, restaurant remodelers, and makers of “wooden arrows designed for use by children.”

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Democrats blame the failure of the bailout bill on Republicans (even though 95 Dems voted against it). Republicans blame it on Nancy Pelosi. But the truth is that representatives on both sides of the aisle were primarily afraid of voters. If the plan passed and yet failed to turn the economy around by November 4 (and no one expects it to do that), anyone who voted for the plan will have a hard time getting re-elected.

But everyone in Washington agreed Something Must Be Done, and the Paulson proposal, as modified by Chris Dodd, was the only major plan on the table. So the real question was, which members of Congress had safe enough seats that they could vote for the plan?

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The Antiplanner is a microeconomist, and understanding the meltdown and various bailout proposals is a job for a macroeconomist, so I don’t claim to be completely on top of the situation. However, many of the things I read about the meltdown are clearly wrong. So today I hope to eliminate at least a few of the myths.

1. The problem is too many houses.

Economist Tyler Cowan, who is usually right on, misses the mark when he suggests (with tongue only slightly in cheek) that one solution is for the government to “buy or confiscate empty homes in those areas and destroy them. That will raise the price of the remaining homes” and end the mortgage crisis.

Paradoxically, the reason why home prices are declining in so much of the U.S. is not because there are too many houses, but too few. Cowan’s idea might work in Detroit, but in California it is exactly the wrong prescription. To understand this, we have to look at basic supply and demand.

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One thing you can say for rail transit advocates: They are consistent. Which is to say they are as unethical in their campaign tactics as they are about telling the truth.

Case in point: The Silicon Valley Leadership Group, the main organization pushing for construction of a $3.2 billion $4.7 billion $6.0 billion who knows how many billion-dollar BART line to San Jose. After voters rejected a sales tax increase for the project in 2006, the Santa Clara Valley Transportation Authority (VTA) put another sales tax on the ballot for this November.

When opponents submitted their carefully documented arguments against the project to the county for publication in a voters’ pamphlet, an attorney who works for the Leadership Group took the statement to court, claiming it was misleading. Among other things, the attorney challenged the claim that VTA has the “worst-performing light-rail line in the country” (a claim that has also been made by the Antiplanner).

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