Friday, February 27, 2009

Innovation and Redistribution Are The Keys to Surving "The Great Compression"

Innovation and Redistribution Are The Keys to Surviving "The Great Compression"

Dr Mark Naison
Fordham University

The United States and the World Economy is entering a phase which could aptly be called "The Great Compression." For the forseeble future, most people will be experiencing declining incomes, declining job prospects, declining home values, and if they are lucky enough to have them, declining stock fortfolios and retirement accounts. With the world banking system crippled, and requiring dramatic infusions of funds from governments to prevent complete collapse, there is no chance of credit markets being unleashed to support a new wave of economic growth any time soon.. What we are likely to see, and that is only if government remain agressively interventionist, is a reconfiguration and redistribution of economic resources so that most people have access to food, clothing, shelter and medical care even while their assets and incomes shrink. It is such government action, and that alone, which can preventing this crisis from turrning into another Great Depression, where hundreds of millions of people around the globe expereinced sudden and dramatic impoverishment and where the resulting unrest destablized many governments and ultimately helped trigger World War II.

In this very dangerous period we are entering, ordinary citizens must become coldly realistic about their economic prospects as well as very clear about what demands they should be making upon governments and major employers.

One of the things we have to do is rethink how we allocate space. Right now, there is a glut of residential space among middle and upper class Americans even while there is a shortage of such space among working class Americans and the poor. Not only do wealthy Americans have second and third homes which remain vacant much of the year, but many middle class Americans are living in houses far too big for their needs, with rooms that are vacant or used for strictly recreational purposes. Given such unused space, it is unrealistic to think that in a time of declning incomes there will be a revival of the market for residential construction. Empty residential space will have to be reconfigured and redeployed before a demand for new space will emerge, as children move in with their parents, senior citizens move in with their children, or large private homes are divided ( legally or informally) into multiple family cooperatives. As for vacant or near vacant luxury high rises, community organizations and local governments should push for their convesion into affordable housing. New residential construction should not take place until we make better use of the
empty space we have, and quite frankly capital starved banks will be reluctant to fund such construction when the demand for it is so weak.

The same redistributionist ethic should be applied to commercial real estate. As the debt fueled consumer economy shrinks, huge numbers of stores, auto dealers and shopping malls will become vacant. Until those spaces are converted to other uses, be it for arts programs, youth programs, or new businesses targeted to a radically transformed marketplace, there will be little or no demand for private commercial construction. For a very long time, virtually all new construction projects will have to be initiated and funded by governments through deficit spending.

With privately funded residential and commercial construction likely to remain at a near standstill for some time, businesses, non profits and government agencies should move into survival mode and keep as many people employed as possible. Laying off people should be the strategy of last resort. Before that
happens, businesses, and even hospitals and universities,should radically reduce the salaries and compensation packages of their top executives and managers, and employ wage freezes and unpaid work
furloughs for lower paid employees to keep as many of those people on payroll

As for people with skill, capital and ideas, especially young people coming out of school, they should createnew businesses, and cooperative enterprises, that provide services people need, even in hard times, or deploy new technologies in fields ranging from communications, to clean energy, to urban agriculture. There are tremendous opportunities for innovative entrepreneurship, even in this Compressed economy, for those who are willing to accept modest enonomic rewards rather than the prospect of instant wealth.

The world ruled by the hope, and in some cases the actual prospect of endless consumption and personal luxury, is disappearing rapidly. A new world looms for those willing to define success by different rewards. Whether we can make a transition to this new world without producing massive violence, hardship and unrest
depends on our collective ingenuity, flexibility, and ability to redistribute space and, income more equitably than we. have for the last 40 years. The sooner people recognize how much the economic climate has changed, and how they have to change as well, the better we all will be

Mark Naison
February 27, 2009

Thursday, February 12, 2009

A Crisis Grows in Brooklyn-

Crisis Grows in Brooklyn- Orgy of Luxury Housing Construction Will Lead to Bank Failures and Abandonment

Dr Mark Naison
Fordham University

Anyone wanting to understand why America's banks are still in trouble need only spend a day driving or walking through the North Brooklyn neighborhoods of Park Slope, Dumbo, Fort Greene, Clinton Hill, Williamsburgh, Greenpoint and Bushwick.

In these now upscale neighborhoods, which less than twenty years ago were considered "marginal" or even blighted, every available inch of vacant land is being filled with luxury condominium towers, most between four and ten stories high, some rising as high as thirty stories above the surrounding landscape.

i am not talking about ten or fifteen buildings. I am talking about hundreds and hundreds of intrusive boxlike structures, some of them astonishing in their ugliness, some of them still in the form of half completed building skeletons, all of them using some form of snob appeal to market themselves to the presumably limitless supply of twenty and thirty something New Yorkers. An advertisement atop one building, pretentiously named "The Azure," located on Classon Avenue, once one of Brooklyn's toughest streets, captures the atmosphere of this new development blitz "Join the Brooklyn Explosion."

No urban planner, or at least no urban planner in his or her right mind, could have imagined the scale or intrusiveness of this orgy of construction. The worst examples, at least to my mind, are on a stretch of 4th Avenue between 25 Street and St Marks Place where at least thirty new building have been put up in the last three years, and in the streets adjoining McCarran Park in Greenpoint, where ten new structures have gone up. These buildings tower above everything surrounding them in what were once struggling working class, immigrant neighborhoods, proclaiming the arrogance and the power, of the city's developers, and the incredible wealth of the city's young professionals whose patronage these developers were courting

But none of these buildings, only about two thirds of which are completed, less than half of which are occupied, could have been built without financing from area banks. Hundreds of billions of dollars of credit were extended to developers on the assumption that the economy would keep expanding and that these developers could recoup a tidy profit on their investment

In the current economic crisis, however, what appeared to be shrewd investments are now but the visual markers a coming collapse.
Given the layoffs and bonus reductions that have already occurred on Wall Street, soon to be followed by layoffs and wage freezes other sectors of the city's economy, few of these apartments can be sold at what once were market rates. Many can't be sold at all except at a huge loss.. Faced with pressure of loans they took out in flush times, developers will have to rent out their apartments, but there is no guarantee the rental income will be enough to keep them from defaulting on their loans

Within the following two or three years, we can expect the following to happen

First, the banks who lend this money will now have billions and billions of dollars of new not performing assets on their books, which added to the others they accumulated by investing in home mortgages, will require new government bailouts to prevent them from going under

And second, the Brooklyn neighborhoods which are the site of this new construction will find themselves with
hundreds of partially filled, or even abandoned, residential structures, with un rented commercial spaces on their ground floors, which are prime targets for vandalism and criminal activity.

The Obama administration, understanding that the coming crisis in commercial real estate will be at least as severe as the one in residential construction and home mortgages, is preparing for a new round of bank rescues that could extend into the trillions, but I see no evidence that elected officials in Brooklyn, or in the Mayor's office, are preparing the coming plague of abandoned, unoccupied luxury properties

At a time when the market for that housing has disappeared, city officials need to start preparing to convert many of them into mixed income developments that provide affordable housing for needy families
and to encourage community groups to create youth programs and arts programs in abandoned store fronts.

But we can't leave this to the politicians to figure out for themselves. Converting abandoned or partially occupied luxury housing to socially constructive use must be immediately put on the agenda of political activists, planning departments in area universities, community planning boards, tenant organizations, and community development groups.

We have a chance to turn tragedy into opportunity and perhaps begin to reverse to gentrification of
North Brooklyn neighborhoods, but only if we move quickly and create an agenda for change before the
crisis hits.

Because hit it will. There are no longer enough rich young New Yorkers to fill all these building, so lets make sure these properties don't go to waste!

Mark Naison
February 12, 2009

Saturday, February 7, 2009

Did FDR's Jobs and Spending Programs Make the Depression Worse

Did FDR's Jobs and Spending Programs Make the Depression Worse? How Republicans Misuse
History To Oppose Obama's Stimulus

Dr Mark Naison
Fordham Unversity

During the debate on President Obama's stimulus package, I was astonished to hear Republican Congressional leaders argue that, history shows us that massive government spending programs make economic crises worse. As an example, they invoke the jobs and public works programs of the Roosevelt Administration, which, they claim, lenththened the Depression rather than ameliorated its impact

Their arguments are based on a 2004 book called "Roosevelt's Folly" by a resident scholar with the Cato Institute named Jim Powell, a book that has been rejected by most historians of the period as unbalanced and innaccurate

There is no question that Powell is right that FDR's policies did not lead to full recovery from the Depression- that only came as a result of World War II.

But his argument that reliance on the free market would have produced better results than government job creation, public works and encouragment of collective bargaining is not only impossible to prove , it flies in the face of the common sense undertanding held by most Americans of what FDR achieved, as well as the assessment of FDR's policies offered by most scholars in American history

As someone who has studied the impact of New Deal policies "on the ground, " in the rural South as well as black and working class neighborhoods in New York City, I would like to offer my own deeply skeptical view of this revisionist history Republicans are promoting

From my point of view, Roosevelt's policies offered hope and opportunity to a deeply wounded, fearful American population who had lost their jobs, their homes, their savings and their dignity during the three years between the stock market crash and Roosevelt's inauguration.

At the time Roosevelt took office, almost a third of the labor force was unemployed, and another third was working part time

The banking system was in paralysis and the signature American industry, steel, was operating at 29% of capacity

Large numbers of Americans were hungry. Long breadlines extended outside charities in New Yorkand other cities and city goverments lacked the funds to supply hungry people with food

Millions of Americans were homeless. Shantytowns, often called "Hoovervilles," filled parks and vacant lots in American cities, and an estimated 3 million people rode the rails from town to town and city to city looking for work.

Evictions and foreclosures,undertaken by banks and landlords provoked violent resistance in many sections of the country. Eviction riots involving thousands of people made throwing out working class families a dangerous proposition in the South and East Bronx, while gun wielding farmers prevented banks from taking over foreclosed farms in portions of Iowa, Wisconsin and Minnesota.

When you combine this level of popular distress with a financial system in disarray, and a near paralysis of economic activity in agriculture, manufacturing, construction and retail trades, you have conditions very similar to those which paved the way for the rise of fascism in Italy, and Nazism in Germany.

Left on their own, this is what market forces had wrought, so New Deal leaders took what in the context of American history was very radical step

They decided to get money into the hands of displaced and demoralized people through direct relief, funded by the federal government, distributed by the states, through payments to farmers for restricting production, and for public works jobs created by the federal government

These measures didn't restore the economy to pre 1929 levels. But they did dramatically reduce hunger and homelessness, bring a modest revival in manufacturing, construction agriculture and retail trades, reduce unemployment by half, and make dramatic improvements in the infrastructure by through the construction or roads, dams and bridges

More importantly, they restored the morale of a population which had feared that their poverty would be permanent and that their hard earned skills would no longer have value. The work relief programs of the New Deal gave millions of unemployed Americans a renewed sense of their own value, which spilled over into their responsibilities as family member and citizens.

And when war did come this restored and reinvigorated people rose to the challenge of with a vigor and a unity that amazed the world, both on the product line and the battlefield

This is hardly a legacy of failue!

Nor did the American people understand it as such.

That is why they elected Roosevelt to four terns as president, and why pictures of Roosevelt adorned the mantepiece of tens of millions of Americans, rural and urban north and south, east and west, black and white, native and immigrant.

This is the lived experience that Republicans seek to denigrate, offering as evidence only the mythic properties of private markets as exist in the imagination of conservative economists

Let us remember: it was unregulated private markets that got us into the Great Depression and it is unregulated markets which have been are destroying our jobs and incomes for the last year and a half

Now, as then, public works and government spending are needed to restore economic growth and ease the suffering of an increasing worried and frightened American people

February 8, 2009

Sunday, February 1, 2009

The Squeeze Is On! Why We Need to Explore Communal, As Well As Individual Responses to the Economic Crisis

The Squeeze Is On! Why We Need to Explore Communal, As Well As Individual Responses to the Economic Crisis

Dr Mark Naison
Fordham University

During the next year, and possible longer, the American economy will be squeezing out jobs at a rapidly accelerating rate. Americans working in finance, manufacturing, retail trades, transportation, entertainment, and goverment employment, will be pushed out of the labor market until the economy bottoms out sometime in 2010, and will be forced to scramble to find new sources of income and in some cases, new living arragnements.

All of our training, and all of our instincts, will be to respond to this challenge on a strictly individual basis. We will go back to school, upgrade our resumes, start working out regularly, and get fashion make-overs to make ourselves seem attractive to prospective employers.

But until the economy starts growing again, these responses are unlikely to restore even a fraction of the jobs that were lost. What they will do is simply create a fiercer competition for the declining pool of jobs left and put people further in debt at a time when they need to husband scarce resources

What Americans need to start doing, to survive what may be a two or three year period of deleveraging and deflation, is to start pooling their resoucres to live less wastefully, and begin saving money and accumulating capital to form new enterprises which may provide needed goods and services..

At a time when banks, because of the huge amount of unsecured debt still on their books, are unlikely to provide credit to consumers or new businesses in proportions needed to jump start the economy, capital accumulation for small businesses or non profit organizations may have to come as much from savings as from bank credit.

But to save, Americans, especially young Americans, may have to consider living arragnements that are unfamiliar, or even repugnant, to most middle class people, but have been central to the survival and success of many recent immigrants.

The most important of these are communal living arrangements. All over the United Sates, immigrants from Mexico, Central America, Africa, and South Asia, are living communally, sharing rent and food, to radically reduce living costs and allow them to send remittances home to relatives in their homelands.

Young people graduating from college or coming out of the military, should consider the same strategy. Whether in couples or not, they should form living cooperatives that share space, food, and income, allowing all to live at a fraction of the cost they would if they were living on their own. With whatever surplus they accumulate, they should purchase equipment to start their own small cooperative enterprises, whether it involves cleaning and home repair, landscaping, hydroponic agriculture, green energy conversion, catering, tutoring, auto and computer repair, information technology, fitness training, even music production. Because of the huge amount of abandoned space about to become available, either through foreclosures or new construction, finding residential and commercial space for such cooperatives, at reasonable rents, will not be difficult.

The genius of such arrangements is they allow people to pool income from a wide variety of sources including jobs, government transfer payments, gifts from family members, and avoid depending on credit arrgangements which may not be available, or that produce debt levels not easily repaid in a stagnant economy.

But equally important, such cooperatives could turn out to be an engine of long term economic growth As young people freed from the constraints of hyper consumption and indebtedness, seek economic niches where their services are needed, they are likely to find creative solutions to problems which conventional enterprises are unable to solve, or which are only economically viable if implemented on a small scale.

For many Americans, the flush days where economic success took the form of Hummers , McMansions and expensive trips to Vegas are coming to an end. But if they take a lesson from America's immigrants, who share resources and defer consumption to accumulate savings and build businesses, they may come out of this crisis stronger than before.

Communalism and solidarity, principles long of fashion in our society, need to get a new lease on ife. Individualism and consumerism gone mad got us into this mess.

It will take Cooperation to get us out

Mark Naison
February 1, 2009