The data and just driving around town make it clear that the Phoenix economy is not recovering. That the news snippets and economic forecasts desperately trying to spin things otherwise are almost exclusively focused on real estate is telling. Metro Phoenix so narrowed its economy that it was America's last big factory town, building houses. When this unsustainable game of risk crashed, the region was devastated. But like a dying rattler, it is still snapping its fangs, wildly hanging onto the hope that the Growth Machine can be started up again. It's always worked in the past! This is the forlorn cry of so many caught in past depressions and economic turning points. Buffalo... Youngstown...Detroit...
The old housing economy is not returning. The one based on large-scale output of tract houses built by national builders on a foundation of liar loans, high leverage and vast government subsidies for the suburban or exurban "American dream." Now that dream is a nightmare. The nation is much poorer after the Great Recession, yet the imbalances and high debt remain. Incomes and living standards for average people are in deep trouble. Millions of houses remain to be sold, with many more in the private "shadow inventory" as well as in the toxic "assets" taken off the hands of the banks by the Federal Reserve. Nowhere do these realities operate with more ruinous consequences than Phoenix. Any "new normal" will provide little relief for a regional economy whose business plans were based on an unsustainable profligacy of building and population increases. That little blip that might mean "the bottom" or "stabilization." So?
What's astonishing is the lack of realistic or imaginative thinking on the part of what passes for Arizona leaders faced with this harsh future. Or faced with the mounting evidence of how distorting, costly and damaging to the earnings of average people the real-estate monster had become. Metro Phoenix has never been so dependent on real estate, yet no one seriously wants to break the jones. To understand the future of discontinuity. Pinal County, a national ground zero of exurban crisis, sees only one way out: More sprawl. In fact, Pinal should be returning to agriculture as fast as it can; Arizona needs the exports to a growing Asia, as well as the capacity to feed itself in a high-cost energy future. But the self-destructive hits just keep coming:
- Gov. Jan Brewer has dismantled the long-suffering Commerce Department and proposes replacing it with a nebulous "authority" that would be even more ineffective. Anglo Arizonans as represented by the Kookocracy want to be Southerners in their racial prejudices, secesh rhetoric, anti-education policies and gun totin', but they can't seem to grasp the Southern Strategy in economic development. Most Southern states have robust commerce departments that go aggressively after what for them are high-wage jobs. Think BMW and Boeing in South Carolina or automakers in Alabama. These coups don't happen because of sunshine and "freedom," but highly preferential and expensive incentives. One might call it "industrial policy" and it has worked quite well to diversify these state economies. But the Kookocracy has both an ideological hostility to, and parochial ignorance against, learning these moves. Think of it this way: Housing is to Arizona what tobacco and textiles were to North Carolina in 1959. North Carolina worked hard and successfully to diversify its economy. Low costs helped, but a fully stocked economic-development tool box, decades of public support and great universities made the difference. In metro Phoenix, the economic-development organizations are badly broken and need to be scrapped or totally reformed. Blighted areas such as central Phoenix need tax-increment financing and other practices to encourage development. Instead: Silence, inaction.
- The Jim Crow anti-immigrant bill has backfired in several ways: Making Arizona a national pariah in circles that make investment decisions (the denizens of trailer parks in Mississippi don't); further damaging the tourism industry because of boycotts; hurting what agriculture remains, including in Yuma which suffers some of the highest unemployment in the nation, and mangling the low-cost, easily exploitable labor market upon which "growth" has been built. Nicely done. But the Kookocracy and all its ill-informed supporters should be aware of a deeper reality: Quality companies don't invest much in places known for high-profile political extremism and hate.
- Even in the "boom" years, Arizona had some of the worst education outcomes in the country. Things have only gotten worse since the crash. This is a terrible waste of human capital. And at a time when a world of surplus labor means Americans can only compete by being better educated, more highly trained and more creative. Arizona's momentary advantage as a relatively low-cost back office center is long gone — gone to India and elsewhere. Meanwhile, the universities have continued to be savaged by unrealistic mandates to provide education to a growing student body but every year getting less money to do so. Cuts from the 1980s were never restored. Thus these potentially towering economic engines are at a massive disadvantage against all their hungry competitors worldwide. Nor does Phoenix attract its share of college graduates in the working-age population in proportion to its size, especially younger people. It lacks the economy, hipness, urban core and tolerance to attract this critical cohort.
- The Legislature defunded Science Foundation Arizona — this despite a Battelle report showing the hobbled organization still leveraged every $1 invested to produce $3.06; its grants produced $331 million in economic output and 2,600 good jobs. The Kooks have fought to keep the Meds-and-Eds strategy from being implemented, particularly building out the Phoenix Biosciences Campus. No effort has been made to attract the biomedical manufacturing industry from California. Phoenix had a good chance to establish a biotech hub in the mid-2000s. Now that has been squandered. But only through these kinds of efforts can it diversify its economy and compete in the 21st century. Does it require public money? Sure. But these investments produce more than they cost, unlike sprawl which, especially once its externalities are accounted for, costs more than the public infrastructure it requires. A similar lack of seriousness has been shown in solar power and sustainable technologies. They won't just happen because Arizona is sunny and has "economic freedom." The big players, communist China and "socialist" Germany, are way ahead and have huge government support.
- The region's legacy industries continue to slip away and not be replaced. Motorola is the prime example, of course, but hardly the only one. Virtually all of the major technology and aerospace companies operating in metro Phoenix were the result of leadership from the past that's starkly lacking today. What remains, such as Intel or the small Boeing plant, is at risk. And in any event, these outliers and the little companies in north Scottsdale and Tempe are not enough to begin to provide the diversity or high-paid jobs to support a metro area of Phoenix's size. Metro Seattle is smaller than Phoenix, yet Seattle has a top biotech cluster; one of the world's major software development clusters (helped by but no longer confined to Microsoft); Boeing's huge commercial airplanes assemblies, engineering and design as part of the world's leading aerospace hub; a big game development sector, etc. That's the arena Phoenix is competing in, whether it wants to or not. And yet no significant efforts are being made to retain and expand these few industries (setting up an aerospace council? Is that a joke?). Only long-time Phoenicians recall when we had much larger technology and aerospace sectors relative to the population.
- Arizonans love to crow about their individualism and hatred for big gub'ment. As with all such places, Arizona is a net taker. It wouldn't even exist as a modern, populous place without massive federal dollars and intervention. "The free market" says, clear out, let the desert alone. For years since the CAP, Arizona has been failing to get high-quality federal investments because of the hostility to "pork" of the right-wing congressional delegation. Texas, to take but one example, is not so shy, gaining billions in federal facilities and university research funding. Florida got the most aggressive funding for high-speed rail, while a dozen other states received substantial sums to enhance rail capacity; Arizona got nothing. Now Arizona faces the cry for "austerity" and cutting the deficit that somehow wasn't a problem when W. was running it up. It's likely to happen as Republicans make gains in November nationally. So aside from Social Security checks and (perhaps) defense dollars, Arizona will fall even further behind.
- Far from being a triumph of "freedom" over "gub'ment," Arizona's state fiscal crisis will be a continuing drag on recovery. It not only puts thousands of public servants in the unemployment lines and savages the helpless, but it prevents the state from making the kinds of investments in education, transportation, biosciences, advanced technologies through SFAz and quality of life necessary to be competitive.
- The region and state's inward-looking nature is very self-destructive in a globalized economy. Not only is Arizona doing little to create serious trading relationships with Asia or compete for major foreign direct investment (a solar assembly plant won't cut it), it assumes a posture of smug ignorance and bigotry guaranteed to keep away talent and capital.
The world is facing a serious threat of a double-dip recession, if not an outright depression. If it avoids that, America faces years of high unemployment, falling living standards and a vicious competition for an economic pie largely frozen in place. The rich will get richer — unlike the Great Depression, social and class differences will be very stark this time. The unsustainable imbalances and weapons of financial mass destruction that brought the disaster are ticking again, Washington lacking the will to defuse them. Nations will be scrambling to lock up energy and rare-earth mineral supplies and deal with the consequences of un-attended-to climate change (here come more migrants, Arizona). It is a prescription for instability, to say the least. And it is completely different from the past six decades in Phoenix and Arizona. It should provoke a serious and searching discussion about the nature of "growth" and the hole in which Arizona has dug itself. That's not happening.
So keep looking for life in the debris of the real-estate crash. As with a Predator drone, "You'll never see it coming."