How'd that boom work out for you?

The data are in and most Phoenicians have to show for the Great Real Estate Boom...not much. The federal Bureau of Economic Analysis this week released its comprehensive survey of per-capita personal income for metro areas and counties in 2007. It's the gold standard yardstick for measuring how the average person was actually doing after the Bush "boom" and as the nation prepared to slide into recession.

In metro Phoenix, per-capita personal income totaled $35,185, an increase of 1 percent from 2006 vs. the national average of 4.9 percent. From 1997 to 2007, income growth was 3.9 percent, vs. 4.3 percent nationally. More context: Phoenix's 2007 income was only 91 percent of the national average. Although Phoenix is the nation's 13th most populous metro area, it ranks 134th among metros in per-capita personal income. In 1997, it ranked 126th. This should be astonishing, if any one takes note.

Let's drill down deeper. Phoenix doesn't compete for talent and capital against the national average that includes Mississippi and Alabama. It competes against other big cities (here and abroad), whether it wants to or not. How did its competitors do?

--Seattle: $49,401, 128 percent of the national average, up 7.3 percent from 2006, and 5 percent over 10 years.

--Denver: $46,682, 121 percent of the national average, up 3.6 percent from 2006, and 4.6 percent over 10 years.

--San Diego: $44,430, 115 percent of the national average, up 4.0 percent from 2006, and 5.4 percent over 10 years. (And this in notoriously poor paying, "sunshine dollars" SD!)

--Portland: $38,842, 101 percent of the national average, up 4.5 percent from 2006, and 3.4 percent over the decade (the 2001 tech bush was especially hard on the Silicon Forest).

Now I know if this information is even reported in Phoenix, the "Goldwater" Institute and/or its sock puppet on the Republic opinion page will come out with some waterboarded stats to say "not so!" (A favorite trick back in the boom years was to use quarterly income growth percentages, distorted by heavy in-migration and a low baseline, as a sign that "everything's fine" -- even though every year per-capita income lagged). But these data are reality and they convey what ought to be sobering lessons for Phoenix.

First, population growth doesn't translate into higher living standards, especially for the people already living in a place. The better performing places saw some population increases, but where they really grew was in such areas as attracting top talent, launching cutting-edge companies, luring venture capital, creating high-wage jobs, looking outward to the global economy, etc. All those are areas Phoenix ignored. It measured population growth and housing starts. Yet it's per-capita income that economists agree is the best measure of how people are doing. Tragically, Phoenix and Arizona did much better in the 1960s and 1970s, when the economy was more diverse. That started to change in the '80s.

Second, Phoenix couldn't create broad prosperity in the biggest boom in history that played to its much-touted, one-and-only economic strength: real estate. That's not to say that the elite of developers, lawyers, land bankers, etc. didn't make out. But the general limited, low-wage economy remained -- and most people failed to attain incomes or income growth even at the national average. Now they're really screwed, by half of their 401(k)s looted -- if they have them -- and foreclosures on those houses they dreamed of flipping.

The great god Real Estate Industrial Complex turns out to be a rich old guy behind the curtain in north Snottsdale, pulling the levers on a failed machine.

Third, the most disturbing report nobody in Phoenix power read this week showed that Americans were less mobile last year than at any time since 1962, when the nation had 120 million fewer people. This will have immediate effects on the Phoenix economy, where every business plan is geared to huge in-migration. But the longer-term consequences will be more profound. The old system is not coming back, for reasons we often discuss on this blog. Yet Phoenix has nothing to replace the endless building of crapola subdivisions. Too bad the Meds and Eds strategy was tossed aside, and now the Kooks are totally in charge. Bottom line: Buckeye's not going to have 1 million people -- and if it did, you'd still be lagging behind. Metro Phoenix is not competitive and not ready for the reset of the future.

Now the lurkers and trolls who don't have the guts or ability to post non-obscene counter-arguments on Rogue are thinking: It's all the fault of the Mexicans. If this is true, it does not give absolution. It means that metro Phoenix has such a gigantic underclass that it is pulling down the otherwise stellar performance of all the Anglos. And that underclass is, at best, a huge waste of human capital -- and at worst the brew for a future of lethal instability in the Appalachia of the Southwest. And any sane region would react with vigor to turn this underclass into an educated, talent-activated mainstream population.

But it's not "all the fault of the Mexicans." Years of digging into the real data and seeing life on the ground make it clear to me that the economic problem is color blind. And it's not going away.

Comments

[Emil Pulsifer]

Mr. Talton makes some excellent points, as usual.

Still, I would disagree that per capita income is the best measure of how average folks are doing, because the upper class, though a numerical minority, can substantially skew the results because their share of per capita income is disproportionally large: per capita is a mean, not a median measure.

Even for comparative purposes I think there are problems: if the wealthy of one city are getting richer faster than the wealthy of another city, that may be reflected by relative per capita standing. To the extent that the wealthy of metropolitan Phoenix get a sizable portion of their income from real estate speculation and development deals, the recent collapse of those sectors may have driven local per capita income down disproportionally.

Instead of taking total metropolitan income and dividing by the number of residents, a better income measure is median personal income, which gives a figure such that half the population earns more, and half earns less. It's the "balance point" for individual income, and it isn't skewed by wealthy enclaves.

Another point is that income, in itself, doesn't indicate the local standard of living, because it doesn't reflect local differences in the cost of living. If housing, energy, transportation, food, and other consumer products and services are more expensive in one locality compared with another, differences in local incomes may be offset by differences in cost of living, so that standard of living is equivalent.

Local cost of living also probably needs to take into account relative differences in the local tax structure, especially insofar as regressive taxes burden working and middle class families by taking a greater relative percentage of their income. This would include sales taxes, rental taxes, etc. (Of course, this may be offset by what these taxes provide in terms of services or subsidies, so the issue is complex.)

Large increases in the local fixed-income retiree population in recent years can also drive down per capita income. So can a large influx of out of state workers settling as new residents: new residents = new hires = starting wages at the hiring companies. Phoenix has a larger than average share of both as components of its population growth.

That said, the underlying point of Mr. Talton's essay remains unchallenged: Phoenix is fundamentally a low-wage job market driven by the retail sector and dependent on real estate development and speculation for much of its high-end income.

Even the local "civic leadership" is reluctantly arriving at the same conclusions, albeit 8 or 10 years behind Mr. Talton.

[Emil Pulsifer]

Here's a timely news item, from the Glendale community insert of the Arizona Repblic. Headlined "Summit Addresses Economic Plans" it reports on the third annual West Valley Summit, co-sponsored by the Arizona Republic and something calling itself Leadership West. The "summit", which drew 175 attendees to the Glendale Civic Center, discussed business survival tactics, adapting business models, and making the most of networking.

The really interesting quote came from Glendale Mayor Elaine Scruggs, who "challenged the conference to move beyond its mission of creating highly livable, quality communities in the West Valley. Scruggs would like to see the West Valley recruit larger corporate businesses to keep workers from commuting to other cities. She also said businesses need to re-evaluate their missions."

I'm not sure whether the wordsmiths at the Arizona Republic or Mayor Scruggs herself is responsible for the fulsome prose ("highly livable, quality communities").

The keynote speaker, David Nour, "talked to the conference about utilizing business relationships to build brand reputations and evaluate soft assets, which he defined as brands, people and relationships."

Soft assets? Sounds more like soft soap.

"Nour said that West Valley businesses must perform to establish their reputations and ride out the economy.

"Performance trumps all," Nour said. "You have to perform, you have to execute, you have to be confident, you have to be capable."

http://www.azcentral.com/community/glendale/articles/2009/04/24/20090424gl-leadership0424-ON.html

Hmmm...apparently "performance" is the new "paradigm shift". What I don't understand is how individuals like Mr. Nour (whom I reluctantly envy) manage to get these gigs to begin with. So far as I can tell, he's never actually DONE anything except give exceedingly vague advice, at obscene hourly rates, to gullible business executives on how to succeed.

I rather imagine Mr. Nour, arriving home after a hard day giving a $1500.00 talk, laughingly relating the incident to his girlfriend over a Very Expensive bottle of wine:

"So then, I told them that the key to success was 'confident performance'. Not how to increase the concrete productivity of their actual operations, mind you, just some rather vague inspirational stuff I found in an old copy of Boys Life magazine.

"After that, I assigned them a 'trust-building exercise'...I brought along some plastic hoola-hoops, then told the old darlings to jump through them. And when they had, I told them sententiously that "adapting to the New Economy requires a combination of bold decisiveness and humility". They were still a bit skeptical, so I asked them to give themselves a round of applause, and that sowed it up. Because the psychological alternative was to admit that they'd paid some charlatan $1500.00 to make them jump through hoops and clap."

Is it me, or does the whole thing smack of spiritualism or some sort of religious tent revival?

[soleri]

The ideology that undergirds the Phoenix economic strategy also shows up nationally, as in The Club for Growth, supply-side theory, and crony capitalism. Certainly, on one level, Phoenix was a sitting duck for a kind of End Times delirium. Even during boom times, there was something dangerously unmoored about an economy depending almost exclusively on growth. Cancer, anyone?

The cheapness of it all (including ultra-cheap labor) will haunt us for decades to come. That we could do it became the imperative to just do it. Anything goes and everything went.

We invested in a few lasting things - light rail, ASU downtown, some arts' centers, and a zillion miles of freeways - but for the most part the investment was in growth itself. So now there's this massive metroplex without a heart and soul or much future beyond luring cold-weather refugees. Global warming? A hoax!

Phoenix is Exhibit A in the right-wing theory of How Things Are Supposed To Be. We should model this role proudly. We'll remind the sore winners that with victory comes the spoils. And nothing spoils faster than cheap success.

[Emil Pulsifer]

Incidentally, the line from Mr. Talton about "waterboarded statistics" is marvelous. And I agree, that characterizes the statistical arguments of Robert Robb to a T.

The problem is that, to those who have no understanding of their origins, sensational statements are nonetheless impressive, especially when clothed in pseudo-intellectual raiment. Such, I'm afraid, is often the case for Robb's essays which, despite a provenance traceable to the smoke-filled back-rooms of the Goldwater Institute and other right-wing paper mills, nevertheless manage to convey, via filtration and camouflage, an appearance of reasoned and moderate conservatism to the common reader.

The best weapon against them is to expose them: make their errors explicit, and throw these errors right back into the face of Mr. Robb via online comments, letters to the editor, and "My Turn" response essays. Initially, as a result of intellectual inertia these rebuttals would no doubt be ignored; but after repeating the same mistakes several times and being corrected each time, surely even Mr. Robb would be reluctant to regurgitate precisely the same nonsense?

No doubt it takes considerable time to research, analyze, and compose a response -- his errors requiring significant intellectual effort to document, having been crafted, apparently, by those with unlimited resources, an axe to grind, and a degree of animal cunning conditioned by years of dogmatic scholasticism.

I can understand why Mr. Talton might not want to devote himself to being Mr. Robb's personal nemesis, and yet I'd love to see someone with a blog sideline a "Robb Report" exposing the tricks of this stinker and his scoundrelly masters.

I recently clipped out a couple of his essays on Arizona's tax structure, and had intended to perform the "grunt work" of debunking them myself, as a salutary intellectual exercise: but when I was in the mood, I simply didn't have the online time; and now, alas, I'm no longer in the mood, in addition to being short on online time.