Avocado toast and housing are expensive for the same reason (land economics)

So there has been a little tempest in flying around the internets where a silly Australian millionaire/billionaire/gillionaire named something said something stupid, blaming Millennials’ lack of self-discipline and frugality for their difficulty getting into the home ownership market. Here’s a quote from the LA Times:

“When I was trying to buy my first home, I wasn’t buying smashed avocado for $19 and four coffees at $4 each,” real estate mogul Tim Gurner said on the Australian version of “60 Minutes.”

The results on Twitter are predictably funny and bitter, and there have been quite a few stories, like the one shared from the Times above, that talk about the barriers to home ownership and the challenges that Millenials face in trying to buy a home, including staggering levels of student loan debt, stricter financial rules that require 20 percent down, the difficulty of amassing that kind of money when house prices are what they are, and job scarcity among Millenials. It’s shocking that that three-year, unpaid internship doesn’t get you all the money you need to put 20 percent down on a $350,000 home.

My little addition here is simply to note that $4 coffees are $4 coffees and smashed avocado is $19 in some of these restaurants for the same reason that housing prices are obscene: land prices. Yes, restaurants have a high mark-up on vegetarian options like avocado toast, but very little is priced at cost in restaurants: most deserts don’t pay for themselves, for example, but are kept on the menu to compete with other establishments*, and booze gets the biggest margin.

But everything gets more expensive when land prices get high. Land prices factor into everything in cities, from the wages you have to pay to keep wait staff slinging $4 coffees and $19 avocado toasts to the floor space you have to rent or buy to store and serve the coffee and toast in. Everything, from buying gas to boxes of cereal to eat at home rather than going out to eat, costs more at the same time that housing costs more. So while we can blame people’s consumption patterns (if we want to be jerks)–going out is more expensive–food consumed at home is going to be more expensive in cities, and punishingly expensive in cities where land prices are high, too.

Oh, and the home garden you might have to defray costs carries a $325 opportunity cost per square foot.

Just saying.

Now I want avocado toast.

I do think people are somewhat wrong to get too shirty pointing out that at least some Boomer wealth will be inherited into Gen X. When that happens, to how many that will make a meaningful difference, or whether it will happen in such a way to be useful to them as homebuyers are separate questions, but wealth doesn’t vanish and intergenerational transfers are real and important.

Here’s some funny Millennial tweets to make you smile. The kids are all right.

* California restaurants are dead unimaginative when it comes to desserts, and I suspect it has to do with everybody’s carb phobia. Thus most won’t shell out for a desert chef. Everything, everything on the menu is dead simple: ice creams or gelatos (machine made, put enough fat content into it and derive a clever flavor), bread pudding (recycle stale bread and a four year-old could make it), pudding (a 10 year-old could make that) and you’ve pretty much exhausted the lot.

Minimum wage and trickling down: I don’t understand why those benefits don’t trickle

So I have been reading various and sundry critiques of minimum wage laws, and I have questions, and in particular, questions about the ideology driving the suppositions. Now, I am a mere, lowly planner who has only taken four classes in labor economics (including one offered at the PhD level), so I understand that I could never ever possibly understand the super-hard economics at the basis of These Things. So please, explain what you can to me, Internet, but using only small words.

The basic idea is that wage floors leave some people willing to worker lower wages out in the cold, as the wage floor forces employers to offer a minimum wage, and at that wage, the employer simply won’t hire an additional person, or they will let people go, because they do not value the additional labor at the price the wage floor sets.

This means that POOR PEOPLE SUFFER DAMN YOU because employers have absolutely positively no way of ever ever paying people slightly more except by screwing labor…even though corporate entities’ top managers and CEO are making eleventy billion dollars a year and the margin fits easily into many of the bonuses we routinely see handed out. I can credit the concern that a small business owner with a small number of employees can’t swing it, but there are plenty of corporate employers in these metro markets whose objections that they could never, ever pay their low-wage labor slightly more strike me as utterly disingenuous and self-serving. Take adjuncts: universities could pay them more; it’s just that labor oversupply means universities don’t *have* to. So they don’t, and they use their money for other stuff, like obscene salaries for administrators.

But that’s actually not my question.

Why don’t benefits from minimum wage laws trickle? We are supposed to believe that putting gigantically large sums of money in the hands of a few people (capital) trickle, trickle away down to us all…but putting marginally more dollars in the hands of a large number people has no trickle down potential at all, none whatsoever, supposedly. But don’t those minimum wage workers go out and buy things and generate more economic activity, so that employers will have more demand for labor, thereby potentially offering new, higher paid opportunities for other low-wage workers? Why isn’t that trickling?

According to this same school of economics, when wealthy people get made better off, the benefits trickle down! When a billionaire buys a private jet, it helps us all. It’s like magical rainbow snow–those benefits just trickle upon us from on high, and everybody should be ever so grateful. (Pukes, narrowly missing the keyboard). But if you make a larger group of poor people marginally better off, there’s no trickling. None! Impossible! That money just gets sucked into Democritus’ void, never to return to anybody in any form. Poor people buy things, and some save money, so it’s not like the move means absolutely positively no new capital investment is possible. Poor people can and do save. When they put money in banks, banks aggregate and use that capital, so…

So increased incomes to rich people are inherently good (because trickle, trickle, trickle), but increases in wealth to poor people is meaningless, according to the “pain and suffering school” of minimum wage writing. Somehow, the dollars know whose hands they are in, and they just won’t act the same for a large number of poor people the way they will for a small number of vastly wealthy people.

Alec MacGillis’ two implied critiques of Richard Florida in the New Republic

Attention Conservation Notice: It takes two to tango.

The New Republic’s Alec MacGillis has a piece up on what Richard Florida is up to now that he’s been proven wrong…which makes me wonder, why, exactly, this type of stuff is New Republic worthy, and what do we mean by wrong. The piece has a “this is what happens to celebrity superstars” tone to it, while I have often been critical of Richard Florida, I do have to ask whether any of this “oh he was so wrong about cities” stuff really matters in the way that MacGillis thinks it does. Florida proposed a theory that, when you read the books, really didn’t hold up for anywhere other than particular places. In this, he joins myriad other examples from economic development and planning, where many many particular ideas that have functioned well in particular places fail to generalize other contexts. Florida’s major problem has always been trying to make things straightforward when, in fact, stuff like cities and growth and quality of life is difficult to understand, let alone manufacture. Over the years as I have gritted my teeth as Florida produced book after book–with all the cringe-worthy name dropping–I also have spent a good deal of time wishing that Florida was right about cities and knowing full well he wasn’t. I sometimes wonder how many people who lined up behind Florida knew full well it was way more complicated than Florida made it, but who wanted answers anyway, the easier the better, and thought that partial, implementable measures might be better than the status quo.

The critique from the New Republic centers on two things, one that strikes me as somewhat fair and another that I don’t think is fair at all.

Let’s cover the first, somewhat fair critique: that Florida (and the New Urbanists–I say this, not MacGillis) contributed intellectual fuel for the ever-present and insatiable desire that affluent (and white) people have to congratulate themselves for being the center of urban life and urban economies, and to exclude from their urban spaces people who aren’t like them, like people who actually get dirty when they work for a living, or anybody poor, or who hasn’t gone to college. Hello, Mayor, you now how have the intellectual justification you need to explain why you are going to have your BID folks harass homeless people out of downtown areas–because “creatives”, including finance types, think those others are unsightly, and those creatives are the most important class of people in your city. You have a reason to pass that no-lying-down ordinance, San Francisco, because your economic health hinges on the keeping those people away so that the creatives have a nice hygienic playspace. BTW, Richard Florida’s creative class mantra is joined by myriad other social forces in creating an environment where nobody but the shoppers, sippers, and spenders are allowed: 9/11 brought us a whole host of security rationales, appealing to the right the way Florida has appeals to the left, for why ‘those people’ shouldn’t be allowed to loiter in front of my restaurant or smell up “my train.” Particularly sad, however, is the way that Florida’s followers appeared to buy into the implied idea that creative class benefits trickle down. Trickle down. What a hateful metaphor, anyway. Making cities fortresses for capitalists and affluent professionals, it’s good for everybody, as those folks drive growth, which lifts all boats, and trickle trickle trickle trickle. It turns out that like wealth in general, wealthy enclaves are mostly beneficial to the people who get to inhabit them.

Thus, it is not fair to lay gentrification or Brooklynization at Florida’s feet. The problems with academic celebrity is that academics should be able to try out and reject ideas rather than become poster boys with $40,000 workshop fees because of a static set of ideas–that much is clear from MacGillis’ essay, and he’s right about that. There’s much to deplore there, but I doubt many people would turn down the money if it were on offer to them, particularly in the chance to go out and talk about their ideas, which academics love to do. But the Florida phenomenon is a lot like the Rogoff and Reinhart deal: their paper, not peer-reviewed, and their book (lightly peer-reviewed, likely) became cited and famous not because of the inherent power of their ideas, but because they said things that many, many people wanted to hear. So maybe there is lots of fault to go around for the Brooklynization of our neighborhoods.

The second implied critique strikes me as not fair at all, and that is the idea that Florida’s ideas about growth in the city would have informed us much about the recent recession, or what the recent recession proves or disproves anything about Florida’s ideas. Urbanists far and wide tend to think very little about business cycles or macro phenomena in general. There is so much sugar water in pretty bottles sold in urbanist thought that every model that gets out there promises us that if we only follow, we will be thin, sustainable, and wonderful in every way. Extending that to mean economically resilient isn’t much of a stretch, but I don’t think Florida made the claims that the creative class drives the macroeconomy, nor that they would bulletproof the macroeconomy–he just said they were good for urban and regional economies. As we know, scaling up from individuals to who economies is a problem, and the problem doesn’t go away when you try to scale from individual neighborhoods to regional economies (which Florida does try to do) or from regional economies on up, either.

All that said, apparently, Richard Florida is now writing a book about inequality. Sigh.

Tailgating and the downtown NFL stadium

blogdowntown has a story up about how AEG is planning to design away space for tailgating.

So I’m not sure how to think about this. On the one hand, there’s the idea that the entire space will be a controlled food court where you’re probably not going to be allowed to be unless you are buying, or where the pressures to buy are going to be high–another quasi public space in LA.

On the other hand, fires here have terrible consequences. And Brian Stowe. People can be jerks.

The Berkeley Blog: Why it’s China’s turn to worry about manufacturing

Visiting prof Vivek Wadhwa suggests that robotics and AI will bring manufacturing back to the US:

Why it’s China’s turn to worry about manufacturing:

America has been extremely worried about the loss of manufacturing to China. Seduced by subsidies, cheap labor, lax regulations, and a rigged currency, American industry has made a beeline to China.

But the tide may soon turn.

New technologies will likely cause the same hollowing out of China’s manufacturing industry over the next two decades that the U.S experienced over the past twenty years. That’s right. America is destined to once again gain its supremacy in manufacturing, and it will soon be China’s turn to worry.

China’s largest hi-tech product manufacturer Taiwan-based Foxconn Technology Group, made waves last August when it announced plans … More >

(Via The Berkeley Blog)

I’m pretty excited about our robot overlords coming soon…

Who mourns for the CRA, other than the CRA?

I’ve not posted much about the decision to kill off state funding for CRAs (Community Redevelopment Authorities) in California, largely because I haven’t really known what to think. I have students who tell me that the CRAs are absolutely crucial, but I’ve never seen any evidence of it. For example, California taxpayers chucked a lot of money into LA Live via the Community Redevelopment Authority, and we didn’t even get a bus bench or a street tree out of the deal as far as I can see. And every time I say “why can’t we pursue a TOD near this or that Blue Line station” the response is that “those are outside the authority of the CRA.” So really impoverished areas are not targeted?

So in my experience–not in my research area, but in my experience in LA–the CRA in LA puts money into already viable projects in places the extra money isn’t needed and refuses to advocate (or doesn’t advocate very well) for community design factors in addition to the project’s internal amenities in return for public investment. Stated that way, CRAs seem to be in the business of giving gifts to developers and not asking for much in return. I have nothing against developers, but I also don’t know why some deserve gifts from taxpayers for building something they’d probably build any way (and if they didn’t build it, something else could go up there) and not providing street amenities.

Two recent Op-Eds echo my impressions. Like I said, I don’t study CRAs so maybe I am being grossly unfair, but others share my assessment.

Bill Fulton in the LA Times notes that the CRAs have had every reason to avoid real risks:

When the governor proposed eliminating redevelopment, I was the only mayor in California who supported him. I did it because I believe redevelopment needs serious reforming. Despite decades of incremental improvements to the law, cities still find “blight” where there is none. They have used redevelopment to do anything and everything because the law has allowed them to and they have felt they had no other options. The result has been that one of every eight property tax dollars in the state has been going to redevelopment agencies through “tax-increment financing,” a system that sends any increase in property taxes after land is redeveloped back to the agency instead of to county coffers.

Janet Denise Kelly writes in City Watch LA’s Minorities Not Mourning Death of CRA:

The 20 year anniversary of the 1992 Los Angeles Riots is nearing. This period brought great travesty to the City and South Los Angeles in particular where buildings burned and people rebelled against social and economic injustice. Since 1992, there have been promises to rebuild South Los Angeles and to target areas for business growth and job creation. Those promises have been modest at best or maybe even lip-service to appease community members.

Crenshaw Boulevard has seen growth with the new stores, the renovations of the Baldwin Crenshaw Mall, and new restaurants like Post and Beam and Buffalo Wild Wings. The USC area has had a total makeover because of its proximity to downtown. These areas because of their political influence and middle class residents have been able to wrangle in businesses and housing developments to position them for more growth in the future.

However, the most blighted communities are still struggling due to the remnants of the 1992 uprising and have been fighting for a piece of the redevelopment pie for years to rid themselves of high concentrations of liquor stores, smoke shops, or problem business that prohibit economic progress.

Bread or circuses in austerity?

I had a coffee with one of my brilliant students yesterday, up in Silverlake. She told me that she co-produced a video on the displacement of businesses and families for FIFA World Cup development. It’s here, on her blog. Go watch. So interesting!

In addition, Mary Beard, of A Don’s Life, also has a column asking for an Austerity Olympics.

Although comments on the internet are usually proof enough that man descended from apes, there is a comment on the TLS blog that I find utterly priceless:

The only positive thing I have found in the whole ‘we won the Olympic bid’ saga is that it annoyed the French.

Ha! It annoyed Sarkozy at least, which, I must agree, is worth doing.

These sports programs…I don’t study this stuff. A smart economist once told me that it’s possible for cities to capitalize; they don’t always lose money. But when I look at the evidence, it seems these ‘circus’ events go forward for reasons that only make sense if you are a Marxist.

Goodbye to Metropolis Books

I haven’t written about the closing of Metropolis Books in downtown Los Angeles yet, largely because I though if I just ignored it, it wouldn’t actually close.

Just like with the recall election and G.W. Bush’s second term, however ignoring it didn’t work. Here is the story from the Los Angles Times on Metropolis Books as it closes its doors.

Downtown still has another wonderful bookstore—the Last Bookstore, which I wish the LA Times writer had mentioned. It’s in a lovely space. Go visit, and spend lots of money.

Another LA Stadium proposal, and another end-run around CEQA–or is it? And a Matt Kahn alternative

The LA Times ran an editorial about the California legislature’s willing to expedite AEG’s review on their Downtown LA Stadium proposal:

Legislators got the right result by the wrong process when they approved an expedited judicial review for AEG’s much-discussed downtown Los Angeles football stadium. The project is too important, and the state’s system for reviewing such projects too flawed, to allow procedure to stand in the way of progress. Nevertheless, it’s bad policy to offer special treatment to certain projects; it raises questions of favoritism and corruption to have the Legislature engage proposals one at a time rather than passing laws that apply equally to all.

They go on to make the point that CEQA, the state’s California Environmental Quality Act, is both flawed and dated, but functioning, and while CEQA can be used as anti-competition tool toward new entrants among existing businesses, these types of end-runs can also serve anti-competitive aims. If CEQA is a bad law that unnecessarily burdens businesses, then AEG is in a better position to handle lawsuits than any number of smaller developers, and yet like Majectic Reality before them, they are the ones most able to find ways to streamline the process.

It’s certainly a problem. While most argue that CEQA should be reviewed and changed, as this editorial argues, few people think we should get rid of it. It’s been an important part of slowing things down and increasing democratic participation. Part of the reason why CEQA has so few friends any more, even in the environmental community, is that it’s been used to block pedestrian and bike projects. Advocates of those argue that all we’d have to do to fix CEQA is exempt bike and pedestrian projects since they have a positive environmental impact.

But if somebody is willing to block your project, doesn’t that mean they perceive it as having a negative impact? Hey, I didn’t invent the planner world we live in, where people’s feelings are more important than the science or empirical likelihoods (nor do I like it), but if people can use CEQA to block recycling businesses because they think the industry is unsightly, I’m kind of thinking bike and pedestrian projects have to deal with democratic preferences, too, as obdurate as those are. You live and die by politics if you have given up on science as the metric for evidence, and well. There it is.

All of which reinforces, I think, the need to sunset CEQA as it is and renegotiate.

NRDC is way on board with the legislative move, for a number of reasons listed on David Petit’s blog here. NRDC sees that the state requires big, vague concessions about mitigating traffic “to the baseline” and “best in the nation mode shift”. The translation: there’s a lot of vague language in there we can use to demand more and more of the transit and urban design things we think save the world. And AEG has agreed to a public labor agreement and a community benefits agreement already. So from NRDC’s perspective, it’s not a bad deal.

Matt Kahn responded to the original LA Times editorial with his usual provocative intelligence:

But what regulator in Sacramento has the Solomon-like wisdom to balance the benefits of economic development against the costs of damage to environmental assets?

Instead, what if developers were required to post a bond to be held in escrow? The developer would lose this money if a panel of experts hired by the state determined that the project caused significant environmental damage. Projects posting this bond would be fast-tracked. Developers would gain certainty over the investment process while being put on the hook for malfeasance.

I’m thinking that as sensible as this sounds, communities would never accept the possibility that businesses had the up-front right to build. Then businesses could cause damage, pay, and walk away–even though that’s not terribly different than what we do now. (Businesses negotiate, negotiate, negotiate, get sued, withstand lawsuits, and then build, with nobody ever checking up on whether the mitigation extracted from the developers works or not). Alternatively, they could default on the bond. Can you imagine the homeowners of South Pasadena sitting still if Matt Kahn’s experts didn’t find in their favor? Me either.

Natural resource dependence

Resource and Energy Economics is has a manuscript on the economic growth associated with natural resource rich areas:

James, A. & Aadland, D., 2010, The curse of natural resources: An empirical investigation of US counties, Resource and Energy Economics.

From the abstract:

Research consistently shows that natural resource dependence tends to be associated with lower economic growth. However, the studies typically focus on differences across nations or states. We fill a gap in the literature by testing the so-called resource curse at a more disaggregated county level. Our results show clear evidence that resource-dependent counties exhibit more anemic economic growth, even after controlling for state-specific effects, socio-demographic differences, initial income, and spatial correlation. A case study analysis of Maine and Wyoming, and the counties within, highlight the growth effects of specializing in natural resource extraction.

I like the idea they have here, of testing counties, but I have some problems with the execution. They argue that looking at counties lessens the problems associated with differences in state regimes, which is true–there are over 3,000 counties.

They cover several theories on the resource curse, including “Dutch Disease”–where specialization in sectors unrelated to manufacturing minimizes that sectors’ growth potential via returns to scale and production externalities. There’s also what you might call the ‘trustafarian’ idea, where resource endowments cause people and governments to be overconfident in their economic returns, so they do not invest other sectors or human capital to the degree they should.

The authors also briefly bring up institutional differences, include a weak discussion of the role of civil strife. Here is where I have problems.
In other fields, such as sociology, the “curse of oil” or diamonds hinges on how the resources tie the economy to past colonial economic arrangements (with global corporations instead of imperial governors), concentrating wealth into privileged classes (often market-dominant ethnic majorities) who then use control over the military to enforce their economic hegemony. This cycle systematically impoverishes the remainder of the population and suppresses other possible avenues of economic growth.

It’s for me hard to tell what effect James and Adland really find here with their association between lower growth rates in resource dependent counties in the US in terms of testing these theories. We don’t really have an explanation here; it seems quite clear to me that in the presence of property regimes, different sorts of resources have different returns, and there’s no reason to believe that value or profit stays in the place it is created: ranch owners are corporate and asset wealthy; ranch workers are most assuredly neither.

I’m also not sure that we can treat agriculture as a natural resource endowment in the way diamonds and oil are.