Compression, Distance and Gas Prices

Transportation and distance can be translated in economics in several different forms. The most common is to draw iso-time and iso-cost lines so that all points on the line are equally costly or equally time consuming to traverse from that point to a common central point. Decreasing costs or increasing velocity allows for regions that were previously marginally unattractive for certain economic activity to now become attractive and feasible for a given economic activity.


For instance, reliable overnight air transport has made the proliferation of high end seafood restaurants in Pittsburgh, St. Louis and Chicago feasible as fresh supplies can cheaply be brought in while fifty years ago, the radius of fresh delivery off the docks was limited to a half day worth of driving, or maybe three hundred miles. Anything else had to be frozen and then shipped. Now the fresh off the docks time is still half a day, but that means that all metro areas served by large airports are now within the economically feasible radius.


Menzie Chinn at Econbrowser is looking at the increasing price of transportation and is advancing the idea that international trade flows will slow down or potentially decrease as the iso-cost lines are shrinking.

Several implications flow from these musings. First, more goods will now be "nontraded". This would lend more "home bias" to US consumption (and more home bias to each other countries' consumption, as well). Second, one might think that as transport costs rise, foreign and domestic goods would become less substitutable, holding all else constant...

To the extent that the development of cross border supply chains relied upon low trade costs and rapid transport, higher oil prices should be expected to retard this process.

I think we can expand this analysis to intra-national, regional analysis. The most common distance as cost trade-off people make is where they live within a metropolitan area. Shorter commutes tend to lead to location premiums/higher property prices, while living on the periphery leads to lower property prices, but higher commuting costs (both on a cash and implicit time basis). The dominant trend in the United States over the past fifty years has been to sprawl towards cheaper lands on the periphery and accepting the higher commute times and costs, partially mitigated by a trend decrease in automobile usage costs. That trade-off may be breaking down.

CNN Money is running a series of vignettes on the middle class squeeze, and the first one features a couple from my hometown of Lowell, Massachusetts. Lowell is an old cotton mill town whose mills left in the 1960s, and it has become a combination of high tech manufacturing, high tech software support, skilled craftsmen, comparatively cheap housing for people leaving the inner Boston suburbs but want to stay within the Boston city region, and a massive immigrant community with great food. It is an interesting place, and it is still comparatively 'cheap' compared to any place ten miles closer to Boston.

I work in Belmont, MA, which is in the Cambridge area. I am in LOVE with what I do....'

Sadly, my husband and I were priced out of this community when we decided to buy our first home almost two years ago. We decided to move to Lowell, about 10 minutes shy of the New Hampshire border....

I will most likely need to leave my wonderful job as program coordinator due to the rising cost of gas. It costs me about $250 a month to commute to work,

As transportation within regions gets more expensive, less movement will occur. The trade-offs are becoming more pronounced, and the value of savings on property versus the direct and indirect commuting costs may have been worth it when annual commuting costs for this individual was only $1,500/year but the trade-off reverses itself when cash commuting costs come out at $3,000/year. Depending on one's assumptions, the increase in gas costs has led to a devaluation of the Lowell property to this family of $20,000 (interest rate and amortization schedule sensisitive of course).

If we continue to see higher gas prices, which I think is likely, the peripheral and outer ring suburbs (which Lowell is one within the Boston economic region) will see a further acceleration of home price declines as people will try to move closer to their jobs and closer to the center of their economic regions (assuming job density is higher towards the center). Shorter trips and better substitution of trip modes will occur as the alternatives to driving increase in higher density places.

Pittsburgh fiscal vulnerability assessment

This is the second in an indeterminate series of municipal finance stress testing posts. Yes, exciting, I know! I'm looking at locally controlled revenue streams and how a stagnant or recessionary economy could impact the Pittsburgh budget. Again, everything here is back of the envelope, and should not be construed as a forecast of doom or a gold star for fiscal rectitude.

Pittsburgh has its budget on the web, and it is very thorough although it has far fewer convienent graphs and summary tables that collapses information in a blogger friendly fashion. I'll survive. Pittsburgh has more short term downside exposure to its projected revenues than Allegheny County because a higher proportion of its locally controlled tax base is on shiftable consumption patterns. I'll be using the recently published 2008 budget for this analysis.

Locally controlled levies make up 62% of the revenue. Property taxes make up about 46% of that 62% of locally controlled levies. The rest of the locally controlled revenue comes from a variety of real estate transaction, income, employment, business and parking taxes.



Property values are downwardly sticky due to psychology and the negative equity disencouragement for people who don't need to sell to keep their homes off the market. Furthermore, as I alluded to in the Allegheny County post, the county and thus the city assessment system is a fiasco that has no viable political incentive structure to fix. The county is the city's assessor, and since the county has decided to use 2002 as their base year, the city is using 2002 as their base year. Property taxes should be stable and near projection. There is a decent probability of increased deliquencies and non-recoverable amounts as foreclosed homes are increasing in the city, and the original mortgage payers have no incentive to continue paying their property taxes. But the estimates in this scenario should not be under significant stress.

Property taxes are the backbone of the city's locally controlled revenue and it is relatively strong. However the rest of the fiscal framework seems to be pro-cyclical in that revenue should be significantly higher in decent to good times, and lower in a recessionary/stagnant environment.

For instance, the deed transfer tax is 5% of locally controlled revenue. The city receives 2% of the value of a deed when a property is transferred. In a normal or above normal real estate market, there are significant number of transactions occurring from which the city derives revenue.
In a housing bust like we are in now, transaction volume decreases. And here is the problem for the city as the budget assumes transaction volumes will be similiar to a five year trending average when it is fairly evident that there is a discontinuity in trend.

Payroll preperation, income taxes, and the $52 per worker emergency service tax are all dependent on employment levels while the first two are also dependent on wage levels. The city is vulnerable here on three counts. The first is if we are in a recession or stagnation environment, employment is flat or decreases. Furthermore in a slow economic environment, wages don't increase. Both of these counts will lead to lower tax revenue. Further more as a macro trend, what real compensation gains are occuring are occuring in non-cash compensations such as health insurance premium payment. The city can not tax real compensation, only actual cash wages are taxable under the currently allowable tax structure.

Finally, the last big chunk of city controlled revenue is sales tax revenue, both general and specific. The city does not have a directly controlled sales tax; instead it receives funding from the Regional Asset District that controls the funds from the 1% Allegheny County sales tax. If consumer spending decreases, sales tax revenue decreases. The directly controlled sales tax revenue is the amusement tax. As you can assume from its name, it taxes truly discretionary spending. Movie tickets, Pirates tickets, for profit arts exhibitions are taxed. This is truly discretionary spending which is the first spending that will be cut when people become cash and credit constrained. I don't need to go to the Pirates game, but I do need to buy gas to go to work will be the format of the individual level decision matrix.

Pittsburgh is at risk on seeing downside surprises for the tax revenue that the city directly controls if we are in a regional or national recession or significant stagnation. The majority of the city tax revenue streams are based on pro-cyclical factors. Property taxes are the most likely group of taxes to meet their revenue projections.

Allegheny County fiscal threat assessment

Yesterday I highlighted a the general problem that most Southwestern Pennsylvania municipalities are operating on budgetary thin ice. Today and probably tomorrow, I will look at some of the bigger units of government and see if they could face revenue side problems if the economy significant slows down. All of my statements will be back of the envelope statements and should not be construed as an endorsement of doom or a gold star for fiscal rectitude.

I'll start with Allegheny County's 2007 budget as a decent baseline for where the money comes from and where it goes. The budget office has a good website, and I'm pulling everything from the Budget Summary. Here are last year's revenue sources:

• Property Taxes (45%)
• Passed through sales taxes (2%)
• Fees for services etc (7%)
• State Transfers (25%)
• Federal Transfers (16%)
• Other (interest earnings, foundation grants etc) 4%

The county has since raised two new taxes, the 10% poured alcohol tax and a $2.00/day car rental tax. These taxes will generate roughly 4.5% to 5% of FY-08 revenue and be passed onto the Port Authority (the local public transit agency).

Allegheny County is not particularly vulnerable to a temporary slowdown for its locally derived revenue. Few taxes are being levied on high substitution, voluntary goods such as alcohol. In this case people if they are feeling the pinch do not need to drink at a bar, as they could drink much more cheaply at home, or they can downshift their consumption at a bar. For instance instead of order two four dollar Troegs and generating $0.80 in tax revenue for the county, the same person could have ordered two two dollar Yuenglings, generating $0.40 in tax revenue for the county. The poured drink tax and the car rental tax are probably the most variable taxes that are dependent on the economic environment and mood.

The county does not significantly rely on sales taxes for revenue. It receives some money through the general 1% sales tax administered by the Regional Asset District, but this is a small source of funding. The sales tax is vulnerable to drops in consumer spending, but there is a rough baseline of staples that people must buy. A drop or decrease in growth for this revenue stream is very plausible, but it should not be severe.

The dominant tax under county control is the property tax. This tax should produce nearly constant revenue streams for at least FY-08. This will be the case for a couple of reasons. First Pittsburgh as a market has not been deflating as fast as the bubble markets because we really did not see the bubble. Secondly, and more importantly, no one at any level of politics who faces frequent election wants to touch the assessment debacle with a forty foot pole. Currently the county is assessing property taxes based on 2002 assessed values and dealing with appeals on a case by case basis. There is no likelihood of changing the assessment to see which homes increased and decreased in value in the past six years. This is stable for a year or two, although if significant number of people are underwater, growing political pressure will create strong incentives for county leadership to do something.

Overall, the revenue that the county controls should be fairly resilient for a single bad year with some slight decreases in trend lines and growth rates from the sales taxes. The county is still very dependent on state and federal appropriations but that is another post for another day.

The land of the free.......

The New York Times has a story on the prison population of the United States. 1% of the country is served time behind bars and many more are relegated to third class status because of previous interactions with the criminal (and occassionally justice) system:

Nationwide, the prison population grew by 25,000 last year, bringing it to almost 1.6 million. Another 723,000 people are in local jails. The number of American adults is about 230 million, meaning that one in every 99.1 adults is behind bars.

Who is IOZ has a sobering take on this that is worthwhile to think about on a couple of levels.

I want you to consider, the next time you read some New York Times mouthpiece yammering about an "increasingly authoritarian Russia," or about the repressions of this or that state in the "Muslim world," that a person is more likely to be thrown in jail in the United States than in Saudi Arabia.

Past a certain point of near universal crime (rape, murder, robbery etc), crime and punishment are what societies make them to be. Fearful and insecure societies will have lots of both, while confident and strong buy-in/high social capital societies will have a bit less.

The United States as a whole is fearful and insecure and split along some standing fault lines of collar, race, class, and religious belief, fearful of an other. This fear has been exploited in one way or another to cement political power within this country since the Mathers ran Roger Williams out of Massachusetts and down into Rhode Island. This fear is what fuels the war on some drugs used by some people at some times instead of treating drug usage in the same manner as alcahol usage --- available to adults and the proscriptions are against behaviors fueled by that drug use that endangers others such as drunk driving instead of enjoying a couple of cold ones on your front porch on a warm June night. Fear of the other and fear of the cities containing the other fuel this binge of prison building. And it has been politically profitable for the relevant actors despite being an aggregate disaester.

Furthermore, it does not look like anyone has a strong incentive to change the basic structure of the criminal (justice) system on non-harmful crimes. We know America's prisons dual serve at great fiscal and treatment opportunity cost as back-up mental hospitals, we know that prisons are an amazing place for soft criminals to gain a graduate level education to become hardened criminals as there are few/no viable alternatives to employ their skill sets legitimately if they have a felony conviction, and we know that most prison costs are borne by state and local governments which will be facing a quadruple fiscal whammy in the next couple of years. There are viable diversion, and prison reduction programs that produce very low recidivism rates, very high human impacts, and do so at a third of the cost of a year in prison and yet these will not be funded. Instead prisons will continue to be built, guards hired, and state and local budgets stretched ever thinner as a nearly uncuttable cost continues to increase.

Municpal Government Distress

All of the big financial bloggers are chasing down bankruptcy rumors of Vallejo, California, but I want to focus a little closer to home to an area that has already had several effective municipal bankruptcies handled by the ACT 47 law. the rest of the region is also in trouble.

The University of Pittsburgh is finishing up an analysis of regional governmental financial capacity and it is not pretty. The Post-Gazette is reporting most of the region has some bad spending habits:

The analysis was produced by a team at the University of Pittsburgh Graduate School of Public and International Affairs.

Between 2000 and 2005, the latest data year, 58.5 percent of the region's municipalities had two or more deficits and 80.2 percent had at least one....

Professor George W. Dougherty, who directed the study. "Healthy communities run a small annual surplus that allows them to build a rainy day fund and budget for long-term capital and infrastructure needs. Governments that run regular deficits, commonly defined as two or more annual deficits in a five to six year period, show significant signs of fiscal distress."

I would imagine given the froth of the housing bubble that if you replaced 2000 with 2006, the number of communities running a single deficit and multiple deficits would decrease by a small amount. The analytical period in question had a short recession that had minimal real impact on real estate values but a decent impact on wages and then several years of decent to good times where the cyclical flow of funding/expenditures should lead to short term surpluses if a municipality has a structurally balanced to structurally surplus budget.

Between the bursting of the real estate bubble and continous rational voter pandering against re-assessing real estate at near market values, the region's governments will be facing a tough couple of years. Budgets will be cut, services reduced, and maitenance on the locally decrepit infrastructure will be deferred or minimized.

Pittsburgh and its city region may have more severe cuts and contraction than most regions as this area has an older population, lower income growth which means less wage tax income for municipalities, and a declining population so fixed costs are higher on a per capita basis as time progresses. However the same basic squeezes that will be impacting this region today and in the future, namely declining real estate values, declining sales and income tax revenue, higher costs of borrowing and higher employee costs due to healthcare will be impacting most municipalities.

Retrenchment will occur as most if not all local governments have balanced budget constraints of varying strength. Retrenchment is pro-cyclical which means it will make the current trend of slow growth or recession more severe. And since local governments rely heavily on a revenue source (property taxes) that is bound to get hammered with a secondary dependence on income taxes, this trend will be severe and potentially self-reinforcing.

Pittsburgh Bond Risk Assessment

I've been worried about the turmoil in the bond insurance market as Pittsburgh has massive amounts of debt that it will need to roll over in the reasonably near future. I have spent some time over the Christmas break reading through the 2005 and 2006 bond reports and a little more digging, so when I saw this story at Calculated Risk this morning, I was able to breathe a little easier:

Fitch Ratings on Wednesday said it may cut its ratings on certain residential mortgage-backed securities insured by MBIA Inc, Ambac Assurance Corp, FGIC Corporation and Security Capital Assurance.

Fitch said it may cut 87 MBIA-insured mortgage bonds, 64 Ambac-insured bonds, 35 FGIC-insured bonds and 19 SCA-insured bonds.

Fitch is basically saying that they don't trust the value of the insurance on these bonds, which given what has gone on in the credit markets makes a whole lot of sense. However, when I went through the two most recent general obligation bond reports, the city does not have any clawback mechanisms on the interest rates as confidence building measures for bond holders. The bonds were sold as AAA with insurance and anything that happens after that which impacts the ratings is borne by the new bond holders. That means there is no short term fall-out.

The intermediate term fallout and increased expenses for the city will come when the bonds start to balloon mature in 2009 to 2011 from these two tranches. The city will not have enough cash to pay those maturing bonds off, so they'll have to rollover the debt or at least a significant portion of it. At that point the city's recent slightly improved credit rating of BBB comes into play if the guarantee value of bond insurance is near nil. At that point the city will be paying significantly higher debt service costs.

Creating your own nightmare

Successful organic redevelopment of mixed use neighborhoods is a long slow process that requires multiple types of people with very diverse sets of needs and objectives. The most typical model is a simple model where the neighborhood becomes cheap enough for adventurous, risk loving individuals can buy in to conduct low margin businesses that add to street life and provide a baseline of services (coffee shop, newspaper boxes etc.). Artists usually play this role, and they bring in street life, attention and 'buzz' which means a little more money, a little more perception of opportunity and security, and thus a new wave of people with slightly more risk aversion but still risk accepting as a whole. Rinse and repeat through several cycles until the neighborhood gentrifies.

The Pittsburgh City Paper is telling the story of a micro-neighborhood in Pittsburgh, Polish Hill, which is looking to build that type of redevelopment pattern. My favorite dive bar in the world is in Polish Hill, and it is a great little high density, mixed use neighborhood.

And by one measure, at least, property in the neighborhood is moving faster this year than it has at any time in the past several years. According to a check of the Multiple Listing Service (MLS) for real estate, it's been taking just over one month for a Polish Hill property to be sold after it is first put up for sale. Last year, it took roughly four months, and in 2005 and 2004 it took between two and three months.

Could Polish Hill be the next South Side or Lawrenceville?...

Unlike those increasingly trendy neighborhoods, "Polish Hill is still mostly a bargain," she contends. "The affordability, proximity to the universities and Downtown, and the views are key factors in recent interest,...

one of the three properties that Joseph Reichenbacher has under contract, he hopes to bring new investment to the neighborhood: His Project 53 Musician Resource Center, currently run out of a handful of basements, provides a free music library, instruments and lessons for kids. He hopes that it will expand to include activities like recording and silk screening. He also plans to connect potential sellers with close friends who are interested in buying places in Polish Hill.

"[Polish Hill] is one of the last real hopes for community and ... working towards a common goal -- a more self-reliant existence," he said. He is, in fact, concerned about what might happen to Polish Hill if it becomes a trendy place to live. "I want a diverse neighborhood. I'm really afraid of gentrification."

If Project 53 and similiar projects are successful in attracting attention and activities, they will produce the pathway of gentrification. Success will doom his vision of the neighborhood.

I'm Back with punch points

Finally, I can write again, as I spent a very intense, informative and productive week in Baltimore speaking with twenty five hundred fellow geeks, nerds and statheads at the American Evaluation Association Conference. I picked up a few interesting techniques, a lot of business cards, a fonder appreciation for crabs and an extra week of comp time off; not bad at all. Between being consistently busy, not having a working laptop (more on this in a minute), and a very finicky public terminal in the hotel lobby with the most sensitive filtering software ever (Kevin Drum was considered 'controversial' and blocked), I had no ability to write intelligently. And when has that stopped me.....

• Some very interesting social networking and influence mapping within the academic blogosphere should be coming out of Florida State University in the next year or so. I was able to speak to the researcher for a good hour and while the findings within the academic sphere differ in context, there is a lot of work that cross-walks very well into the political blogosphere.



• Attending a session on blogs at a conference is an interesting event as the self-selection and segration of the audience between the bloggers (about 20% of the crowd), blog readers, and people who have heard about blogs but don't really know what they are. The bloggers are nodding their heads and smiling, the readers learn something new such as bloggers communicating with other bloggers using their real names and not noms de plume, and the hearers still believe that blogging is a revolutionary and system changing communication mechanism.



• I really do not like the Inner Harbor's architecture as a means of revitalizing a neighborhood district; the blocks are too big, too long, and too unfriendly. The most notable example was on the harbor side of President Street and Pratt Street where a multi-story parking garage first destroys the sight lines of the low rise buildings on the opposite side of the street side of the harbor, and then exists primarily as a blank wall for three blocks. This was a massive edge and boundary feature which forced people away from the harbor. There were too many examples like this, including the Rennaiscance Hotel, the convention Center, the 1st Mariner Arena. I was coming back to my hotel from the Inner Harbor after dinner on Thursday night, and in the six block walk on a decently warm night, there was almost no street presence of any sort. All of the public space had been privatized and monetized. I did not feel particulary safe as there was no personal, random and inadvertent shared street level surveillance. When I walked down Charles Street into Mount Vernon, the district was poorer, less patrolled, but felt far safer as there were other people around me.



• Losing the information feeds/overload that I normally have from blogging is an interesting experience. Hopefully the time off will refresh my writing
• Time to play catch-up and hope that my spam filter has a very low false-positive rate.

Parking, commuting and tax incentives

I was going through the Blogburst leaderboard and saw Don't Mess with Taxes and they had an interesting little explanation of a program that my employer offers and I take advantage of to pay for my monthly bus pass:

Transportation Reimbursement Incentive Programs (TRIP) can help you save tax dollars based on the cost of your daily commute. This essentially is an FSA for some commuting costs. Your pretax payroll deductions go into a TRIP account from which you are reimbursed to pay for transit passes or, in some cases, qualified parking expenses.

The monthly maximum you can contribute for mass transit (buses, trains, els, subways, etc.) is $105. The monthly maximum for parking-related expenses is $200. [emphasis mine]

This tax benefit buys me an extra lunch or two a month. For me it is a stupid benefit as it is not changing my behavior. I would still be taking the bus into work every morning even if I was not gaining a tax advantage as the bus stops within 50 meters of my house, drops me off three blocks from the office, and is reliably faster than sitting in traffic.

However the mixture seems a bit off to me on the disparity between the public transit versus the parking deduction limits. If one has a goal of reducing congestion, making it cheaper to drive into town does not do a whole lot towards that goal. If the goal is to reduce gas usage and carbon dioxide emissions, it is a bit trickier as the subsidy could be argued as a conservation measure if it means more people are willing to work in a dense central business district instead of in free parking suburbia where more driving is needed by most employees to get to the office.

On first glance, if I was a Congress critter, my idea would be to equalize the two benefits by dollar amount with the objective of being revenue neutral, so a slight bump up in the transit limit and a significant decrease in the parking limit with the idea of making the marginal incentive to drive alone into the central city slightly less attractive.

Innovation or Extraction

Cities are horrendously expensive, seemingly inefficient and multidinously redundant in the provision of basic services. Yet despite these detractions, they grow tremendously during periods of significant and sustained economic growth. They grow into new orders of complexity and social organization while their hinterlands receive the stagnant economic activities and simpler chunks of replicable social organization that previously had been highly advanced.

This is because the primary economic advantage a city has over any other settlement pattern is its ability to be a reasonable safe and facile mixer of people with loose ties. These broad, flexible networks contribute to local resiliency and high levels of innovation. These networks rely upon a high level of complexity to function effectively, and this complexity requirese massive amounts of energy and money to become effective and efficient.

Mike Madison at Pittsblog notes that some of the cities that were the most innovative during the 90s are stagnating again. San Fransisco is hollowing out as it has priced its young people out of the city as the city has not created enough jobs in highly productive but low efficiency start-up fields; Toronto's Golden Horseshoe is being buried by Alberta's Frozen Oil Patch which is driving up the value of the Canadian Dollar and depressing manufacturing.

On the other hand, truly innovative cities are still flourishing --- Business 2.0 via CNN is reporting on a new planned city that sounds amazing:

It may seem strange that the emirate of Abu Dhabi, one of the planet's largest suppliers of oil, is planning to build the world's first carbon-neutral city.

But in fact, it makes a lot of financial sense. The 3.7-square-mile city, called Masdar.....

"If they can construct a zero-carbon city in this climate, you can do it anywhere," says Richard Young, a research manager with SustainLane, which evaluates sustainable cities and products. "It will have tremendous economic impact."

The cities that are booming now are the cities that serve as extraction administration points. The oil cities and states such as Russia which produces little exportable other than decent weapons and easily burnable hyrdrocarbons are able to reinvigorate their decrepit cities and redeploy their navy to their near and medium abroad while Venezuala can drive down its poverty rate while cutting large hard currency arms and debt deals.

These are the cities and economies that fade behind during innovative booms when the innovative city regions are able to leverage their higher fixed costs into new products, new means of efficiencies, and higher levels of resource intensity and productivity. The innovative cycles drive down the raw material content of each marginal dollar of GDP, depressing the demand pressure on the raw materials. Non-innovative cycles conversely encourage people to do more of the same thing with minimal changes in resource efficiency and we are at this point in the economic see-saw.

However, I want to get back to Masdar, as there is innovation going on in the world, and it is impressive innovation for a carbon efficient city, much less a carbon neutral city has significant structural differences in its infrastructure and lay-out than a carbon-inefficient city. People will see the pilot innovation and reproduce this set of innovations elsewhere, spurring local economic development. I know for a fact that China is attempting to do the same in Tjianian and other major industrial cities on its northeastern coast.

The relevant question for individual cities is where the money pools up to offer the best short term returns. Will it stay in resource extraction regions and high replication fields, or it will start shifting back into high innovation and unique product development... the answer to this question will tell you where the growing and vibrant cities of tomorrow will be.

Catastrophic System Failures

Modern cities need several types of public utilities and services for them to not degrade into death traps and cesspools. Water, sewage, trash, fuel, and electricity are the most prominent non-security public services and goods. And these distinct systems are highly inter-connected. Water distribution needs fuel and electricity for pumping while the electrical system needs water for steam conversion and cooling of the generators, and fuel for the generators. Trash removal needs fuel for the trucks that are capable of removing a sufficiently high quantity of waste in a short time period.

Significantly degrade one system such as electricity and the other systems will be impacted under the best of circumstances. In Baghdad, the successful attacks on the electrical generation and distribution system of systems has created a combination of demand destruction, black-market activities that profits from system disruption and local work-arounds including private diesel generators. In normal situations, these workarounds and demand destruction have stablized the networks at a much lower level of effectiveness. However not every situation is normal even if it is predictable. The high levels of heat in Baghdad during the summer are completely predictable but the stress on the already broken electrical system is having significant second order impacts as the Guardian and the AP are reporting:

Much of the Iraqi capital was without running water Thursday and had been for at least 24 hours, compounding the urban misery in a war zone and the blistering heat at the height of the Baghdad summer.

Residents and city officials said large sections in the west of the capital had been virtually dry for six days because the already strained electricity grid cannot provide sufficient power to run water purification and pumping stations.

The takedown of the electrical system due to a combination of deliberate sabotage, age, and regional re-routing of available power is now taking down the water distribution system. Without clean water, cities of any appreciable size can not function without the frequent occurrance of disease. Baghdad's already low equilibrium of organization most likely will be knocked even lower if water can not be quickly restored.

This second order system disruption feeds into the chaos which promotes people to distrust abstract national governance and loyalty and rely on local organizations based on more visible and available identification.

Many Baghdad residents have banded together to use power from neighborhood generators, but the cost of fuel and therefore electricity is skyrocketing. Diesel fuel was going for nearly $4 a gallon on Thursday.

As expected in the midst of a water shortage, the cost of purified bottled water has shot up 33 percent. A 10-liter bottle now costs $1.60.

``For us, we can buy bottled water. But I'm thinking about the poor who cannot afford to buy clean water,'' said Um Zainab, a 44-year-old homemaker in eastern Baghdad. ``This shows the weakness and the inefficiency of government officials who are good at only one thing - blaming each other for the problems we are face.''

This is not the way to win a counterinsurgency campaign....

Urban Policy -- Downsizing the Obsolete Areas

Michael O'Hare at the Reality Based Community raises a recurring and always interesting urban and economic policy question:

What should be done about places that have lost their economic reason to be populated?"

or

"Is there a humane way government can help obsolete regions to grow small gracefully?"

I'm thinking about places like Atlantic Canada, the Northern Great Plains, New Orleans, some swathes of the rust belt at the large scale, and poverty-blighted urban neighborhoods at the small (most of inner Detroit).

Pittsburgh is a region long familiar with this question as it has known it was vulnerable to single industry economic obsolence since at least the 1940s. The Steelworkers knew that the massive concentration of work in the region meant that the region was at risk, and by 1983 when the last massive wave of mill closures went through the region, they had adapted as best as possible a strategy of cost mitigation instead of confrontation. Over the past thirty years, the Pittsburgh region has dealt with the decline of its heavy industry in a variety of ways -- bio-mechanical engineering, health services, financial back end services, non-profit sector growth, public economic development funding, and massive out-migration. One of the other ways that we as a region have dealt with this problem is by ignoring local concentrations of massive failure. The city of Duquesne is one of those anti-bubbles.

Chris Briem at NullSpace is tracking the fall of Duquesne and its regional policy implications as there are other communities that are almost as weak as it, and whose institutional social and economic capital reserves are also rapidly depleting. Chris notes that these failures tend to be non-linear and cumulative death spiral:

the most concrete government reform going on is happening almost by accident as the Duquesne School district progresses toward disincorporation and everyone else rushes to catch up. It must be some version of the second law of thermodynamics. Has there ever been an example of government behaving in a more reactive way? It's not like this has all come out of the blue. The worst disasters are not the things that come out of nowhere, but the things you see coming but just ignore.....

What sane person will want to move to Duquesne if it means they are forced into some proverbial crap shoot with the state deciding which neighboring school districts their children will be 'assigned' to. Is this a death sentence for the municipality as well? There have to be ramifications that have not even been thought of yet. Take the situation of neighboring West Mifflin which is slated to get some or most of the displaced Duquesne students. Those parents are angry and upset ....

I speculate they reflect a straightforward forecast of the school districts' demographics and past migration patterns. If there is some abnormal event that makes a particular district more unattractive (like the schools shutting down completely for example) the additional migration impact would not be incorporated into these numbers.

People are, as the economic term of art go, 'sticky.' They like to stay where they can if they can even if there is a better solution somewhere else. Some people are less sticky than others. For instance a twenty three year old recent college graduate with low to no student loan debt and a marketable degree is far less regionally sticky than a fifty five year diabetic on dialysis with six more years on his mortgage, seven more years to full pension and medical benefits in a job that he really does not like anymore but can not afford to go to COBRA or lose coverage entirely. So how do towns and regions downsize gracefully while respecting the stickiness factor as communities in distress are most likely to lose their least sticky individuals and families first.

Restricting flow and option space

I have been slowly following the ongoing anti-bridge campaign being carried by the Iraqi insurgencies for the past couple of months. The basic strategic goal of the campaign is to reduce option space and create more bottlenecks and chokepoints that force a predictable pooling of targets and rent seeking opportunities. USA Today is reporting of another successful highway overpass being dropped south of Baghdad:

Suspected Sunni insurgents bombed and badly damaged a span over the main north-south highway leading from Baghdad on Tuesday — the third bridge attack in as many days in an apparent campaign against key transportation arteries.
The attack occurred 35 miles south of Baghdad and just six miles south of a bridge brought down on Sunday...

About 60% of the bridge was damaged, and cars could still pass over it via one lane, police said. But debris from the blast fell on the main north-south expressway below, further complicating efforts to reopen that main artery, closed after Sunday's blast dropped masses of concrete onto the roadway.

On Monday, a parked truck bomb destroyed a bridge carrying traffic over the Diyala River in Baqouba, 35 miles northeast of Baghdad. There were no casualties, but vehicles were being forced to detour to a road running through al-Qaeda-controlled territory to reach important nearby cities.....

Earlier this month, a bomb heavily damaged the Sarhat Bridge, a key crossing 90 miles north of the capital on a major road connecting Baghdad with Irbil, Sulaimaniya and other Kurdish cities.

In March and April, three of Baghdad's 13 bridges over the Tigris River were bombed. The attacks were blamed on Sunni insurgent or al-Qaeda attempts to divide the city's predominantly Shiite east bank from the mostly Sunni western side of the river.

It has long been a common belief that the Shi'ite militias have been winning the battles to control significant chunks of Baghdad's previously mixed neighborhoods, while at the same time, the Sunni Arabs insurgencies have controlled the access to Baghdad from the northeast, north, west, south and southeast. It is through the control of the logistics pipeline that the Sunni Arab guerrillas will be able to isolate the city and localized the strength of the Mahdi Army and the Badr Brigades. Baghdad can not function as a modern city with all of its road and air links to the outside world cut.

Each individual bridge attack is relatively insignificant as there are sufficient bridges to allow for re-routing with minimal marginal cost. However a systemic campaign on the same routes, even against the easier to replace highway overpasses, will begin to slow down the already restricted flow of commerce and supply into the city.

Tim F of Balloon Juice made an interesting analogy to me in an e-mail this morning on the functionality of cities and populations under stress:

In ecology they say that a population under tremendous stress can lose diversity well before it loses numbers, as the least stress-tolerant variations begin to die off first. Then, when the population has few evolutionary routes
left open to it, an orthogonal stressor can arrive and the end comes surprisingly fast.

My feeling is that the same could happen to us. Our convoys could keep rolling at the same rate as always, giving the impression that everything is fine. But come the day when we only have one bridge left over which we can roll, well...

The flow of supplies to Baghdad from the south and from other areas in Iraq may not be restricted as long as there is rapid reconstitution and reconstruction capacity. However the variety of goods, and the cost of shipments will continue to increase as the United States and any other major user of the Iraqi road network will continue to be funnelled into a narrower option space. The road network is transforming from a reasonably resiliant system to a narrower, and more brittle system with more single points of failure.

Pittsburgh Property Tax Fiasco in the works

The most reliable political landmine in Allegheny County politics is not failure to provide good care to the area's seniors, or running your municipality into bankruptcy or defunding the public employees' union pension funds or all three at once. Instead the biggest and most predictable landmine in the region is the property tax re-assessment debacle.

The Post Gazette has a history of the recent re-assessment schemas in place:

From a 1996 assessment freeze, to two years of court-imposed across-the-board increases, to two rounds of annual reassessments, to a three-year "breather," to a "base year," property owners have seen just about every trick or technique in the book except one: stability.

Everyone one of these systems has produced massive political outcries as someone's house is bound to be over-assessed, correctly assessed after being under-assessed, or magically relocated into another county by a drunk assessor. The current county executive, Dan Onorato, won his first term by running against the incumbent's failure to get a 'good' assessment in. Part of the 2002 assesment problem was that it showed rising property values for likely voters which neccessitated higher taxes if no other action was taken.

Onorato instituted a 'base year' system where all property values in the county were frozen at 2002 levels. Therefore the only way communities could raise new revenue was by increasing the millage rate. Local homeowners sued saying that the static picture does not capture the changes in value and thus effective tax rates as neighborhoods improve or decline.

The judge agreed with the homewoners in a massive ruling (big PDF) that also declared the base year system unconstitutional due to the Pennsylvania uniform taxation provision.

This will become a massive clusterfuck to end all regional clusterfucks, including the decision to raze a good chunk of the Central Northside to build Allegheny Center. As the Angry Drunk Bureaucrat points out, no one wants to be identified as being responsible for anything concerning a new property tax system:

Now, here's the bad news to homeowners: there is not going to be a simple resolution to this problem that actually complies the State constitutional uniformity clause. Somebody's going to be pissed no matter what decision and somebody is going to get screwed. No politician is going to take the blame for how screwed up everything is. It's an unwinnable situation....

The political impulses to run and hand this problem off to someone else will overwhelm the public policy interest of having a tax code that is reasonably fair, reasonably easy to implement, and reasonably transparent. No one will have any predictabilty for their property tax payment profile for the next five years.

Instead, everyone will blame Judge Wettick and he'll become the evil boogeyman. In a way this will be a good thing as the evil boogeyman role can be a useful advancer of needed public policy reforms when the individual political incentives are to demagogue against those reforms. However I also predict that there will be a significant and well supported recall effort against him the next time that he is up for retention. Additionally, the local political response will also include several variants of the plans in Harrisburg to abolish property taxes and replace the revenue with a combination of new income taxes, sales taxes, unicorns, and consumption taxes.

The Pennsylvania Supreme Court will have to review and hear the appeal. If they decide to re-affirm the portion of the decision that declares a base year assessment scheme to be blatantly non-uniform and thus unconstitutional, Allegheny County's political food fight will be a mild affair compared to some counties such as Mercer and Butler County that have not re-assessed since 1969 or 1970. This should be good blogging grist for the next decade at least as it works its way out.

Social Norms for System Stabilization

Yesterday afternoon was a busy one for me. I had to work, I had to do some house and yard work, and then I had to pick up my little brother from the Greyhound Station. Throw in a pretty powerful thunderstorm that my rose bushes will love over the next couple of days and I expected traffic into the city to be a bit rough.

And then there was a vaguely specific bomb threat against the three great natural choke-points on most regional commutes --- Fort Pitt, Squirrel Hill and Liberty Tunnels. The state police shut down these tunnels at the height of rush hour in order to do a quick scan, thus forcing commuters to either sit still or find alternative, lower capacity routes out of the city.

As I was driving into the city via Squirrel Hill, inbound traffic was a mess while outbound traffic was at a standstill. The system had overloaded. Part of the problem of the overload was individualistic gain seeking at the cost of significant system delay. The most common and costly means I saw was the car seeing that the line that they were in was not moving, but still proceeding into the middle of an intersection and sitting there for two light cycles blocking all movement.

I wonder how much system resiliency can be built by changing basic social norms so that the imperative to be an asshole that freezes the local network is decreased. If everyone had not gridlocked, the traffic snarl-up through a major alternative route would have been significantly less.

Urban resiliency

I have been struggling to articulate a disagreement with a portion of John Robb's analysis of probable future trends in system wide resilency and damage mitigation efforts as he wrote in Brave New War a probable reaction to instability and system disruption:

Members of the middle class will (take) matters into their own hands by forming suburban collectives to share the costs of security --- as they do now with education – and shore up delivery of critical services. These “armored suburbs” will deploy and maintain backup generators and communications links; they will be patrolled by civilian police auxiliaries that have received corporate training and boost their own state-of-the-art emergency response systems.[emphasis mine](h/t William Lind for the quote<)

Dispersal and hardening works really well when the threat is a fairly indiscriminate, large area weapon or system of attacks. The best example of this defensive response was the dispersal of ICBM silos so that any single incoming warhead could only target and not necessarily destroy a single silo. However, unless the residents of the 'armored suburb' are either exremely wealthy or are willing and able to pay significantly higher taxes, the probability of a large number of these armored hedgehogs on the exurban fringe becoming economically feasible are minimal.

If I understand the concept correctly, these communities would be self-contained and self-sufficient for short to medium lengths of time if the multitude of networks in which they participate in (medical, water, waste disposal, electric, natural gas, petroleum, communication, economic, security) were to be cut or at least severely restricted. The self-sufficiency would be achieved by a combination of local production of the minimally needed goods and services and the maintenance of large reserves of critical goods.

Building these networks out of whole cloth are very expensive.

A superior alternative may exist in restructuring the nature of existing urban infrastructure if the primary threat are discriminating, localized attacks. Cities have multiple redundancies already built into their infrastructure and rapid reconstruction/re-routing capability. If this is combined with an increase in micro-local production of critical goods and services such as fuel-cell electrical generation, urban wind farms, small cistern storage to relieve rapid draining from storm water due to the high level of impermeable surfaces in urban environments are some of the simpler resiliency increasing activities that can be undertaken today or in the near future.

Additionally dense urban environments create a multitude of demand reducing elements. For instance New York City's residents are demand significantly less energy per capita than the typical suburbanite or average American demand load. This reduction is gained through the dense interconnected and fairly resilient transportation networks, the multi-use neighborhoods that dominate the city and the shared walls and high building density that allows for lower heating, and cooling costs.

I can see the elite of the elite further isolating themselves from the American urban environment, as that has been a trend of the past hundred and thirty years in the America. However for most people, there is a strong argument that medium to high density, mixed-use urban infrastructure provides greater resiliency from a series of attacks today and in the future at a lower total and individual cost than retrofitting existing suburbs or building new communities on the exurban fringe.

Pittsburgh Fundraising Problem Update

The Pittsburgh Tribune Review is reporting a little more on the donations that were made by an attorney for a local woman who has moderate dementia. These donations went beyond four $10,000 donations to local Republican candidates. Significant sums also went to local charities, including Catholic Charities of Pittsburgh. The Trib is reporting Catholic Charities is returning their gift to the estate. There are a couple of more details about what is going on:

"Charles McCullough, a Downtown attorney who's running May 15 for Allegheny County Council's Republican at-large seat, helps administer that trust. McCullough's wife, Patricia Ann, heads the charity.

McCullough also is involved in a nonprofit charitable foundation created last year in Jordan's and her late husband's names....

Mr. McCullough is thoroughly tied up into Mrs. Jordan's finances and since he has power of attorney, he has control over where most of the money can go. Interesting, especially when we remember that one of the board members for the foundation that he is involved with received a $10,000 political donation.

County Council members Vince Gastgeb, Jan Rea and Susan Caldwell.

Gastgeb and Rea have returned the money. Caldwell has said she also planned to return the donation. All three said McCullough did not tell them Jordan suffers from dementia. Allen has not returned calls seeking comment.

I wonder why Judge Allen, the board member referenced above, is not returning phone calls. This just sounds odd. Most people who are marginally connected with Mr. McCullough and the foundation also believe that this sounds odd and are running from the hint of impropriety.

"(McCullough) has been a long-time friend but, when I heard about these contributions, I was uncomfortable with what had happened, and I resigned from the foundation," said Roddey, a Republican.

Roddey said he returned the $1,000 stipend he was paid for attending a foundation board meeting last year. Gastgeb, another member of the foundation's board, said he also plans to return his $1,000 stipend.

NYC Green House Gases

I am an urbanist. I grew up in a medium size mill city northwest of Boston, I moved to Pittsburgh for college, explored Paris for five months of bliss, and went to graduate school to gain a greater understanding of the complexities of urban economies.

Cities fascinate me as they are a melange of interacting chaos upon which we try to impose an understandable degree of order and indexing. I am also amazed at the continuous stream of externalities that cities generate; art, innovation, societal arrangements, experimentation and efficiencies.

The trend for the past six hundred years of Western history and the past hundred and fifty years of world history has been towards ever greater urbanization as the rural population first moved to the cities for increased economic opportunity, and then the urban populations started surviving due to improved public health measures. This trend will continue and on global warming it is a good thing.

New York City just released its evaluation of its CO2 footprint [big PDF] and the raw numbers are very large, which is to be expected as New York City has 3% of the country's population. However New York City is extraordinarily carbon efficient compared to the rest of the United States. The typical NYC resident directly emits 33% of the CO2 compared to the typical US resident.

Most of the efficiency is due to the high density of the city which allows for a massive and highly used public transit system. However building efficiency is also present as heating and cooling costs are reduced due to the number of multi-unit buildings. Row houses, townhouses, co-ops are all more efficient to use for internal climate control purposes than detached single family homes.

The CO2 intensity of the city is even higher when compared to the US average because NYC has a higher Gross City Product/capita than US GDP. New York City's economy and urban geography is a unique geography, but it is an existence claim that stabilizing and reducing CO2 emissions can occur without compromising economic viability.

Transportation Costs and Political Polarization

Last weekend I was able to finally meet Mr. M for the first time. He was in Pittsburgh to visit Mike from Comments from Left Field so the three of us got together for breakfast and arguments. Five hours later, I had to leave due to a previous curling commitment, the debate was barely started. The discussion ranged wildly from beer, to breakfast, budgetary constraints, isotope monitoring, urban fragmentation, the upcoming election and who knows what else.

One of the areas of disagreement is the nature of polarization in American politics. Mr. M is extremely concerned that polarization in the United States is getting to the point that you typically see before armed insurrection takes place. He pointed out the eliminationist rhetoric of right wing pundits such as Michelle Malkin, and the bifurtification of reality perception on a wide variety of subjects including Iraq, the nature of the fight against terrorism, and the economy.

I disagree with him that polarization is an overwhelming concern for the 2008 election for a variety of reasons. The first is that a polarization strategy is not a winning electoral strategy any more. Polarization was adequate to get Bush to the margin of uncertainty in 2000 from which a successful 30 year project to make segments of the government Republican friendly was able to get him in, and then polarization combined with massive fear mongering was successful as an electoral strategy in 2002 and 2004. It failed completely in 2006, as marginal Republican voters had finally decided to look at reality without fear shaded glasses and switch their votes to Democrats.

However during this conversation, I was thinking about the evidence of localized political homogenization and its causation. From that Slate article:

"during roughly same period—1976 to 2000—geographic segregation by major-party affiliation at the county level increased by 47 percent.......

I wonder how much of the polarization of politics can be attributed to the decreasing costs of transportation? In political science, the public choice models predict that people will sort themselves out to communities and groups that reflect their own near ideal personal policy preferences. As with any theory in social science, there are some massive caveats with this modelling approach, most notably that the transaction costs are non-existent, and that the location decision is based solely on public policy preferences. The strictest versions of these models could not allow for significant moving costs, or a desire to stay in one town because the rest of your family lives there. However follow-on efforts produce models that reflect the real world pretty well, given enough time, people will sort themselves out towards their desired policy outcomes.

Starting in the 1950s, the United States had engaged in a massive build-out of the personal transportation system through a combination of direct highway construction subsidies, mortgage bundling and insurance criteria that strongly encouraged suburban build-out instead of urban infill, and the continued decision to externalize a significant portion of the cost of automobile transit while internalizing costs for public and private mass transit. This reduction in personal transit costs allows for easier and more efficient self-sorting. Suburbs were built for a particular income bracket, and services were adjusted for that level of income. If you were too poor for that suburb, the taxes and the low density of the area would make you move elsewhere, while if you earned too much for a particular area, the informal and formal social networks that support individuals of your income would be located one or two towns further out.

I am curious if the combination of higher gasoline prices, and the probable decision to start internalizing probable global warming costs into the price of driving and greenfield development will have a significant effect on the polarization of politics in the American milieu.