Chicago’s Game of Bags benefits no one

Much of the difference between common sense conservatives and common sense liberals is how much faith each group has in the government’s ability to solve problems. Liberals tend to think that a group of thoughtful politicians can influence people’s behavior through properly crafted legislation. Conservatives tend to believe that even well-meaning legislation is likely to be botched by unintended consequences. It is tough to imagine a law that makes the conservative point more soundly than Chicago’s ban on disposable shopping bags.

The problem, as it was described by the City Council and advocates is that too many disposable plastic shopping bags are produced, used and discarded. These flimsy menaces create litter, increase our carbon footprint, fill our landfills, and are largely unrecyclable.

The solution was to require retailers to offer only bags with handles that could be reused at least 125 times. The thinking is that stronger bags are less likely to be discarded and could be reused many times. Stores are given the choice between selling them and giving them away. Most give them away and those that don’t charge such a negligible amount for them – say 5-10 cents – that no one notices.

But this foolish law which regulates only bags and retailers seems to be predicated on the assumption that bags reuse themselves and fails to acknowledge the actual decision maker in the problem – the consumer. Some consumers have long chosen to reuse bags and others throw them out.target bags

The law does not provide any incentive for those who chose to discard their bags to change their behavior. As a result, those who reused bags before the law continue to reuse them and those who discarded them before the law continue to discard them. Many pet owners depend on shopping bags to discard pet waste and have little option but to continue the practice. Even well-intentioned shoppers often forget their bags and after accumulating more than they need are forced to discard bags. The difference is that now they are throwing away thicker, bigger bags, with larger carbon footprints, and which take up more space in the landfill.

As a result, this well-meaning piece of legislation has likely accomplished the opposite of what it intended – due to unintended consequences or just lack of intelligent conception.

Let’s be clear, I support a law that accomplishes the goal of reducing disposable bags. It’s easy to design and it looks like this:

  • All bags must be made out of cloth or pressed cloth-like material.
  • All bags must be a standard size so customers don’t have to store multiple sizes.
  • All bags must be sold at a price which incents consumers to hold onto them – say two dollars each.
  • Cheaper or free plastic or paper bags cannot be sold or offered as an alternative at checkout.

But the problem with a properly-crafted disposable shopping bag ban is that it is effectively a regressive consumption tax. Because the value of the goods put into bags by poor people tends to be lower, they pay a higher tax rate than their wealthier neighbors which isn’t cool with our City Council.

So now we see that the problem as it was described was only half the problem. The other requirement was that it could not place a larger burden on the poorer south and west sides – areas that couldn’t care less about disposable plastic bags – than it does on the North side – where the wealthier residents and image-conscious mayor were seeking a solution. Creating a Chicago-wide law that accomplishes both of these objectives is simply not possible. They are in conflict. As a result, we end up with a stupid law that penalizes all citizens equally but offers benefits to no one.

This point goes to the common sense conservatives.

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Don’t go back to Rock…er…ford?

Most Chicago readers have never visited Rockford Illinois – although many say they have. “Yeah, that’s the place with the Clock Tower.” Yes. It has a clock tower. Yes, you drove by the clock tower while you drove by Rockford, but you did not visit Rockford. And I’ll be honest, three’s not much reason to do so.

Rockford has a long and storied history of depression. Starting in the 1980s when unemployment hit 22% it started getting ranked as the worst city to live in the nation. Over the last 35 years it has stayed on many of those lists bouncing up or down, jockeying for position with Flint, Detroit, and Baltimore. According to the Bureau of Labor Statistics, the current unemployment rate is 6.9% – 25% higher than the national average. Wages are on average 10% lower.

In the early part of the 20th century, however, Rockford was a thriving community. For many years, it was the second largest city in Illinois and supported many companies in aerospace, hardware, and machined metals. Amerock, Ingersoll, Sundstrand, Barber Colman, and Woodward Governor were the bedrocks of this manufacturing community, and the downtown bustled with shops, restaurant, theaters, churches and lots and lots of people! In 1940s and 1950s it was a picturesque American town.

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Downtown Rockford bustling in 1944

I can only guess, but it may have been that appeal that lead the mid-century civic leaders to make the mistakes they did. As automobile transportation and trucking logistics began to shape the American suburbs, Rockford’s leaders elected to eschew a highway that went through town in favor of one that went around town. Their thinking was likely that the eminent-domain acquisition and demolition of property followed by the scarring construction would disrupt Rockford’s quaint urban appeal. And they were right.

But what they didn’t realize was that the new highway built along the outskirts of town would be a powerful draw and many of those businesses would move toward the outskirts taking with them all those people. Mega in-door shopping malls were built, businesses moved to improve access to transportation, and people simply lost their reasons to be downtown. It began to die. The department stores and restaurants began to suffer.

Meanwhile, there was another powerful demographic shift at work. The manufacturing industry that provided the jobs for Rockford’s working class was moving to Mexico and China where labor was cheaper. One by one the major corporations closed their manufacturing centers. Today, only Woodward Governor is still a presence.

The image in the upper right corner of this blog is some of what is left of the Barber Colman plant. I think it looks like a scene from Fallout 4.

This is when Rockford’s civic leaders made their second grand mistake. Thinking they were taking a page from a European playbook, and hoping to return vitality to the downtown area, they – get this – paved over the streets and created a “walking mall” (what the what what?). The unanticipated consequence of no cars was no people. Of the 50 or so business that were there, all but two closed. The “pedestrian mall”, as they called it, became a no-pedestrian wasteland. The theaters and churches hung on a little longer but eventually they went away too.

They church buildings are still there and you can buy them. My childhood church which is referenced in a previous post recently sold for about $500K.

Rather than admit defeat, the City leaders defiantly erected a huge (I mean 30 ton!) contemporary sculpture called “The Symbol” by Alexander Liberman that the citizens hated.

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Downtown Rockford Abandoned in 1984

There was no precedent for modern art appreciation in Rockford. With their hubris, the city leaders were shoving their misinterpreted definition of modernity down the citizens’ throats. No matter how many times they barked with unconvincing bravado that “this sculpture  represents the intersection of culture and manufacturing blah blah something else blah” the people of Rockford still saw no reason to call it anything other than the “The Monstrosity.”

Soon after this the Rockford Public School Board (more civic leaders) was caught in a funding scandal and the ensuing lawsuits decimated the boards coffers ensuring that Rockford’s children would receive second rate educations for generations to come. Most recently Rockford built a $8MM bridge from one park that no one goes to to another park that no one goes to. One has to wonder, when will it end?

Meanwhile many of the valuable downtown buildings that were abandoned when I was a kid in the 70s and 80s still sit in shambles. These beautiful buildings deserve to be developed and could be great projects for community investors. A truly revitalized downtown could bring business, people, artists, civic pride, and best of all tax dollars. Unfortunately the continuing weak civic leadership has only been able to:

Tacitly encourage a pocket of retail development at State Street and the river. This effort and the city’s commitment to it ebbs and flows with seeming revitalization some years and decay in others.

Encourage social service organizations to occupy the buildings downtown bolstered by state, city, and federal grants. The problem with this is although social services are important to every community, they do not build a neighborhood and their presence tends to repel the they crowds that the residential, retail and restaurants developers are trying to attract.

But with bold leadership, downtown Rockford could be the jewel in Northern Illinois’ crown. It requires municipal expenditures, but not much relative to what will ultimately be recouped by the entrance of sustainable tax payers.

First. Rockford needs to incent the social service organizations to move their operations out of the city hub. The focus needs to be retail, restaurants, and for-profit businesses and the end-goal needs to be up-market residential.

Second. Offer developers financing or TIF incentives to renovate whatever they can make a case for. Like many of the towns in which I have lived, this type of development starts with funky residential lofts and coffee shops. Some of this is already happening. With cultivation they will be followed by boutiques and apartment renovators. Then mid-sized and and start-up white collar offices. And finally Those huge old decrepit houses on Main street will become attractive renovation opportunities.

Third. Rockford needs great egress and ingress into the downtown area. There needs to be wide roads with properly timed traffic lights – fast streets that allow people who live there to get to work fast and allow people who want to visit a way to get there without hassle. Any remnant of that damned mall has to go. On a positive note, all the abandoned lots and demolished buildings means there is plenty of parking, so there’s that!

This strategy has proven successful in many cities throughout the US including Chicago and Omaha. In Chicago’s Bucktown/Wicker Park neighborhood it happened organically. Thirty years ago you couldn’t safely walk there and now people are investing millions of dollars in crumbling old mansions because the neighborhood housing market can support it. In Omaha, it happened intentionally when the city made investment attractive around a couple funky blocks called the Old Market and rejuvenated much of downtown.

For years Rockford’s leaders have blamed their problems on the migration of machine tool industry to other countries. But the truth is, these same leaders have done more damage with their terrible decisions – trying to protect something that was already dead – than any damage caused by the march of progress. The more Rockford unwinds these mistakes and embraces the best practices of similar communities, the better the chance of a real resurgence.

Thanks to my friends at Rockford Rocked inspiring for this post. You can visit them on Facebook. Antique photos from Bob Anderson.

Mind the gap – or don’t.

There has been a lot of talk recently about the gap between the wealthiest Americans and the poorest Americans. If you listen to our President and Democratic candidates, it’s the biggest problem facing America. That is why, according to them, it is so important that we increase the minimum wage. But does increasing the minimum wage accomplish this objective? Is there a policy that does? Is this really the problem, or is it just some focus group tested rhetoric that polls well with Democratic voters?

To find out I ran some numbers on my own. It has been widely reported that the topDont-mind-the-gap-logo-Tw-font1 1% of Americans makes in excess of $300,000 per year. With that as our starting point, the proposal to increase the minimum wage from $7.25 to $10.10 would decrease the income gap by 2% (change in gap/gap). That’s not a noticeable enough dent to merit an increase on this issue alone. In fact if we increase the minimum wage to 15 bucks an hour as many progressives have called for, the decrease is still a mere 5 1/2%. So clearly increasing the minimum wage in-line with proposed legislation does not decrease the income gap in a meaningful way.

On the other side of the coin, there is a policy that dramatically decreases the income gap. If we cap incomes at 200K or institute a 100% tax rate for every dollar earned over 200k, we can decrease the income gap by 35%. Decrease the income ceiling to $100K and the income gap drops 70%. Clearly this accomplishes the stated objective, but no one in their right mind wants to see this sort of policy instituted. It would destroy aspirational productivity and decimate our tax base.

So if moving the bottom – i.e. increasing minimum wages – does not affect the income gap, and moving the top – i.e. capping wages – isn’t something even progressives want to do, then clearly the gap is not the problem. As long as we are lucky and our entrepreneurial spirit is in tact, people will always figure out how to make more money which increases the size of the pie and increases potential tax revenue so the top earners are not the problem.

The real problem is just poverty. People in poverty need options to move up and away from the bottom. They need better education and training. They need options when their schools are not meeting their needs.  They also need jobs, and our neighbor states offer great lessons in how to create them – reduce costs, and reduce corporate tax rates (not sweetheart deals), and create a pro-business and pro-hiring environment. Growing companies need people. They also need a government that is more focused on job training than on welfare.

The minimum wage is going up. Some people will make a little more money and some companies will hire less. But it won’t affect the income gap, nor will it lead to people currently making minimum wage to making more than minimum wage. They will still be minimum wage workers.

So although the income gap is a convenient and emotionally satisfying rallying cry for the left, it obscures the real issue which is not that rich people make too much money, but that the poorest Americans – generally urban blacks – lack the opportunities and options to better their situation. Let’s get this minimum wage thing behind us so we can focus on the problems that really matter like public schools and job growth.

Teach a man to fish and you’ll get … happier story tellers

As we approach Thanksgiving, the national holiday of gluttony, it seems appropriate to talk about one of the finest adages that western civilization has given us is: Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime. This little nugget is right up there with the golden rule. Everyone learns it, and everyone knows it’s true. So when you ask most Americans which is a better method of supporting the less fortunate, it’s not a surprise that people answer correctly: teach him to fish.

Now that Saint Nick of Communism, Karl Marx, would have given you a different answer. In 1875 he wrote his most famous line: From each according to his ability, to each according to his need. This is the opposite idea. According to Marxism, if somebody needs fish, the guy that already knows how to fish should fish for them. Not surprisingly, most Americans disagree with this statement and with good evidence. The failure of communism in the 20th century illustrated that if you force a fisherman to give away his fish, eventually he will just stop fishing and get his fish for free like everyone else.

But if your Thanksgiving dinner includes some contemporary progressives, the conversation might include a third answer.

Me: Which is better, a fishing lesson or a fish dinner?

Liberal lawyer who makes his own beer: “A fishing lesson AND a fish dinner!”

Me: “I’m sorry, but that wasn’t an option.“

Fellow in thick glasses wearing a hat at the table: “Sure it is. How can you expect someone to learn anything on an empty stomach? Give him a nice plate of Dover sole – heck, make it fried carp for all I care – then get him a good night’s rest and tomorrow you can talk tackle!”

ME: “The question specifically implied that you have to choose one or the other. Assume that there is some physical impossibility in providing both.”

Lawyer’s wife: “Fizzie what? This is the real world. Of course we can do both!”

ME: “But they both cost money – especially in the real world. The purpose of the question was to determine which was a better use of the limited funds we have?”

Bernie Sanders (OMG, you are having Thanksgiving dinner with Bernie M-Fing Sanders!) : “Funds aren’t limited! Find some more. Look how frickin’ hungry that guy is. We need to get him some dinner!  We’ll borrow it if we have to!”

Me: “But even if we borrow the money, won’t he be hungry again in the morning?”

Hostess, getting annoyed: “So borrow some more money tomorrow and feed him again. What are you, some kind of monster? Help the fella out for chrissakes! You are not invited back next year.”

Herein lies the challenge. Americans know the right answer but when faced with making the decision, the right answer seems unkind and no one wants to be unkind. Further harshing the toke, the right answer appears to offer mercilessly little more than the opportunity to remain self-sufficient. Still, even a crappy fishing lesson is more appreciated than a five dollar gift certificate to Long John Silvers. One of the smartest men in America, Arthur Brooks said “the greatest controllable factor to happiness is earned success through work.” In other words that fellow even wants to catch his own fish!

I very nice looking fish dinner.
I very nice looking fish dinner.

Tough love may be harder to dish out than it is to receive. In an effort not to appear mean, we avoid requiring self-sufficiency and helping in-need people get there. Instead of investing in job training we throw borrowed money at stimulus programs, jobs bills, and extend unemployment incentives indefinitely. We make free fish dinners the standard and avoid delivering the fishing lesson to those who want it. We choose not to look into the wet eyes of the currently unemployed and say “I am sorry, but the job, house, or retirement you must accept is not as good as the one you had before – but it will return you to self-sufficiency,” even though we know that is the right answer, and things will improve for that guy. Instead, we leave the bad news for generations to come later, people who we don’t know and whose eyes we will never have to look into and apologize for anything.

It’s time we change the strategy. Government assisted training, and work for aid programs need to gradually replace welfare as the default safety net. We all know that it is better to teach a man to fish and we all know that giving him a fish has only temporary benefits. Americans often fail to understand that we can’t have both, but that must change. The current course will only grow the number of families reliant on government handouts while pushing increased expenses into the future. That’s not fair to those in-need today or those picking up the tab tomorrow.

Economics. It’s a science!

Supply and demand chart drawn on a blackboard.
Supply and demand chart: the simple foundation of a powerful predictive methodology.

There is nothing that irks me more than people discounting economics as “only theoritcal” or “not real”. Sure there are economists toiling away on pure economic theories. But economics as it is used by the government, President, and press to set and analyze policy is by definition very real! Even Keynes himself referred to his theories as Applied Economics. The price of gasoline changes due to a blockade of the Strait of Hormuz. That’s real economic theory in action. Jobs are destroyed in times of falling GDP and built in times of rising GDP – also explained and predicted by real economic theory.

It is only through an understanding of economic principles that one can judge the success or failure of economic policies. Here’s an example. In 2008 George W Bush sent out checks of 300 and 600 dollars to American taxpayers in spite of the fact that his very own economic advisers tried to talk him out of it.

After the fact, the economy was no better off, but W still touted this as something great he did – “Look! I made everyone wealthier, aheh aheh (imagine his laugh).” But the economists who told him not to do it and those who independently watched the economy all agreed that it did nothing. It did not grow the GDP, real jobs were not created, and increases in consumer spending were not noted.

If you don’t know your economics, it might be easy to accept W’s argument. “Hey yeah, I got that check. And paying bills was easier that month. Good for him.” But, we need to be smarter. We need to know the difference between economic policies that are good for the country and those that are good for the candidate. There is no such thing as a free lunch. Whatever he gave you has to be paid for by someone – likely our children. Don’t be fooled.

Besides, who thinks its cool to borrow from their kids?

Predatory Lending can be a Good Thing

Predatory lending has been a hot button issue for the last ten years or so – especially since the financial crisis of the mid oughts. Stories of perpetual payments, families rendered homeless by parasitic schedules, and greater than 100% annual interest rates abound. Legislation has been quick to follow regulating or outlawing these establishments, and their proprietors have been branded the pariahs of the financial industry.payday-loans-sign

But the truth is, payday lenders are a valuable last resort to America’s poor. They offer an emergency solution to repair a child’s glasses so she can read at school, to fix a car quickly so one can make it to work, to make an sudden appliance repair so that everyone can wear clean clothes, or any number of other family emergencies.

Payday lenders charge exorbitant interest rates by mortgage loan standards, but they are not unreasonable by banking fee standards. Imagine the scenario where a mother needs to find 100 dollars to fix her child’s glasses. The darned kid should have been more careful with them, and now mom is in a tough spot, but kids are kids and these things happen. The local payday lending shop will lend her $100 dollars today but wants $110 in return next Friday which is the mother’s pay day. I think most of us would think this sounds like a reasonable agreement. We are occasionally willing to pay a $5 ATM fee for a $100 withdrawal – and that is getting the money from our own account. Paying twice that to have it lent for a week in an emergency situation seems acceptable.

But in order to compare that loan to those available in other situations requires that we look at that fee annualized – in order to compare apples to apples. When viewed through this lens, the annualized interest rate on this loan is 560%. That looks predatory, mean spirited and downright unfair. For comparison, this is about 100 times the rate of most home equity loans.

It is because of this comparison, that legislators and activists are quick to attack the payday loan industry. Recent regulations require that they cannot occupy locations in poor neighborhoods, cannot charge more than a certain interest rate, or must close their doors altogether. Forcing these operators out of the neighborhoods they serve simply increases the cost to borrowers who now have to travel or take time off of work to secure their loan. Capping interest rates forces the operators to increase transaction fees (so the end payment is the same) or stop offering certain types of risky loans. And forcing lenders to close their doors means that needed loans can’t possibly be made. Does anyone actually believe that people are better off having the last resort option taken off the table?

Now, there are real problems within this industry. There are borrowers who do not pay their loans on time and find themselves in trouble quickly. At these rates, a $100 loan can turn into a $200 debt in a couple months or thousands if let go for too long. Some borrowers may be borrowing for non-emergency situations such as entertainment, frivolous purchases, or drugs. Still others may not understand the math behind what they are signing up for. And finally, there are operators who are truly awful. But all of these are exceptions and and can be managed down to acceptable levels by smart legislation and good operators. At the end of the day, so-called predatory loan operators are offering opportunities to poor communities that have no access other financial solutions.

There is another issue here which revolves around the concept of “fair.” When someone is in financial trouble and facing penalties they often claim it is unfair, even if they are in that spot as a result of their own doing. Society is sympathetic to this argument and often makes excuses for them such as they were taken advantage of, they didn’t know what they were getting themselves into, or the lender made it too complicated (which is another way of saying the borrower is too stupid). There may be legislation required to ensure that things are clear, but people taking responsibility for their own finances is one of the costs of taking out a loan. No honest person borrows money without expecting to pay it back when they say they will (or face consequences).

Be wary when the mob with pitchforks tries to kill the monster by burning down the windmill, as they are often hiding the larger issue. Community banks have been driven out of poor neighborhoods due to 20 years of well-meaning but over-bearing regulation. In their absence payday lenders should be welcomed, nurtured, and regularly reviewed.

Are greedy landlords destroying our neighborhood?

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It was recently posted on a neighborhood Facebook page that the rising number of empty storefronts in Bucktown (the extremely trendy neighborhood in Chicago where we live) is evidence that skyrocketing rents are forcing businesses out and soon we will find ourselves living in a ghost town. The comments went on to celebrate landlords finally getting what they deserved. Those vicious bastards drove-out all the cool stores with their rising rents and then – whoops – they accidentally pushed it to far! Now no one can afford to be here anymore and its all coming crashing around. Where is my violin which I wish to play in ironic mock-sympathy?

But is that really what is going on? Could rents really be increasing at a time when all businesses were fleeing the neighborhood? The answer of course is “no”. Rent can only be increasing at a time when demand outstrips supply. So why the empty store fronts?

The simple reason is that when rents are rising dramatically, landlords can more easily afford to let a storefront sit open for a bit while they find a new tenant who will pay a much higher rent.

Imagine the normal example – the way people think it used to be. When rents are flat – give or take a few percentage points in either direction – a landlord wants to keep all his tenants because the cost of having the unit sit empty for a month or two can’t be recouped by higher rents later. As a result, landlords will aggressively try to keep their storefronts full – even if that means lowering rents a teeny bit.

However, when rents are rising rapidly a smart landlord will see a temporarily empty storefront as a good investment that can bring in a higher paying tenant later. In fact, an empty unit that is re-rented at a rent 15% higher after one month will recoup the lost rent in 10 months and generate 180% return on investment (forever!). Compare 180% return to the less than 1% return your interest bearing checking account delivers to understand how attractive this is.

So before you go expecting tumbleweed to roll across Damen Avenue, recognize that rents in Bucktown are jumping right now which means it is the best possible time for landlords to let their units and storefronts empty for a bit. Over time, things will change and the number of retailers wanting to get into Bucktown will get closer to the number wanting out, turnover will fall, and rents will stabilize. Until then, expect to see lots of empty storefronts and expect to welcome new higher-end (and arguably less-interesting) retailers.