The essential paradox with affordable housing is that everyone is in favor of it in theory–but no one wants the value of any property they have invested in to decline.

Last fall, OregonPEN and others helped sponsor an Oregon tour for Chuck Marohn, founder of the national membership nonprofit “Strong Towns,” a tiny outfit that has brought more clear thinking and profound insight into national conversation about urban planning and development in a few years than any convention center full of developers, financiers, contractors, lenders, and government officials have since 1945.

Marohn spent a few days in Portland before going to spend a day in Salem and visit towns like Newberg and Independence as well. He penned a powerful series of essays over the next few weeks, reflecting on causes and possible treatments (he would reject the idea of “cures”) for the affordability crisis that the Legislature is trying to grapple with.

This series is Strong Towns at its best, iconoclastic, penetrating, deceptively simple prose, and discomfiting to sacred cows and conventional wisdom on the right, left, and center. The entire series is reprinted in this issue of OregonPEN, in hopes that some among the Legislature will read and consider a better approach to housing affordability than the current ones, which are mostly variations on a theme of trying to control a powerful automobile by stomping on the brakes and the accelerator as hard as possible while at the same time looking only at the rear-view mirror.

What’s the matter with Portland?

Last week was my first experience with Portland, Oregon. We’ve been trying to schedule a Strong Towns event there for some time so a trip has been long overdue, but still. When I was in graduate school pursuing a degree in urban and regional planning, it seemed like one out of four lectures contained Portland as a case study and that at least half of my class intended to move there upon graduation. It has a certain lore in my mind.

From an urban design standpoint, downtown Portland didn’t disappoint. It’s a planner’s Disneyland. Block after block of the consistently best urban form I’ve experienced in North America. I spent a lot of time just walking around and taking it all in. Very impressive.

And perhaps it was the unquestionable greatness of the downtown that made most everything outside of it seem really bad in comparison (although there were some bright pockets there too). Or perhaps it actually was really bad. I had three forays into the outskirts, two by automobile and one by rail, and I was struck, not only by how ordinary by North American standards most of it was, but also by how run down it felt.

PictureJust outside the Cleveland Ave MAX stop in Gresham. (Photo from GoogleMaps)

We took the MAX — Portland’s light rail system — out to neighboring city of Gresham.

Again, the urban design of each rail stop was amazing; there are clearly some brilliant people working on transportation there.

Outside of the right-of-way, however, things got really bleak. For miles along the route, within walking distance of many of these nice rail stops, the housing looked run down and neglected.

It was hard to reconcile what I was seeing with what I was hearing. I was repeatedly told that affordable housing was a huge problem. I met some neighborhood activists in Gresham, one in particular who told me that he used to live near the downtown and kept getting forced further and further out because he couldn’t afford the housing. In my tour, I was shown building after building — all very low value and some quite derelict — with some enormous price tags attached, millions of dollars for structures a stiff wind away from being condemned.

If housing values are so high, and demand is so high, why isn’t the housing stock nicer? Why were many people not maintaining their yards, keeping the paint up and doing the little things you’d expect to see in a place where modest homes were selling for prices well into six figures?

I think one possible answer to these questions gives a clue to the unaffordable housing problem facing Portland and a number of other cities. Before we get into that, however, I’d like to take some time to review — and question — the standard reasons given for why housing in Portland is so expensive.

1. So many people want to live here and they’ll pay anything because Portland is so nice.

I’m always reflexively skeptical of this kind of thinking. I want to live here and am willing to pay high prices to do so and thus others must be making a similar decision. This reasoning can give us blinders that keeps us from realizing that different people do different things for different reasons, especially those not in our own economic strata.

“This reasoning can give us blinders that keeps us from realizing that different people do different things for different reasons, especially those not in our own economic strata.”

Case in point, there was nothing really nice about Gresham. In fact, it was not really nice at all. Why are all these people willing to pay inflated prices to live in Gresham? I don’t think it is because they love living 35 minutes by train from Portland. It’s not like the people I saw there were living in small, overpriced apartments because they valued the opportunity to ride the MAX into downtown, sip a local latte and eat at a food truck. 

Put another way, Portland may be nice and the culture may be great for some, but there are a large number of people who are paying really high prices for sub-par housing and an experience they could get far more affordably somewhere else. While it is a happy notion for people in Portland to believe that they’re so wonderful — and I don’t ridicule because, as a Minnesotan, I know everyone living here is well above average – it doesn’t make any sense as the influence of a broad economic trend.

As I’ve said before, I absolutely can’t get enough lobster at $1 per pound. At $25 per pound, I’m more discriminating. At $50 per pound, I’ll stick with hamburger. Love of something can drive a market, but only so far.

2. We are not building enough housing to meet demand.

This is the more intellectually rational argument and I heard it a lot. Essentially, there is a supply and demand curve problem. Too much demand and not enough supply thus higher prices. The answer then is to build a lot more housing and eventually….what? Reverse the Portland housing bubble and bring housing more in line with wages? Slow the increases so that people scraping by can continue to scrape by?

I don’t buy this argument either. Yes, supply and demand curves are real and the demand for housing certainly drives up price, but I don’t find this to be the cause of sustained massive price increases. Supply and demand curves suggest that, when prices increase, demand will decrease when supply stays constant. You can’t sustain increasing demand while also sustaining increasing prices and increasing supply. You can do it for a while, but not over many, many years.  


Picture

This logic would have us believe that, if Portland housing prices fell by 25%, instead of 10,000 people per year planning to move to Portland (supposedly — more on this in a follow up post), 20,000 people or more would show up year after year until housing prices went back up to what people were willing to pay to live in such an amazing place. Maybe someone can put together a model that pretends to demonstrate this; I don’t find the argument credible.

3. It’s cheaper than San Francisco.

I heard this one a couple of times: people from San Francisco look at Portland as a huge bargain and are bidding up the prices. It felt like an old wives’ tale, something that someone heard or perhaps even experienced once or twice that has now become legend throughout the community in complete disproportion to its actual influence.

Let’s say a large percentage of the (supposedly) 10,000 people per year I was repeatedly told are moving to Portland come from San Francisco and other areas with over-inflated housing markets. The theory then is that they are influencing peak prices which is having an economic trickle down effect to all these other marginal places? Again, I think that is a comfortable theory and if I was in real estate or development I would certainly want people to believe it, but it doesn’t explain high prices at the margins. Luxury condos: sure. Dilapidated hotels renting for $2,500 per month for a two bedroom: not credible. Something else is keeping the market from finding a lower equilibrium.

4. The Urban Growth Boundary creates artificial scarcity and drives up price.

This is the Randall O’Toole argument and I’ve thrown it in just so it’s not brought up later. It’s a ridiculous argument to anyone who has gotten out of the ivory tower, freed themselves of dogma and actually walked around the areas outside of Portland’s downtown. There’s so much space, so much underutilized property, that it’s a ludicrous notion that land scarcity is part of the problem.

“The highest valued real estate in Portland is in the core downtown. That’s what the market is demanding.”

But Chuck…without greenfield development we can’t build the auto-oriented, single-family homes that the market is demanding. It’s such a joke.  That’s what it is valuing most. If it was just a matter of meeting a massive demand, you would never build single-family homes on cul-de-sacs.

The only reason that is even a lament is because a certain kind of developer with a certain kind of financing knows how to make nearly-guaranteed profits delivering it. It’s a financial train wreck and, if Portland can avoid it, they will be much better off.

If there is a lack of anything — and I am really not confident that there truly is — it certainly is not land for development.

So what is going on? In my next article, [Distorting Housing Prices, below] I’ll put forth an argument that the way Portland has done its rail investments along with the planning theories they’ve adopted on transit oriented development have combined with a social stickiness in housing to artificially inflate Portland’s housing market in a way that is really dangerous. Those dogmatically committed to a certain set of beliefs and/or outcomes in this debate may want to skip my next few posts. If you’re a planner, this could be a little depressing. The theories I outlined above are far too comforting and convenient. You’ve been warned.

If you have your own theory, I’d love to hear it.


Distorting Housing Prices

Two weeks ago I wrote about all the ways people explain the very high housing prices in a place like Portland, Oregon, and why I found those explanations lacking.

While Portland is nice, it’s not so extraordinarily nice as to defy natural market mechanisms. Portland could build more housing, but there’s no evidence that housing is not keeping up with demand at current prices. Yes, Portland is cheaper than San Francisco, but so are a lot of places that are not experiencing such huge distortions. And there is decades — perhaps centuries — worth of developable property within the current urban growth boundary; the UGB is not creating an artificial scarcity.

So what is going on?

There are two parts to this conversation. One is psychological and one is financial. I’ve chosen to deal with the financial today and will tie in the essential psychological element in a follow up.

To explain the financial, I’m going to present a hypothetical situation that I’ve seen in Portland as well as other bizarre housing markets like Austin, Texas (where I’ll be this week) and Northern California.

Picture

Consider three adjacent parcels of identical size, shape and all other defining characteristics. One contains a single family home that was built prior to the construction of Portland’s light rail line. The second is a vacant lot. The third parcel contains a condominium unit that was built along the rail corridor consistent with the theory of Transit Oriented Development (TOD), the idea of promoting increased density in areas where significant transportation investments have been made (i.e. “build it and they will come”). 

Let’s consider a situation where the vacant lot in the middle is put up for sale. What should the asking price be? The most logical way to make that determination is to look at the adjacent properties and determine how the parcel could be developed. What is its highest and best use? We see that the single family home is valued at $200,000 while the condo building is valued at $10 million.


PictureIf you owned the vacant lot, how much would you ask for it?

You could look to the left and see a single family home and deduce that, if the purchaser of the parcel was going to build a single family home consistent with the local market, they could pay up to $30,000 for your parcel and still make the math work. However, if you look to the right, you’ll realize that someone buying the parcel with the intention of building a condo unit could pay 50x that much, about $1.5 million.

PictureWould you rather have $30,000 or $1.5 million?

Of course, the sale price of the parcel is going to reflect the highest reasonable possible use.

With the TOD regulations in place encouraging the maximum use of that rail investment, that means the vacant parcel is going to sell for $1.5 million, a nice haul for the lucky individual who wound up with land near the rail line (I’m assuming there was no assessment when the rail line was built) and sold before the real estate bubble burst (more on that later).

Let’s turn our attention now to that single family home. It now sits next to a vacant lot worth $1.5 million and a condo unit worth $10 million. How much is that single family home worth?


Picture

Whatever the answer is, we can clearly see that it’s not worth $200,000 anymore.

With the vacant lot going for $1.5 million, all of the value of the single family home is now in the land. The home itself is essentially worthless, a scrape off building that actually lowers the value of the property due to the demolition costs.

The single family home in this situation is worth nearly the same as the vacant lot, $1.5 million.

In my next article, [Suspicious Economics in Portland, below] I’m going to explain how these elevated values get transmitted outside of the TOD areas, but before I finish today, I want to point out how this financial mechanism explains two unique features in cities where this is happening.

I mentioned last week that I was shocked by how nice the nice parts of Portland were and how bad the bad parts of Portland were. There wasn’t a lot in between, at least not that I saw. I believe that is because the development approach I’ve explained today represents an all-or-nothing, binary kind of endeavor. If you owned that single family home, would you install granite counter tops? Would you put in a Jacuzzi tub? Would you do an addition to create a theater room? Of course not. You own a home that’s worth over a million dollars, yet it has none of the things a million dollar home would have and the reason is simple: you would never get that money back. The house is going to get torn down whether it has granite counter tops or not. Adding them may marginally improve your life, but it doesn’t change the value and thus is a bad investment.

“The land values are so high, and the building values comparatively so low, that it actually makes financial sense for the very affluent to buy the parcel, tear down the building and build their own multi-million dollar home.”

As is mowing the yard or picking up the trash, I’ll note.

You see this artificial distortion creating all kinds of unnatural side effects, such as the McMansion scrape off. The land values are so high, and the building values comparatively so low, that it actually makes financial sense for the very affluent to buy the parcel, tear down the building and build their own multi-million dollar home. That kind of thing may seem normal to those that have grown accustomed to it, but historically it’s an aberration.

One last thing to note: If every parcel in Portland (or Austin or Northern California) that had unnaturally elevated land values were to be redeveloped to its highest and best use—the use that would justify those property values—then Portland would need millions more people. Perhaps tens of millions. That will not happen in any kind of reasonable timeframe so what is going to happen — what must happen — is that, at some point, supply will exceed demand and prices will fall dramatically. Everyone who sold before the inflection will be huge winners (condo-inflated prices). Everyone who sells after will get normal single-family home prices.

It’s just like a stock market bubble with all the animal spirits and irrational exuberance, except for the fact that housing prices, like wages (but unlike stocks) are sticky. More on that in a later article.

And by the way, if you’re new to Strong Towns, don’t start thinking that I’m anti-transit. I’m very much not. What I’m against is the build-it-and-they-will-come gambling and the market-distorting theories that go along with it. I also find immoral a system of local government finance that benefits — by creating financial bubbles – today’s office holders and bureaucrats at the expense of tomorrow’s America.


Suspicious economics in Portland

I’m hearing the frustration of many of you regarding my two articles on housing affordability in Portland (What’s the matter with Portland and Distorting Housing Prices). In the history of Strong Towns, I’ve gotten this kind of feedback every time I’ve encountered a deeply held belief. And really, it’s the deeply held belief — the dogmatic adherence as if to a religious doctrine — that raises my alarm bells.

When I’m in Portland and everyone tells me how much Portland is growing, I find it interesting. When the issue of housing affordability comes up again and again, it is always tied to the agreed upon narrative that Portland is growing and will continue to grow, world without end. When I see neighborhoods where the homes are $500,000+ yet they look like they should be $50,000, the narrative is, of course, Portland is growing. When I run into people making minimum wage working retail and they are somehow living in Portland despite paying thousands a month in rent, well….Portland is growing.

The thing that really makes me skeptical is that the “Portland is growing” narrative is just really convenient for those who hold that belief. Who would not want their choice of places to reside confirmed by hordes of people being willing to pay ever more irrational prices for housing? Of course they want to live here, Portland is growing.

And don’t we kind of need to believe that? I mean, I’m going to be more willing to pay exorbitant prices for a home — and cash out equity to make ends meet – if I am convinced of the belief that even more irrational people will follow and take prices higher (in stock trading, we call this the greater fool theory).

“Portland is growing” is also really convenient for the local government and all of those who theorize, plan and design the systems of Portland’s growth. Inflated housing prices make it tons easier to balance the annual budget; you can get used to a tax base that grows by 10% or more each year. It’s fun to work with big budgets doing big projects to handle this big challenge of “Portland is growing”. If we can focus on accommodating the growth that we all agree is happening — world without end — then we don’t have to ponder very deeply the effects that our policies are having on housing affordability. High prices are obviously due to a lack of supply and so, if we want to deal with the impacts of high prices, we just continue to work harder and harder on accommodating all that growth. It’s just such a comforting narrative, which is why I’m highly skeptical of it.

That and I hear the same thing in places like Austin, where I’m at today. Austin is awesome and everyone wants to be here and so, despite the laws of supply and demand and the impact that price has on reducing demand, the laws of supply and demand tell us that it is a lack of supply that is increasing price. The only way that’s not an incoherent statement is if you believe that growth is a given. 

Austin is growing. Portland is growing. Of course.

So I’ve received a number of emails on this including one yesterday with the subject line Suspicious Economics in Portland Articles. Here’s what that email said:

To: marohn@strongtowns.org
Re: Suspicious Economics in Portland Articles

Chuck,
Reading your last couple of articles on Portland, I’m disappointed by the sloppy economic analysis. I say this with utmost respect for your work and Strong Towns – you’ve changed my mind about many things. Your analysis of supply restrictions seems to assume a fixed number of people living in Portland.

You can’t sustain increasing demand while also sustaining increasing prices and increasing supply. You can do it for a while, but not over many, many years.

Portland’s population has been increasing for decades now, and people and jobs are increasingly attracted to dense city centers. Both of these will move a demand curve rightward. Yes, this increases prices, and at some second-order level this might slow the growth of the demand curve, but demand has and will continue to increase. If supply is not increased commensurately, prices will continue to rise.

Then you resort to the standby that the housing market is in some sort of bubble.

Reverse the Portland housing bubble and bring housing more in line with wages? 

The logic seems to be that higher prices must mean there’s a bubble, but that seems silly when you look at high prices in dense cities with supply restrictions all over the world. Places with flexible supply like the sunbelt cities, Houston, or even Tokyo have (comparatively) low prices, despite huge population growth.

The answer then is to build a lot more housing and eventually….what?

Then the equilibrium point on the increasing demand curve and increasing supply curve will land at a lower (or at least slower-rising) price, and a rapidly increasing quantity. This is a much simpler argument, and it’s how almost every other market for goods works, so why are you dismissing it out of hand? 

See what I mean? This email is a series of very comforting assertions and beliefs. Growth is a given; it is unaffected by price. Demand is not subject to price equilibrium of the supply/demand curve, only supply is so impacted.

Chuck, it’s such a simple argument, why are you dismissing it? Because it’s not simple enough, it’s too affirming for those who want to believe it and it doesn’t adequately explain the world as I have experienced it.

In my last piece, I explained how large jumps in the development pattern — such as those planned for Portland’s many TOD sites — dramatically distort land prices upward while unnecessarily stagnating underutilized property, land that would otherwise be improved.

In my next post, [Spiking a Rising Tide, below] I’m going to put forth my notion of how that distortion — which is actually a simpler explanation than the entire voodoo belief system of ignoring the effect of price on demand — is transmitted across the greater Portland area. In a subsequent post,

I’ll then propose a simple set of policies that would prick Portland’s housing bubble, move prices closer to their supply/demand equilibrium price point and thus restore housing affordability, albeit by negatively impacting the government’s cash flow as well as the paper assets many Portlanders believe is theirs.

Spiking a Rising Tide

A wave laps up on the beach. The force of the surge pushes water up against the wet sand. The action is understandable, a rhythm that is quite predictable. Even little children find it easy to discern the areas where their feet will get wet from those places where the effort of building a sand castle won’t be wasted.

Up the shore is a seawall. The waves act differently there. When the water hits the wall, it explodes upward, the force of the wave ultimately dissipated by gravity instead of friction. Kids play near the edge of the wall, but not too close (unless they want to get splashed by the mist).

Some Strong Towns readers have been frustrated with me for not acknowledging what you see as the obvious wave of growth impacting housing prices in cities like Portland and Austin. While I’ve said that I’m not convinced that the housing emergency in Portland in due to these causes, there is clearly a wave of demand that is putting upward pressure on price. What I’ve reacted to is the seawall, the self-created impediment that is dramatically forcing that wave skyward. That seawall is the city’s fetish with high density development.

I’ve been on the road nearly all of the past two weeks and so I’ve not had a time to push this conversation forward at the pace many of you would like. As a makeup, today’s post is going to be rather dense. As you’ll see, however, the density of this post builds incrementally on what came before it; it’s the next step in years of conversation we’ve had here. To make the point even more, this conversation is not an intellectual leap into the unknown, one that carelessly and recklessly skips over necessary iterations of development just to get to the desired end.

Last week I explained how large leaps in the development pattern — from single family home to multi-story tower — distorts land values and, in doing so, artificially drives up prices on lands zoned for such a leap. At the same time that a number of you were responding negatively to what I think is an obvious and hardly-even-debatable phenomenon, I was experiencing yet another example of it in San Marcos, Texas.

PictureT-5 zoning in San Marcos, TX. Should be T-2 or, at most, T-3 since that is the next increment of intensity. T-5 simply distorts the underlying land values, jacks up housing prices and stagnates the entire neighborhood. Image from Google.

On a walking tour there, we strolled through blocks and blocks of gaps — empty and underutilized lots — just off of their core downtown. I pointed out a nice little home as an example of what the city should be striving for to fill in these gaps and then pointed to the adjacent vacant lot as the perfect place to start. That was when I was informed that the vacant lot was zoned T-5 Urban Center (2-5 story multi-family housing) and that the owner wanted $600,000 for it, making my proposed modest home financially impossible.

I asked why this land was zoned T-5 when there was so much underutilized property in the area, so much dead space. The answer was exactly what I heard in Portland and exactly what I heard in Austin: we’re growing.

Supposedly there is so much demand for housing in San Marcos that T-5 zoning is needed — all that high density development is necessary — to meet the demand. I walked around for hours and experienced an endless amount of underutilized property, just as I had outside the cores of Portland and Austin. It was more property than would ever be utilized as T-5 and it was sitting there, high priced and waiting for the right buyer to come by and make the owner rich. 

And the property owner had good reason to find this wait rational. It was reported to me that prices had been going up dramatically. There were a couple parts of town where high density development — in this case some five story apartments — was going on. With the land consistently going up in value and the cost to hold it minimal — it is being taxed as raw land — why not wait for a windfall? San Marcos is growing — everyone knows it — so sit back and let the growth make you rich.


PictureZoning in the downtown core of San Marcos, TX. Enough T-5 to bring population from 54,000 to a couple hundred thousand, at least.

This is the same thing I experienced here in my home town in a personal way over the past twenty years. My parents purchased the 80-acre Marohn homestead back when I was a little boy for something like $500 per acre. In the mid-1990’s, development was taking off in the Brainerd area and raw land started to skyrocket. The narrative was that all those rich people from the Minneapolis/St. Paul area were moving up and they could afford to pay outrageous prices. Heck, they thought land was so cheap they just threw money at it. 

We heard reports of land selling for $20,000 per acre. Then I, in my capacity as an engineer, worked with someone who paid the insane price of $30,000 per acre for land about a mile away from our farm. A little later, one of the old farms just up the road sold for $35,000 per acre. My parents were convinced that their much nicer property was certainly worth $40,000 per acre, at least. They still own it with the assessor having it worth six figures but with their own balance sheet valuing it in the millions. 

Here’s the absurd thing: there is so much land here that the price should be zero. Or, at most, the price of the land should be as if it were used for forestry, agriculture or hunting. Years ago, I did some simple math and showed some bankers that there is over 100 year’s worth of supply of developed lots in the area. That excluded the raw land, land that the owners still expect to be worth millions.

John Maynard Keynes observed that wages are sticky. That is, when market conditions falter and businesses start to see profits drop, they are more apt to lay people off than they are to cut wages. People are very resistant to wage decreases because humans are wired to to be very sensitive to loss, far more than we are to gain. Freeze wages for three years and people will gripe. Cut wages for three years and they will revolt.

Land prices are subject to this same human condition. Unless forced to sell — such as in an estate sale — many people mentally book gains and will not sell until those gains — or something near them — can be realized. This is why rumors of free-spending Chinese, wealthy San Franciscans and tech workers dripping with dollars are so widespread. They are part of a cultural belief system that explain — in an affirming way — what we see happening.

Portland grew by 1.5% last year. These are growth rates not seen since before 2008. Just ponder that number — 1.5% growth — and contrast that with housing prices and rents that are growing by double digits. Portland has spent billions — BILLIONS — preparing for growth. They have built rail lines all over the place, built highways throughout and run thousands of miles of pipe in anticipation of growth. Yet, they can’t handle 1.5% growth without blowing up housing prices?

Think of any other entity in any other realm that grows by 1.5% per year and contrast the reaction of that system with the hysteria of Portland. If this is only a 1.5% wave, it doesn’t make sense. That kind of wave should roll across the sand and dissipate. Something is magnifying it.

In Portland today, there are three types places where this wave is being accommodated. The first is the core downtown, what I’ve called an urban planning Disneyland, where truly high demand for a unique place combine with high building costs and relative scarcity to price this area out of reach for most. The second place is in the remaining greenfield areas, where single family homes are being built in the insolvent suburban style we see all over North America. Neighborhoods are built all at one to a finished state; there is no next increment of intensity anticipated.

The third — the spike — is in those corridors zoned for high density, where the highest and best use is priced into the land. In these areas, the government has already made the investment — the rail line — and put in place the regulatory environment that has created a windfall for property owners. All those property owners need to do now is wait around until it is their turn to sell to a developer, someone ready to pay the price to build high density. In the meantime, any scarcity — real or perceived — just drives up the price and increases the long term payoff.

Scarcity also helps the high density developer. Assembling the land, acquiring the permits and going through the development process for a condominium tower or apartment complex involves taking on great risk over an extended period. It’s best not to get too far out in front of a market — one only growing 1.5% per year — so that you don’t get exposed if (when) there is a correction. High land prices are a bummer, but you can find good deals now and then and the high price of the finished product gives some added margin for error.

So how do we free up more raw land for development? How do we get these stagnating properties off the sidelines and into the game? How do we get developers to proceed more quickly? There is a very simple answer, but it is counter-intuitive and directly clashes with the planning profession’s fetish with density.

The simple answer is downzoning.

What if along all these rail corridors and at all of these rail stops, instead of being able to build an eight-story condo unit, all a developer was allowed to build was the next increment of intensity? For most of that area, that would mean single family homes. In that case, what would happen to land prices? They would drop. They would crater, in fact. This would free up an incredible amount of land for cheap, affordable development while also taking a substantial amount of pressure off of the existing single-family neighborhoods.

But Chuck….Portland is growing (by 1.5% per year) and pretty soon all of that vacant and underutilized land is going to be built upon. Portland will be built out and we’ll be pressured to extend the Urban Growth Boundary for new greenfield development. How you can possibly support single-family homes?

“There is no such thing as “built out” in a Strong Town. There is no such thing as being done.”
I’m not advocating for single family homes. I’m advocating for incremental development. Portland (and Austin and San Marcos and…) are trying to skip increments. They are trying to have a toned body without proper diet and exercise. They are trying to sprint before they have learned to crawl. They are obsessing over their theories of density and, in the process, they are stagnating their cities and leaving wide swaths of their population behind. There is no such thing as “built out” in a Strong Town. There is no such thing as being done. Cities that grow incrementally are on a continuum of improvement and so, when a block is so-called fully developed, the next increment of intensity must always be available. By right. Everywhere.

And for those of you who have suggested the last couple weeks that I’m a country bumpkin who found himself in the big city and had a sudden flash of crazy, I wrote about a floating height limit two years ago. That article also made people who have a fetish with density quite cranky with me, people who look at build-it-and-they-will-come rail investments in their cities and think the problem is the market not reacting correctly to this awesome public investment, that a little more density could sweeten the pie and get developers off the sidelines. They don’t see how land speculators and developers were using the planner’s zeal for density to squeeze their communities for low risk, publicly subsidized profit. The problem isn’t the developer – it’s the premature rail investment. Portland is an extreme example and it was that contrast that made it even more visible to me.

I know there is a lot to unpack here and I’ll try — despite an insanely busy schedule this week — to be attentive to your comments and feedback, but let me address one final thing before signing off on this one. A comment by @Funktapus last week that received a really high number of upvotes included these rhetorical questions:

Suppose you’re right and Portland has invested in transit oriented development, which by some voodoo has jacked up housing costs everywhere, snowballing the demand for more transit oriented development. What’s the worst case scenario if growth abruptly halts? We are left with a bunch of high quality, sustainable, resilient neighborhoods with falling rent? That’s not exactly a bad thing.

To be clear: I don’t think the demand is for transit oriented development, per se. That’s just the only development our fetish with density will allow us to consider in these places. You start with that given and @Funktapus’s proposition becomes a self-reinforcing one. I don’t start there.

Still, the worst case is we spend a couple of decades needlessly squeezing the poorest of Portland’s residents further and further to the margins. We appease our guilt and anxiety over this problem by distorting the housing market further with rent controls and inclusionary zoning, things that, if they have worked at all (and I’m highly skeptical), have only worked on the margins. Planners get paid and have fun spouting Jane Jacobs while acting like Robert Moses. Developers and bankers get paid, of course. Corporations that can work at the scale demanded by Portland’s development approach also do well while the small, incremental developer is squeezed out (that’s okay – she can go be a barista as they are in high demand). 

And after decades of squeezing, economic distortions so great that even middle class and upper middle class people find it hard to make it, the growth stops and all that inflated land adjusts back to normal prices. Hundreds of billions of dollars of wealth are lost, many decent and hardworking people are thrust into extreme financial distress and — to make matters worse — at the time of greatest need, the city (which is dependent on the artificially high land values for a large part of its revenue) struggles just to make their debt payments, let alone do anything to make life better for people that are suffering, the people who must — if the place is to ever prosper again – continue to find themselves in love with Portland, even when it isn’t growing.

But yeah, at least you’ll have some high density buildings to enjoy.


 Difficult Choices

One of the reactions to my thoughts on Portland’s housing affordability emergency (their label) that I’ve found the most interesting is that my proposal is unworkable, Portland’s residents will never accept even small increases in density in their single-family neighborhoods. Chuck, you don’t understand the level of resistance. Better to get the most density where you can, when you can, and that is at the transit stops.

“Everywhere you turn you see Americans sacrifice their long-term interests for a short-term reward.”  — Michael Lewis in Boomerang

In the Curbside Chat, I talk about the modern definition of a solutions as, “What can someone else change about what they are doing so that I don’t have to change anything about what I am doing?” We’re nearing the end of an insane election cycle where we are once again bombarded with such non-solution solutions. Benjamin Franklin never warned of a democracy where the electorate can vote themselves money, although it makes a good meme. Michael Lewis did suggest, at the end of Boomerang: Travels in the New Third World, that is precisely what we now have.

One of the key insights of Strong Towns is that our development pattern functions like a Ponzi scheme. The Suburban Experiment – development built in large blocks to a finished state – provides the illusion of wealth when everything is new and costs are low. In time, things start to go bad and the tragic truth begins to be revealed: that the long term costs of servicing and maintaining these places cannot be met by the wealth they produce. New growth and debt – mistaking insolvency for a cash flow problem – bridge the gap for a while until the growing liabilities overwhelm everything. What happens next is an open question, although we can see in places like Detroit – which got started on this experiment a couple of decades before the rest of the continent – one possible outcome.

And let me point out to the residents of Portland who believe their financial situation bears no resemblance to Detroit’s, trust me when I say that the people of 1960’s Detroit would believe the same thing about today’s Detroit. The vast majority of the land area in Portland – like practically every other city in North America – is functionally insolvent. That insolvency will come to bear at some point, and to a degree already is, so let’s stop pretending that it won’t.

I’ve said many times that the greatest challenge of this generation will be to avoid repeating the mistakes of what has come to be known as “white flight”, the abandonment of large parts of our cities by everyone except the very poor. When we concentrated poverty in our inner cities after World War II, we left people behind in neighborhoods that were largely coherent.

That was a tragedy on many levels, but it will be dwarfed by the catastrophe of abandoning poor people on the outskirts of our cities, where even during the best of times, life is despotic for people who can’t afford the high financial burn rate of such a lifestyle. Wait until those big box stores go empty, the drainage ditches and berms are overgrown with weeds and the infrastructure is no longer maintained. Again, Charlie LeDuff’s Detroit: An American Autopsy gives a firsthand account of how this is playing out in one scenario.

PictureDetroit. (Photo by Johnny Sanphillippo)

So please excuse me if I’m not very sympathetic to the notion that change is hard, that people who are comfortable will resist it. Of course they will. Our job as Strong Towns advocates is to find a way through that resistance, to share our message with our friends, neighbors and others in our communities, to keep bringing the conversation back to the persistent fact that our current approach is not working financially. We’re broke and so we must start thinking differently.

So I’ve suggested that all neighborhoods – those areas around our transit stops as well as the broad swatch of single family homes – should be allowed, by right, the next level of intensity in their development pattern. But no more. The ability to move to the next increment is to allow neighborhoods to mature and renew, to become antifragile by adapting over time to stress. The limit on how far of a jump can be made is an attempt to mitigate the distorting effects of our existing public investments, the build-it-and-they-will-come, winner-take-all delusion we’ve come to view as normal. It’s all about feedback loops. As Tomas Sedlacek suggests, trading growth for stability.

I want to help you think this through, to peer into the future and envision what I think – what I hope – would happen in such a system.

In the triage that will be the next generation of cities in North America – my apologies to Ed Glaeser, Richard Florida and others – there will be neighborhoods where the pipe is fixed and others where it isn’t. Where the fire department is staffed and where it is not. How do we determine which is which? Well, of course, the pipe where the rich people live will be fixed while the pipe where the poor people live will not. Let’s pretend, however, that we truly want to avoid that outcome. Let’s pretend that in enlightened places like Portland people really do care about everyone in their community (and I believe they do, in more places than just Portland).

What we should see, with my proposal (and other Strong Towns approaches), is that some neighborhoods receive a lot of incremental investment and other do not. With the high bar to development lowered – in price and in regulation – we should get a lot of Jimmy’s Pizza-scaled development. Small chaotic-but-smart stuff that seeds and reinforces a local economic ecosystem. In time, we’ll get a second generation in these places and even a third, increasing intensity in a feedback loop that mimics traditional development patterns. With each successive generation, the allowable increment climbs and so the places that people find strategic and valuable are those that will experience self-reinforcing growth.

And because it’s incremental, it doesn’t displace the way our big leaps do today; a much broader share of people share in the wealth being created. And, as we like to point out with Jimmy’s Pizza, it works at a scale that is inclusive of anyone with a dream who is willing to work hard. You know, what we Americans like to believe we are (instead of what we really are today).

In short, the system triages itself. In time, these places would (hopefully) become financially solvent, the cost of providing services easily justifiable by the tax base produced (not just the political influence). When we are forced to decide which pipe to maintain, which place to provide quality transit, where to maintain the best public safety response times, these are it. And you’ll not only have the math to back you up, you’ll have the critical mass of public support there as well.

As for those other areas….. I do not think the core of Portland will go away, although it will have to deal with the financial drag of subsidizing the transition happening on its outskirts. The rest – the neighborhoods of single family homes that reject incremental growth or are too far away from those emerging neighborhood centers to ever experience it – will go one of two ways.

Either they will wall themselves off into an affluent, yet fragile, enclave and use their political clout to try and force everyone else to continue to subsidize their preferred living arrangement. Or, their homes will go into steep decline and will eventually be used for salvage material.

Either way, we need to start framing the conversation today in terms of financial productivity. We need to drop our fetish with density, our grand dreams of converting those storage sheds and 7-11’s at each ill-conceived transit stop into a mini urban utopia, and start talking about how we build – and sustain over multiple generations – enough wealth to actually afford the places we want to inhabit.

Chuck, you don’t understand the level of resistance. No, I actually do. We need to stop talking about density and start talking about financial productivity.

Reprinted with kind permission of the author and Strong Towns, a membership organization.
The mission of Strong Towns is to support a model of development that allows America’s cities, towns and neighborhoods to become financially strong and resilient. For the United States to be a prosperous country, it must have strong cities, towns and neighborhoods. Enduring prosperity for our communities cannot be artificially created from the outside but must be built from within, incrementally over time.


Bill would allow local governments to announce hearings on proposed rules via their webpages, providing better notice at a lower cost

OregonPEN was started two years ago for a number of reasons, not least of which was to help address the ongoing crisis in public funding for services for the public good. One of the ways OregonPEN proposed to address that crisis is by creating a new newspaper that would help state and local agencies and special districts be able to publish the many required public notices (over 300 statutes require publication of notices) at a fraction of the cost to publish in traditional newspapers.

Today, throughout Oregon, more than 1400 state and local governments and special districts are prisoners of monopoly newspapers that extract monopoly rents, charging hundreds or even thousands of times what it costs the publisher to deliver the notice, even as traditional newspaper circulation readership has melted down faster than ice cream in a heat wave.

There is nothing wrong with a requirement that government inform the public when it is proposing to take actions or make decisions that require or would benefit from public participation. It was a progressive idea when printed newspapers were the mass media of their day. But the world has changed dramatically since then. And now, giving notice means giving notice digitally, not in traditional newspapers.

So OregonPEN has published a new model of weekly newspaper for the digital age, providing local and transmitted news for over two years now, and OregonPEN will soon offer public and legal notices, providing governments and private individuals who have to publish a notice with a faster and better way to provide legal and public notices, and for a fraction of the cost, with the net revenue over costs going to fund public benefit programs such as Legal Aid.

Some Oregon legislators have noticed the high cost and declining utility of traditional newspapers, and they have proposed a bill to allow local governments to forego the publication of a notice about a rulemaking hearing in a traditional newspaper; instead, the local governments can publish the notice on the local government’s website.

The bill is a clear sign of recognition that the age of the traditional printed newspaper as the vehicle for giving public notice is coming to an end.

79th OREGON LEGISLATIVE ASSEMBLY–2017 Regular Session
House Bill 2911

Sponsored by Representatives RESCHKE, NEARMAN; ESQUIVEL, NOSSE, Senator LINTHICUM

SUMMARY
Authorizes local government to publish notice of public hearing regarding proposed rule on
agency’s website instead of in newspaper of general circulation.

A BILL FOR AN ACT

Relating to publication of notice of a hearing regarding a proposed rule; amending ORS 183.335.
Be It Enacted by the People of the State of Oregon:

SECTION 1. ORS 183.335 is amended to read:

183.335. (1) Prior to the adoption, amendment or repeal of any rule, the agency shall give notice
of its intended action:

(a) In the manner established by rule adopted by the agency under ORS 183.341 (4), which provides a reasonable opportunity for interested persons to be notified of the agency’s proposed action;

(b) In the bulletin referred to in ORS 183.360 at least 21 days prior to the effective date;

(c) At least 28 days before the effective date, to persons who have requested notice pursuant to
subsection (8) of this section; and

(d) Delivered only by electronic mail, at least 49 days before the effective date, to the persons
specified in subsection (15) of this section.

(2)(a) The notice required by subsection (1) of this section must include:

(A) A caption of not more than 15 words that reasonably identifies the subject matter of the
agency’s intended action. The agency shall include the caption on each separate notice, statement, certificate or other similar document related to the intended action.

(B) An objective, simple and understandable statement summarizing the subject matter and
purpose of the intended action in sufficient detail to inform a person that the person’s interests may be affected, and the time, place and manner in which interested persons may present their views on the intended action.

(b) The agency shall include with the notice of intended action given under subsection (1) of this
section:

(A) A citation of the statutory or other legal authority relied upon and bearing upon the
promulgation of the rule;

(B) A citation of the statute or other law the rule is intended to implement;

(C) A statement of the need for the rule and a statement of how the rule is intended to meet the
need;

(D) A list of the principal documents, reports or studies, if any, prepared by or relied upon by
the agency in considering the need for and in preparing the rule, and a statement of the location
at which those documents are available for public inspection. The list may be abbreviated if necessary, and if so abbreviated there shall be identified the location of a complete list;

(E) A statement of fiscal impact identifying state agencies, units of local government and the
public that may be economically affected by the adoption, amendment or repeal of the rule and an estimate of that economic impact on state agencies, units of local government and the public. In considering the economic effect of the proposed action on the public, the agency shall utilize available information to project any significant economic effect of that action on businesses which shall include a cost of compliance effect on small businesses affected. For an agency specified in ORS 183.530, the statement of fiscal impact shall also include a housing cost impact statement as described in ORS 183.534;

(F) If an advisory committee is not appointed under the provisions of ORS 183.333, an explanation as to why no advisory committee was used to assist the agency in drafting the rule; and

(G) A request for public comment on whether other options should be considered for achieving
the rule’s substantive goals while reducing the negative economic impact of the rule on business.

(c) The Secretary of State may omit the information submitted under paragraph (b) of this sub-
section from publication in the bulletin referred to in ORS 183.360.

(d) When providing notice of an intended action under subsection (1)(c) of this section, the
agency shall provide a copy of the rule that the agency proposes to adopt, amend or repeal, or an explanation of how the person may acquire a copy of the rule. The copy of an amended rule shall show all changes to the rule by striking through material to be deleted and underlining all new material, or by any other method that clearly shows all new and deleted material.

(3)(a) When an agency proposes to adopt, amend or repeal a rule, it shall give interested persons
reasonable opportunity to submit data or views. Opportunity for oral hearing shall be granted upon request received from 10 persons or from an association having not less than 10 members before the earliest date that the rule could become effective after the giving of notice pursuant to subsection (1) of this section. An agency holding a hearing upon a request made under this subsection shall give notice of the hearing at least 21 days before the hearing to the person who has requested the hearing, to persons who have requested notice pursuant to subsection (8) of this section and to the persons specified in subsection (15) of this section. The agency shall publish notice of the hearing in the bulletin referred to in ORS 183.360 at least 14 days before the hearing. The agency shall  consider fully any written or oral submission.

(b) If an agency is required to conduct an oral hearing under paragraph (a) of this subsection, and the rule for which the hearing is to be conducted applies only to a limited geographical area within this state, or affects only a limited geographical area within this state, the hearing shall be conducted within the geographical area at the place most convenient for the majority of the residents within the geographical area. At least 14 days before a hearing conducted under this paragraph, the agency shall publish notice of the hearing in the bulletin referred to in ORS 183.360 and:

(A)(i) In a newspaper of general circulation published within the geographical area that is affected by the rule or to which the rule applies[.]; or

(ii) If a newspaper of general circulation is not published within the geographical area that is
affected by the rule or to which the rule applies, [the publication shall be made] in the newspaper
of general circulation published closest to the geographical area; or

(B) If the agency is a local government, as defined in ORS 174.116, on the agency’s website.

(c) Notwithstanding paragraph (a) of this subsection, the Department of Corrections and the State Board of Parole and Post-Prison Supervision may adopt rules limiting participation by inmates in the proposed adoption, amendment or repeal of any rule to written submissions.

(d) If requested by at least five persons before the earliest date that the rule could become effective after the agency gives notice pursuant to subsection (1) of this section, the agency shall
provide a statement that identifies the objective of the rule and a statement of how the agency will subsequently determine whether the rule is in fact accomplishing that objective.

(e) An agency that receives data or views concerning proposed rules from interested persons
shall maintain a record of the data or views submitted. The record shall contain:

(A) All written materials submitted to an agency in response to a notice of intent to adopt,
amend or repeal a rule.

(B) A recording or summary of oral submissions received at hearings held for the purpose of
receiving those submissions.

(C) Any public comment received in response to the request made under subsection (2)(b)(G) of
this section and the agency’s response to that comment.

(D) Any statements provided by the agency under paragraph (d) of this subsection.

(4) Upon request of an interested person received before the earliest date that the rule could
become effective after the giving of notice pursuant to subsection (1) of this section, the agency shall postpone the date of its intended action no less than 21 nor more than 90 days in order to allow the requesting person an opportunity to submit data, views or arguments concerning the proposed action. Nothing in this subsection shall preclude an agency from adopting a temporary rule pursuant to subsection (5) of this section.

(5) Notwithstanding subsections (1) to (4) of this section, an agency may adopt, amend or sus-
pend a rule without prior notice or hearing or upon any abbreviated notice and hearing that it finds practicable, if the agency prepares:

(a) A statement of its findings that its failure to act promptly will result in serious prejudice to
the public interest or the interest of the parties concerned and the specific reasons for its findings
of prejudice;

(b) A citation of the statutory or other legal authority relied upon and bearing upon the
promulgation of the rule;

(c) A statement of the need for the rule and a statement of how the rule is intended to meet the
need;

(d) A list of the principal documents, reports or studies, if any, prepared by or relied upon by
the agency in considering the need for and in preparing the rule, and a statement of the location
at which those documents are available for public inspection; and

(e) For an agency specified in ORS 183.530, a housing cost impact statement as defined in ORS
183.534.

(6)(a) A rule adopted, amended or suspended under subsection (5) of this section is temporary
and may be effective for a period of not longer than 180 days. The adoption of a rule under this
subsection does not preclude the subsequent adoption of an identical rule under subsections (1) to (4) of this section.

(b) A rule temporarily suspended shall regain effectiveness upon expiration of the temporary
period of suspension unless the rule is repealed under subsections (1) to (4) of this section.

(7) Notwithstanding subsections (1) to (4) of this section, an agency may amend a rule without
prior notice or hearing if the amendment is solely for the purpose of:

(a) Changing the name of an agency by reason of a name change prescribed by law;

(b) Changing the name of a program, office or division within an agency as long as the change
in name does not have a substantive effect on the functions of the program, office or division;
(c) Correcting spelling;

(d) Correcting grammatical mistakes in a manner that does not alter the scope, application or
meaning of the rule;

(e) Correcting statutory or rule references; or

(f) Correcting addresses or telephone numbers referred to in the rules.

(8)(a) Any person may request in writing that an agency send to the person copies of the
agency’s notices of intended action issued under subsection (1) of this section. The person must
provide an address where the person elects to receive notices. The address provided may be a postal mailing address or, if the agency provides notice by electronic mail, may be an electronic mailing address.

(b) A request under this subsection must indicate that the person requests one of the following:

(A) The person may request that the agency mail paper copies of the proposed rule and other
information required by subsection (2) of this section to the postal mailing address.

(B) If the agency posts notices of intended action on a website, the person may request that the
agency mail the information required by subsection (2)(a) of this section to the postal mailing address with a reference to the website where electronic copies of the proposed rule and other information required by subsection (2) of this section are posted.

(C) The person may request that the agency electronically mail the information required by
subsection (2)(a) of this section to the electronic mailing address, and either provide electronic
copies of the proposed rule and other information required by subsection (2) of this section or provide a reference to a website where electronic copies of the proposed rule and other information required by subsection (2) of this section are posted.

(c) Upon receipt of any request under this subsection, the agency shall acknowledge the request,
establish a mailing list and maintain a record of all mailings made pursuant to the request. Agencies may establish procedures for establishing the mailing lists and keeping the mailing lists current. Agencies by rule may establish fees necessary to defray the costs of mailings and maintenance of the lists.

(d) Members of the Legislative Assembly who receive notices under subsection (15) of this section may request that an agency furnish paper copies of the notices.

(9) This section does not apply to rules establishing an effective date for a previously effective
rule or establishing a period during which a provision of a previously effective rule will apply.

(10) This section does not apply to ORS 279.835 to 279.855, 279A.140 to 279A.161, 279A.250 to
279A.290, 279A.990, 279B.050 to 279B.085, 279B.200 to 279B.240, 279B.270, 279B.275, 279B.280,
279C.360, 279C.365, 279C.370, 279C.375, 279C.380, 279C.385, 279C.500 to 279C.530, 279C.540, 279C.545, 279C.550 to 279C.570, 279C.580, 279C.585, 279C.590, 279C.600 to 279C.625, 279C.650 to 279C.670 and 279C.800 to 279C.870 relating to public contracts and purchasing.

(11)(a) Except as provided in paragraph (c) of this subsection, a rule is not valid unless adopted
in substantial compliance with the provisions of this section in effect on the date that the notice
required under subsection (1) of this section is delivered to the Secretary of State for the purpose
of publication in the bulletin referred to in ORS 183.360.

(b) In addition to all other requirements with which rule adoptions must comply, a rule is not
valid if the rule has not been submitted to the Legislative Counsel in the manner required by ORS
183.715.

(c) A rule is not subject to judicial review or other challenge by reason of failing to comply with
subsection (2)(a)(A) of this section.

(12)(a) Notwithstanding the provisions of subsection (11) of this section, but subject to paragraph
(b) of this subsection, an agency may correct its failure to substantially comply with the requirements of subsections (2) and (5) of this section in adoption of a rule by an amended filing, as long as the noncompliance did not substantially prejudice the interests of persons to be affected by the rule.

(b) An agency may use an amended filing to correct a failure to include a fiscal impact statement in a notice of intended action, as required by subsection (2)(b)(E) of this section, or to correct
an inaccurate fiscal impact statement, only if the agency developed the fiscal impact statement with the assistance of an advisory committee or fiscal impact advisory committee appointed under ORS 183.333.

(13) Unless otherwise provided by statute, the adoption, amendment or repeal of a rule by an
agency need not be based upon or supported by an evidentiary record.

(14) When an agency has established a deadline for comment on a proposed rule under the pro-
visions of subsection (3)(a) of this section, the agency may not extend that deadline for another
agency or person unless the extension applies equally to all interested agencies and persons. An
agency shall not consider any submission made by another agency after the final deadline has
passed.

(15) The notices required under subsections (1) and (3) of this section must be given by the
agency to the following persons:

(a) If the proposed adoption, amendment or repeal results from legislation that was passed
within two years before notice is given under subsection (1) of this section, notice shall be given to the legislator who introduced the bill that subsequently was enacted into law, and to the chair or cochairs of all committees that reported the bill out, except for those committees whose sole action on the bill was referral to another committee.

(b) If the proposed adoption, amendment or repeal does not result from legislation that was
passed within two years before notice is given under subsection (1) of this section, notice shall be
given to the chair or cochairs of any interim or session committee with authority over the subject
matter of the rule.

(c) If notice cannot be given under paragraph (a) or (b) of this subsection, notice shall be given
to the Speaker of the House of Representatives and to the President of the Senate who are in office on the date the notice is given.

(16)(a) Upon the request of a member of the Legislative Assembly or of a person who would be
affected by a proposed adoption, amendment or repeal, the committees receiving notice under subsection (15) of this section shall review the proposed adoption, amendment or repeal for compliance with the legislation from which the proposed adoption, amendment or repeal results.
(b) The committees shall submit their comments on the proposed adoption, amendment or repeal to the agency proposing the adoption, amendment or repeal.

The new administration’s budget-writing is underway, starting with the traditional GOP “Cooking of the Books” ceremony, in which the budget writers, fabulists of the first order, assume absurdly high levels of “Growth” will result from repeating the supply side playbook (cut taxes on the wealthy, cut services to everyone else) yet again, despite an unblemished record of failure every time the drill has been run.

One of OregonPEN’s favorite thinkers, actuary and analyst Gail Tverberg (“Gail the Actuary) just posted an important piece, perhaps her clearest exposition yet of why the issue we need to deal with is contraction, not growth. Her blog’s subtitle is “Exploring how oil limits affect the economy” and this latest essay deftly explains the relationship.

The term “dissipative structure” is unusual, technical and highly abstract. For most readers, the term “self-organizing system” might be a suitable synonym; for those who have studied systems, emergent system might also work. But despite that one bit of language difficulty, this essay is very much worth your time to read and re-read, as the future unfolds. The forces Tverberg studies operate regardless of the administration, and are as easy to reverse as the tide itself.

Reprinted with the author’s kind permission from Our Finite World, where it appeared as “Oops! The Economy is Like a Self-Driving Car.“ 

Picture

The masthead at “Our Finite World,” Gail the Actuary’s blog

 
Oops! The economy is like a self-driving car

Back in 1776, Adam Smith talked about the “invisible hand” of the economy. Investopedia explains how the invisible hand works as, “In a free market economy, self-interested individuals operate through a system of mutual interdependence to promote the general benefit of society at large.”
We talk and act today as if governments and economic policy are what make the economy behave as it does. Unfortunately, Adam Smith was right; there is an invisible hand guiding the economy. Today we know that there is a physics reason for why the economy acts as it does: the economy is a dissipative structure–something we will talk more about later.  First, let’s talk about how the economy really operates.

Our Economy Is Like a Self-Driving Car: Wages of Non-Elite Workers Are the Engine

Workers make goods and provide services. Non-elite workers–that is, workers without advanced education or supervisory responsibilities–play a special role, because there are so many of them. The economy can grow (just like a self-driving car can move forward) (1) if workers can make an increasing quantity of goods and services each year, and (2) if non-elite workers can afford to buy the goods that are being produced. If these workers find fewer jobs available, or if they don’t pay sufficiently well, it is as if the engine of the self-driving car is no longer working. The car could just as well fall apart into 1,000 pieces in the driveway.

If the wages of non-elite workers are too low, they cannot afford to pay very much in taxes, so governments are adversely affected. They also cannot afford to buy capital goods such as vehicles and homes. Thus, depressed wages of non-elite workers adversely affect both businesses and governments. If these non-elite workers are getting paid well, the “make/buy loop” is closed: the people whose labor creates fairly ordinary goods and services can also afford to buy those goods and services.

Recurring Needs of Car/Economy

The economy, like a car, has recurring needs, analogous to monthly lease payments, insurance payments, and maintenance costs. These would include payments for a variety of support services, including the following:

  • Government programs, including payments to the elderly and unemployed
  • Higher education programs
  • Healthcare

Needless to say, the above services tend to keep rising in cost, whether or not the wages of non-elite workers keep rising to keep up with these costs.

The economy also needs to purchase a portfolio of goods on a very regular basis (weekly or monthly), or it cannot operate. These include:

  • Fresh water

 

  • Food of many different types, including vegetables, fruits, and grains

 

  • Energy products of many types, such as oil, coal, natural gas, and uranium. These needs include many subtypes suited to particular refineries or electric power plants.

 

  • Minerals of many types, including copper, iron, lithium, and many others

Some of these goods are needed directly by the workers in the economy. Other goods are needed to make and operate the “tools” used by the workers. It is the growing use of tools that allows workers to keep becoming more productive–produce the rising quantity of goods and services that is needed to keep the economy growing. These tools are only possible through the use of energy products and other minerals of many kinds.

I have likened the necessary portfolio of goods the economy needs to ingredients in a recipe, or to chemicals needed for a particular experiment. If one of the “ingredients” is not available–probably because of prices that are too high for consumers or too low for producers–the economy needs to “make a smaller batch.” We saw this happen in the Great Recession of 2007 to 2009. Figure 1 shows that the use of several types of energy products, plus raw steel, shrank back at exactly the same time. In fact, the recent trend in coal and raw steel suggests another contraction may be ahead.

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Figure 1. World Product Consumption, indexed to the year 2000, for selected products. Raw Steel based on World USGS data; other amounts based of BP Statistical Review of World Energy 2016 data.

The Economy Re-Optimizes When Things Go Wrong 

If you have a Global Positioning System (GPS) in your car to give you driving directions, you know that whenever you make a wrong turn, it recalculates and gives you new directions to get you back on course. The economy works in much the same way. Let’s look at an example: 

Back in early 2014, I showed this graph from a presentation given by Steve Kopits. It shows that the cost of oil and gas extraction suddenly started on an upward trend, about the year 1999. Instead of costs rising at 0.9% per year, costs suddenly started to rise by an average of 10.9% per year.

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Figure 2. Figure by Steve Kopits of Westwood Douglas showing trends in world oil exploration and production costs per barrel. CAGR is “Compound Annual Growth Rate.”

When costs were rising by only 0.9% per year, it was relatively easy for oil producers to offset the cost increases by efficiency gains. Once costs started rising much more quickly, it was a sign that we had in some sense “run out” of new fields of easy-to-extract oil and gas. Instead, oil companies were forced to start accessing fields with much more expensive-to-produce oil and gas, if they wanted to replace depleting fields with new fields. There would soon be a mismatch between wages (which generally don’t rise very much) and the cost of goods made with oil, such as food grown using oil products.

Did the invisible hand sit idly by and let business as usual continue, despite this big rise in the cost of extraction of oil from new fields? I would argue that it did not. It was clear to business people around the world that there was a large amount of coal in China and India that had been bypassed because these countries had not yet become industrialized. This coal would provide a much cheaper source of energy than the oil, especially if the cost of oil appeared likely to rise. Furthermore, wages in these countries were lower as well.

The economy took the opportunity to re-optimize. Part of this re-optimization can be seen in Figure 1, shown earlier in this post. It shows that world coal supply has grown rapidly since 2000, while oil supply has grown quite slowly.

Figure 3, below, shows a different kind of shift: a shift in the way oil supplies were distributed, after 2000. We see that China, Saudi Arabia, and India are all examples of countries with big increases in oil consumption. At the same time, many of the developed countries found their oil consumption shrinking, rather than growing.

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Figure 3. Figure showing oil consumption growth since 2000 for selected countries, based on data from BP Statistical Review of World Energy 2016.

A person might wonder why Saudi Arabia’s use of oil would grow rapidly after the year 2000. The answer is simple: Saudi Arabia’s oil costs are its costs as a producer. Saudi Arabia has a lot of very old wells from which oil extraction is inexpensive–perhaps $15 per barrel. When oil prices are high and the cost of production is low, the government of an  oil-exporting nation collects a huge amount of taxes. Saudi Arabia was in such a situation. As a result, it could afford to use oil for many purposes, including electricity production and increased building of highways. It was not an oil importer, so the high world oil prices did not affect the country negatively.

China’s rapid rise in oil production could take place because, even with added oil consumption, its overall cost of producing goods would remain low because of the large share of coal in its energy mix and its low wages. The huge share of coal in China’s energy mix can be seen in Figure 4, below. Figure 4 also shows the extremely rapid growth in China’s energy consumption that took place once China joined the World Trade Organization in late 2001.

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Figure 4. China energy consumption by fuel based on BP 2016 Statistical Review of World Energy.

India was in a similar situation to China, because it could also build its economy on cheap coal and cheap labor.

When the economy re-optimizes itself, job patterns are affected as well.  Figure 5 shows the trend in labor force participation rate in the US:

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Figure 5. US Civilian labor force participation rate, based on US Bureau of Labor Statistics data, as graphed by fred.stlouisfed.org.

Was it simply a coincidence that the US labor force participation rate started falling about the year 2000? I don’t think so. The shift in energy consumption to countries such as China and India, as oil costs rose, could be expected to reduce job availability in the US. I know several people who were laid off from the company I worked for, as their jobs (in computer technical support) were shifted overseas. These folks were not alone in seeing their jobs shipped overseas.

The World Economy Is Like a Car that Cannot Make Sharp Turns 

The world economy cannot make very sharp turns, because there is a very long lead-time in making any change. New factories need to be built. For these factories to be used sufficiently to make economic sense, they need to be used over a long period.

At the same time, the products we desire to make more energy efficient, for example, automobiles, homes, and electricity generating plants, aren’t replaced very often. Because of the short life-time of incandescent light bulbs, it is possible to force a fairly rapid shift to more efficient types. But it is much more difficult to encourage a rapid change in high-cost items, which are typically used for many years. If a car owner has a big loan outstanding, the owner doesn’t want to hear that his car no longer has any value. How could he afford a new car, or pay back his loan?

A major limit on making any change is the amount of resources of a given type, available in a given year. These amounts tend to change relatively slowly, from year to year. (See Figure 1.) If more lithium, copper, oil, or any other type of resource is needed, new mines are needed. There needs to be an indication to producers that the price of these commodities will stay high enough, for a long enough period, to make this investment worthwhile. Low prices are a problem for many commodities today. In fact, production of many commodities may very well fall in the near future, because of continued low prices. This would collapse the economy.

The World Economy Can’t Go Very Far Backward, Without Collapsing

The 2007-2009 recession is an example of an attempt of the economy to shrink backward. (See Figure 1.) It didn’t go very far backward, and even the small amount of shrinkage that did occur was a huge problem. Many people lost their jobs, or were forced to take pay cuts. One of the big problems in going backward is the large amount of debt outstanding. This debt becomes impossible to repay, when the economy tries to shrink. Asset prices tend to fall as well.

Furthermore, while previous approaches, such as using horses instead of cars, may be appealing, they are extremely difficult to implement in practice. There are far fewer horses now, and there would not be places to “park” the horses in cities. Cleaning up after horses would be a problem, without businesses specializing in handling this problem.

What World Leaders Can Do to (Sort of) Fix the Economy

There are basically two things that governments can do, to try to make the economy (or car) go faster:

  1. They can encourage more debt. This is done in many ways, including lowering interest rates, reducing bank regulation, encouraging lower underwriting standards or longer term loans, taking out greater debt themselves, guaranteeing debt of non-creditworthy entities, and finding new markets for “recycled debt.”

 

  1. They can increase complexity levels. This means increasing output of goods and services through the use of more and better machines and through more training and specialization of workers. More complex businesses are likely to lead to more international businesses and longer supply chains.

Both of these actions work like turbocharging a car. They have the possibility of making the economy run faster, but they have the downside of extra cost. In the case of debt, the cost is the interest that needs to be paid; also the risk of “blow-up” if the economy slows. There is a limit on how low interest rates can go, as well. Ultimately, part of the output of the economy must go to debt holders, leaving less for workers.

In the case of complexity, the problem is that there gets to be increasing wage disparity, when some employees have wages based on special training, while others do not. Also, with capital goods, some individuals are owners of capital goods, while others are not. The arrangement creates wealth disparity, besides wage disparity.

In theory, both debt and increased complexity can help the economy grow faster. However, as I noted at the beginning, it is the wages of the non-elite workers that are especially important in allowing the economy to continue to move forward. The greater the proportion of the revenue that goes to high paid employees and to bond holders, the less that is available to non-elite workers. Also, there are diminishing returns to adding debt and complexity. At some point, the cost of each of these types of turbo-charging exceeds the benefit of the process.

Why the Economy Works Like a Self-Driving Car

The reason why the economy acts like a self-driving car is because the economy is, in physics terms, a dissipative structure. It grows and changes “on its own,” using energy sources available to it. The result is exactly the same effect that Adam Smith was observing. What makes the economy behave in this way is the fact that flows of energy are available to the economy. This happens because an economy is an open system, meaning its borders are permeable to energy flows.

When there is an abundance of energy available for use (from the sun, or from burning fossil fuels, or even from food), a variety of dissipative structures self-organize. One example is hurricanes, which self-organize over warm oceans. Another example is plants and animals, which self-organize and grow from small beginnings, if they have adequate food energy, plus other necessities of life. Another example is ecosystems, consisting of a number of different kinds of plants and animals, which interact together for the common good. Even stars, including our sun, are dissipative structures.

The economy is yet another type of a dissipative structure. This is why Adam Smith noticed the effect of the invisible hand of the economy. The energy that sustains the economy comes from a variety of sources. Humans have been able to obtain energy by burning biomass for over one million years. Other long-term energy sources include solar energy that provides heat and light for gardens, and wind energy that powers sail boats. More recently, other types of energy have been added, including fossil fuels energy.

When energy supplies are very cheap and easy to obtain, it is easy to ramp up their use. With growing supplies of energy, it is possible to keep adding more and better tools for people to work with. I use the term “tools” broadly. Besides machines to enable greater production, I include things like roads and advanced education, which also are helpful in making workers more effective. The use of growing energy supplies allows growing use of tools, and this growing use of tools increasingly leverages human labor. This is why we see growing productivity; we can expect to see falling human productivity if energy supplies should start to decline. Falling productivity will tend to push the economy toward collapse.

One problem for economies is diminishing returns of resource extraction. Diminishing returns cause the economy to become less and less efficient. Once energy extraction starts to have a significant problem with diminishing returns (such as in Figure 2), it is like losing energy resources into a sinkhole. More work is necessary, without greater output in terms of goods and services. Indirectly, economic growth must suffer. This seems to be the problem that the economy has been encountering in recent years. From the invisible hand’s point of view, $100 per barrel oil is very different from $20 per barrel oil.

One characteristic of dissipative structures is that they keep re-optimizing for the overall benefit of the dissipative structure. We saw in Figures 3 and 4 how fuel use and jobs rebalance around the world. Another example of rebalancing is the way the economy uses every part of a barrel of oil. If, for example, our only goal were to maximize the number of miles driven for automobiles, it would make sense to operate cars using diesel fuel, rather than gasoline. In fact, the energy mix available to the economy includes quite a bit of gasoline and natural gas liquids. If we need to use what is available, it makes sense to use gasoline in private passenger cars, and save diesel for commercial use.

Another characteristic of dissipative structures is that they are not permanent. They grow for a while, and then collapse. Later, new similar dissipative structures may develop and indirectly replace the ones that have collapsed. In this way, the overall system is able to evolve in a way that adapts to changing conditions.

What Are the Likely Events that Would Cause the Economy to Collapse?

I modeled the system as being like a self-driving car. The thing that keeps the system operating is the continued growth of inflation-adjusted wages of non-elite workers. This analogy was chosen because in ecosystems in general, the energy return on the labor of an animal is very important. The collapse of a population of fish, or of some other animal, tends to happen when the return on the labor of that animal falls too low.

In the case of the fish, the return on the labor of the fish falls too low when nearby supplies of food disappear, and the fish must swim too far to obtain new supplies of food. The return on human labor would seem to be the inflation-adjusted wages of non-elite workers. We know that wages for many workers have been falling in recent years, because of competition from globalization, and because of replacement of human labor by advanced machines, such as computers and robots.

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Figure 6. Bottom 50% income share, from recent Piketty analysis.

Besides the problem of falling wages of non-elite workers, earlier in this post I mentioned a number of other issues that make the wages of these workers go less far. These include growing government spending, and the growing costs of education and healthcare. I also mentioned the problem of rising debt, and the increased concentration of wealth, as we try to add complexity to solve problems. All of these issues make it hard for “demand”–which might also be called “affordability”–to be sufficiently great to allow commodity prices to rise to the level producers need for profitability.

Prices Play a Very Important Role in the Economy

The pricing system is the communication system of the economy, as a dissipative structure. One use of energy is to create “information.” Prices are a high level form of information.

One big area where prices come up is with respect to the whole portfolio of products needed on a regular basis, which I mentioned earlier (water, food, energy products, and mineral products). In order for the system to continue working, the prices need to be both:

  • Affordable by consumers

 

  • High enough for producers to cover their costs, including a margin for taxes and reinvestment

Now, in 2017, prices are “sort of” affordable for consumers, but they are not high enough for producersOil companies will go out of business if these low prices persist.
Back in 2007 and 2008, we had the reverse problem. Prices were high enough for producers, but too high for consumers (especially non-elite workers). This is a big part of what pushed the economy into recession.

We noticed back in Figure 1 that quantities of energy products/goods tend to move up and down together. A similar phenomenon holds true for prices: commodity prices tend to rise and fall together (Figure 7).  The reason this happens is because when the world economy is moving swiftly forward (higher wages, more building activity, more debt), demand tends to be high for many different types of materials at the same time. When the economy slows, prices of all of these commodities tend to fall at the same time. Inflation tends to fall as well.

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Figure 7. Prices of oil, coal and natural gas tend to rise and fall together. Prices based on 2016 Statistical Review of World Energy data.

If prices cannot rise high enough for producers, it is likely a sign that wages of non-elite workers are already too low. The affordability loop mentioned earlier is not being closed, so prices cannot stay up at a high enough level to maintain production.

Most Modelers Overlook the Fact that the Economy Is an Open System

Most energy models are based on one of two views of the world:

(1) fossil fuel energy supply will eventually run short, so we must use it as sparingly as possible; or

(2) we want to reduce the use of fossil fuels as quickly as possible, because of climate change.

Because of these issues, we want to leverage the fossil fuel energy we have, to as great an extent as possible, with energy that we can somehow capture from renewable sources, such as the solar energy or wind. With this view of the situation, our major objective is to create “renewables” that use fossil fuel energy as efficiently as possible. The hope is that these renewables, together with the actions of governments, will allow the economy to gradually shrink back to a level that is somehow more sustainable.

Implicit is this model is the view that the economy, and the world in general, is a closed system. Our current government and business leaders are in charge; they can make the changes they would prefer, without the invisible hand causing an unforeseen problem. Very few have realized that the economy cannot really shrink back very much; past history, as well as the nature of dissipative structures, shows that economies tend to collapse. The only economies that have at least temporarily avoided that fate have shifted toward less complexity–for example, eliminating huge government programs, such as armies–rather than yielding to the temptation to add ever more complexity, such as wind turbines and solar panels.

The real situation is that we have a here-and-now problem of too low wages for non-elite workers. Commodity prices are also too low. Intermittent renewables such as wind and solar are thought to be solutions, but it is well-known that intermittent renewables cause too-low prices for other types of electricity generation, when added to the electric grid. Thus, they are likely part of the low-price problem, not part of the solution. Temporary solutions, if there are any, are likely in the direction of cutting back on government expenditures and reducing regulation of banks. In fact, with the election of Trump and the passage of Brexit, the economy seems to again be re-optimizing.

We also know that dissipative structures do not shrink back well, at all. They tend to collapse, instead. For example, you, as a human being, are a dissipative structure. If your food intake were cut back to, say, 500 calories per day, how well would you do? If you could not get along on a very low calorie diet, how would you expect the economy to shrink back to a renewables-only level? Renewables that can be used in a shrunken economy are scarce; we don’t have a huge number of trees to cut down. We cannot maintain the electric grid without fossil fuels.

The assumption that the economy is a closed system is pretty much standard when modeling our current energy situation. This occurs because, until recently, we did not understand that the self-organizing properties of inanimate systems were as important as they are. Also, modeling of the economy as a closed system, rather than an open system, makes modeling much easier. The problem is that closed system modeling doesn’t really tell the right story. 

For a discussion of some of the issues associated with this mis-modeling, see the recent academic paper, Is the increased use of biofuels the road to sustainability? Consequences of the methodological approach.

Long overdue new rule:  Don’t drive with a dog in your lap!  Who knew?

This bill doesn’t go nearly far enough, but it’s a dog-gone good start. With luck it will be amended to add

     1) Cats, ferrets, parrots, iguanas or all the other household pets that people with bad judgment will transport in their lap rather than in a proper carrier while driving;

    2) Escalating penalties for repeated offenses, including suspension or even loss of license for people who refuse to get the message.

If people driving around with dogs or other pets outside of carriers were only a danger to themselves, that would be one thing.

But distracted drivers put people in other cars, bicyclists, pedestrians and the animals themselves at risk — all because some drivers have such poor judgment that they forget that piloting  a couple thousand pounds of metal at roadway speeds is operating a lethal weapon that requires full attention and no distractions.

Kudos to Senator Hansell.

79th OREGON LEGISLATIVE ASSEMBLY–2017 Regular Session

Senate Bill 556 Sponsored by Senator HANSELL (Presession filed.)

SUMMARY The following summary is not prepared by the sponsors of the measure and is not a part of the body thereof subject to consideration by the Legislative Assembly. It is an editor’s brief statement of the essential features of the measure as introduced.

Creates offense of driving with dog in driver’s lap. Punishes by maximum fine of $250.

Relating to traffic offenses.

A BILL FOR AN ACT

Be It Enacted by the People of the State of Oregon:

SECTION 1. Section 2 of this 2017 Act is added to and made a part of the Oregon Vehicle Code.

SECTION 2. (1) A person commits the offense of driving with a dog in the driver’s lap if the person is operating a motor vehicle on a highway or on premises open to the public and a dog is in the person’s lap.

(2) The offense described in this section, driving with a dog in the driver’s lap, is a Class D traffic violation.

It’s Christmas in the Capital for small-aircraft pilots, as the Governor proposes to abolish state licensing of pilots, a program that is forecast (not “forecasted,” Legislative Revenue Office) to raise $200,000 each biennium and costs about $3,000 a year to collect — with the net funds going the search and rescue operation for missing pilots.

The net result is that cities and towns across Oregon will not be reimbursed for fuel costs for search and rescue operations, which means that ordinary taxpayers will be picking up a tab that pilots formerly helped pay. Because apparently Oregon just has too darn much money, and pilots shouldn’t be expected to pay for programs that are entirely for their benefit.

Analysis:

The measure abolishes the aircraft pilot state registration and the pilot registration fee. The pilot registration fee is $24 for the first year and $48 for a biennial renewal. Currently the revenue from the pilot registration fees fund the search and rescue activities of the Office of Emergency Management, and reimburses municipalities for fuel costs associated with search and rescue activities.
 
The Department of Aviation notes that search and rescue activities will continue to be paid for, as directed by ORS 835.060, but that the program will utilize revenues from aircraft registrations instead of the pilot registration revenue. The fees for aircraft registrations were increased in HB 2075 (2015).
 
The Department of Aviation and the Office of Emergency Management, within the Oregon Military Department, anticipate signing a renewable five-year interagency agreement to continue the transfers to the Military Department for reimbursement.
 
There is a minimal expenditure impact to the agency by eliminating the pilot registration process and transferring the search and rescue activities to the Aircraft Registration program within the agency.
 
This concept is included as a Policy Option Package in the Department of Aviation’s Governor’s Recommended Budget. The Legislative Fiscal Office believes this measure warrants a subsequent referral to the Joint Committee on Ways and Means Committee for consideration of this measure’s budgetary impact on the Department of Aviation’s budget.

Measure Description: Eliminates aircraft pilot state registration.
 
Revenue Impact:  Revenue reduction due to eliminating pilot registration.

Impact Explanation:

The measure will amend sections of ORS 835 and 837 to abolish Pilot Registration and the Pilot Registration Fee. Currently, Pilot Registration revenue provides funding for search and rescue  activities.

ORS 835.060 and 837.050 allows Aircraft Registration revenue to be used for search and rescue activities. During the 2015 Legislative Session, Aircraft Registration fees were increased and  will lead to a forecasted [sic] $202,257 in revenue each biennium.

It is estimated that in the 17-19 biennium Oregon Department of Aviation will receive $161,375 of revenue from Pilot Registration Fees and $157,499 in the 19-21 biennium. These estimates are based on revenue forecasts that take into consideration the declining population of pilots and the rates of $24 paid the first year and $48 for a renewal paid biennially.        

Abolishing this fee will  leave an estimated $20,172 of revenue that will be shifted to the Aircraft Registration appropriation, along with the ending balance in Search and Rescue, (forecasted [sic] to be $27,108)
 
If Pilot Registration is abolished the department’s costs will be reduced $5,740 and $6,557 in the 2019- 21 biennium. Those cost reductions are not included in the above revenue numbers.

HB2731 early candidate for most important bill of 2017

    When states with majority of electoral votes join the compact, America will finally put an end to the slavery legacy that lets losers like Trump seize the White House with minority of votes

79th OREGON LEGISLATIVE ASSEMBLY–2017 Regular Session
 
House Bill 2731
Sponsored by Representative CLEM
 
SUMMARY The following summary is not prepared by the sponsors of the measure and is not a part of the body thereof subject to consideration by the Legislative Assembly. It is an editor’s brief statement of the essential features of the measure as introduced.
 
Enacts Interstate Compact for Agreement Among the States to Elect the President by National Popular Vote.
 
A BILL FOR AN ACT Relating to the Agreement Among the States to Elect the President by National Popular Vote.
 
Be It Enacted by the People of the State of Oregon:
 
            SECTION 1. The Agreement Among the States to Elect the President by National Popular Vote is hereby enacted into law and entered into on behalf of this state with all other states legally joining in the compact in a form substantially as follows:
 
ARTICLE I
MEMBERSHIP
 
            Any State of the United States and the District of Columbia may become a member of this agreement by enacting this agreement.
 
ARTICLE II
RIGHT OF THE PEOPLE IN MEMBER STATES
TO VOTE FOR PRESIDENT AND VICE PRESIDENT
 
            Each member state shall conduct a statewide popular election for President and Vice President of the United States.
 
ARTICLE III
MANNER OF APPOINTING PRESIDENTIAL ELECTORS
IN MEMBER STATES
 
            Prior to the time set by law for the meeting and voting by the presidential electors, the chief election official of each member state shall determine the number of votes for each presidential slate in each State of the United States and in the District of Columbia in which votes have been cast in a statewide popular election and shall add such votes together to produce a “national popular vote total” for each presidential slate.
 
                The chief election official of each member state shall designate the presidential slate with the largest national popular vote total as the “national popular vote winner.”
 
                The presidential elector certifying official of each member state shall certify the appointment in that official’s own state of the elector slate nominated in that state in association with the national popular vote winner. At least six days before the day fixed by law for the meeting and voting by the presidential electors, each member state shall make a final determination of the number of popular votes cast in the state for each presidential slate and shall communicate an official statement of such determination within 24 hours to the chief election official of each other member state.
 
                The chief election official of each member state shall treat as conclusive an official statement containing the number of popular votes in a state for each presidential slate made by the day established by federal law for making a state’s final determination conclusive as to the counting of electoral votes by Congress.
 
                In event of a tie for the national popular vote winner, the presidential elector certifying official of each member state shall certify the appointment of the elector slate nominated in association with the presidential slate receiving the largest number of popular votes within that official’s own state.
 
                If, for any reason, the number of presidential electors nominated in a member state in association with the national popular vote winner is less than or greater than that state’s number of electoral votes, the presidential candidate on the presidential slate that has been designated as the national popular vote winner shall have the power to nominate the presi- dential electors for that state and that state’s presidential elector certifying official shall certify the appointment of such nominees.
 
                The chief election official of each member state shall immediately release to the public all vote counts or statements of votes as they are determined or obtained.
 
                This Article shall govern the appointment of presidential electors in each member state in any year in which this agreement is, on July 20, in effect in states cumulatively possessing a majority of the electoral votes.
 
ARTICLE IV
OTHER PROVISIONS
 
                This agreement shall take effect when states cumulatively possessing a majority of the electoral votes have enacted this agreement in substantially the same form and the enactments by such states have taken effect in each state.
 
                Any member state may withdraw from this agreement, except that a withdrawal occurring six months or less before the end of a President’s term shall not become effective until a President or Vice President shall have been qualified to serve the next term.
 
                The chief executive of each member state shall promptly notify the chief executive of all other states of when this agreement has been enacted and has taken effect in that official’s state, when the state has withdrawn from this agreement, and when this agreement takes effect generally. This agreement shall terminate if the electoral college is abolished. If any provision of this agreement is held invalid, the remaining provisions shall not be affected.
 
ARTICLE V
DEFINITIONS
 
                For purposes of this agreement,
 
                “Chief executive” shall mean the Governor of a State of the United States or the Mayor of the District of Columbia;
 
                “Elector slate” shall mean a slate of candidates who have been nominated in a state for the position of presidential elector in association with a presidential slate;
 
                “Chief election official” shall mean the state official or body that is authorized to certify the total number of popular votes for each presidential slate;
 
                “Presidential elector” shall mean an elector for President and Vice President of the United States;
 
                “Presidential elector certifying official” shall mean the state official or body that is authorized to certify the appointment of the state’s presidential electors;
 
                “Presidential slate” shall mean a slate of two persons, the first of whom has been nominated as a candidate for President of the United States and the second of whom has been nominated as a candidate for Vice President of the United States, or any legal successors to such persons, regardless of whether both names appear on the ballot presented to the voter in a particular state;
 
                “State” shall mean a State of the United States and the District of Columbia; and
 
                “Statewide popular election” shall mean a general election in which votes are cast for presidential slates by individual voters and counted on a statewide basis.
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Map data compiled by FairVote (Fairvote.org).

Oregon ignored again, as six states hog 2/3 of presidential campaign events

Two-thirds (273 of 399) of the general-election campaign events in the 2016 presidential race were in just 6 states: Florida, North Carolina, Pennsylvania, Ohio, Virginia, and Michigan.
  
94% of the 2016 events (375 of the 399) were in 12 states (the 11 states identified earlier in the year as “battleground” states by Politico and The Hill plus Arizona).  This fact validates the statement by former presidential candidate and Governor Scott Walker of Wisconsin on September 2, 2015, that “The nation as a whole is not going to elect the next president.  Twelve states are.” In addition to the 12 states that received 10 or more campaign events,

14 additional states received scattered attention (1, 2, or 3 events).   Eleven of these states (Georgia, Missouri, California, Washington, Texas, Mississippi, Minnesota, Indiana, Utah, New Mexico, and Connecticut) received a total of 22 Republican visits, but no Democratic visits.

Two of these states (Maine and Nebraska) were visited because those states award some of their electoral votes by congressional district. One of these states (Illinois) received a Democratic campaign event at a large park located across the river from Davenport, Iowa (the prominent media market and population center in the area and the likely motivation for the event in Illinois). 

The map above and chart below show all the post-convention campaign events by the major- party presidential and vice-presidential nominees (Donald Trump, Mike Pence, Hillary Clinton, and Tim Kaine).

The count of Republican campaign events started on Friday July 22, 2016 (the day after the end of the party’s convention), and the count of Democratic campaign events started on Friday July 29 (the day after the end of the party’s convention).  The count ended on Monday November 7, 2016 (the day before Election Day).

“Campaign events” are defined here as public events in which a candidate is soliciting the state’s voters (e.g., rallies, speeches, fairs, town hall meetings). This count of “campaign events” does not include visits to a state for the sole purpose of conducting a private fund-raising event, participating in a presidential debate or media interview in a studio, giving a speech to an organization’s national convention, attending a non-campaign event (e.g., the Al Smith Dinner in New York City), visiting the campaign’s own offices in a state, or attending a private meeting.

Text, map and table from nationalpopularvote.com; data compiled by Fairvote (Fairvote.org).
A perennial problem in democratic governance: how do you compensate judges fairly.

The Founders knew that letting judicial pay be subject to the whims of the overtly political branches was a bad idea, which is why the Constitution forbids mucking with judges’ pay.

Oregon is at or near the bottom in terms of paying judges. That is why the new bill, SB11, to raise judicial pay is needed–but also why it might turn into a piñata and absorb a lot of whacks from voters.

It’s clear that Oregon judges lag behind the obvious comparison cases, judges in other states, but it is equally hard to argue that Oregon judges are underpaid in any absolute sense, given the state’s generally smaller salaries compared nationwide.

Besides, while our judicial salaries lag those in other states, Oregon lags behind other states on countless other measures of well-being. The state’s economy is in contraction because the natural resource based economy is just a fraction of its former size but no equally strong wealth-creating sector of the economy has filled the gap. Our bizarre, Rube Goldberg tax system is as stable and well-considered as a 3 a.m. White House tweet.

So taxpayer fury, fanned into a white heat crescendo by corporate anti-tax crusaders, is likely to be in abundant supply during this year’s legislative session, thanks to the enormous current state revenue shortfall, approaching $2 billion, with more predicted for future sessions. This fury has a way of bursting any bounds and incinerating proposals for things that, objectively, make no difference at all to the actual tax rates beyond the sixth decimal place but that are unlucky enough to have strong symbolic potency.

And there is no more obvious symbol likely to serve as tinder and kindling for anti-tax organizing than a proposal that gives judges, including on the Oregon Tax Court, a raise while Oregon is shuttering schools and ending health coverage for the poor.

Ultimately, the solution to public pay setting is to create “set and forget” public employee pay tables that put the pay for each public job classification at a certain multiple of the state minimum wage.

Thus, for examples, instead of saying that an appellate court judge in Oregon makes $150,000, the pay for the job would be legislatively “set and forget” at the annual equivalent of 7.25 times the state hourly minimum wage. The minimum wage is indexed to inflation, so we no longer need to keep revisiting and revising pay salaries to keep up. We would take a similar approach to the salaries of trial judges, state agencies, and the Legislature itself.

Once the tables are established, the job of the Legislature would no longer include having to adjust salaries by recurrent votes that are subject to relentless demagoguery.  As inflation pushes up the minimum wage, the more generous salaries available through public employment rise proportionally, but not-disproportionately. And a recurrent source of problems for public employers is resolved.

SB 11       STAFF MEASURE SUMMARY
Senate Committee On Judiciary

Action Date:      02/14/17

Action:      Do pass and refer to Ways and Means by prior reference.
Vote:      4-1-0-0
Yeas:      4 – Dembrow, Manning Jr, Prozanski, Thatcher
Nays:       1 – Linthicum
Fiscal:      Fiscal impact issued
Revenue:      No revenue impact

WHAT THE MEASURE DOES:
Increases current annual salary for Oregon judges. Establishes salary rate increases through January 1, 2020.

ISSUES DISCUSSED:
·  Discussion of need for greater pay of Oregon judges

·  Overview of past legislation addressing Oregon judge salaries

BACKGROUND:
According to the National Center for State Courts (NCSC), as of July 1, 2016, Oregon ranked 47th out of 50 states and the District of Columbia for high court judges’ pay, 36th for intermediate appellate court judges’ pay out of the 40 states with these courts, and 48th out of the 50 states and D.C. for general jurisdiction court judges’ pay. Judges’ pay for general jurisdiction courts in Oregon is ranked 50th nationally when adjusted for the cost-of-living index.

Senate Bill 11 increases annual salaries for judges as follows: Supreme Court Chief Justice
·  Increases salary from $138,556 to $150,571.92 for 2017

·  Increases salary by $6,476 on January 1 of 2018, 2019 and 2020

Supreme Court Judge

·  Increases salary from $135,688 to $147,559.92 for 2017

·  Increases salary by $6,863 on January 1 of 2018, 2019 and 2020

Court of Appeals Chief Judge

·  Increases salary from $135,688 to $147,559.92 for 2017

·  Increases salary by $6,863 on January 1 of 2018, 2019 and 2020

Court of Appeals Judge

·  Increases salary from $132,820 to $144,535.92 for 2017

·  Increases salary by $6,821 on January 1 of 2018, 2019 and 2020

Circuit Court Judge

·  Increases salary from $124,468 to $135,775.92 for 2017

SB 11        STAFF MEASURE SUMMARY

·   Increases salary by $5,691 on January 1 of 2018, 2019 and 2020 Tax Court Judge

·   Increases salary from $128,164 to $139,651.92 for 2017

·   Increases salary by $6,424 on January 1 of 2018, 2019 and 2020