Reality bites

You know times are tough when even the JPMorgan Chase outlook luncheon, which for years was an orgy of boosterism and denial, sounds like a post from Rogue Columnist. ASU economist Lee McPheters said Arizona may not recover until 2014. McPheters is one of the genuinely intelligent ASU economists who usually pulled his punches because of past Kookocracy threats against honesty, especially the nuts' vendetta against the truth-telling Tom Rex. Elliott Pollack, the booster rubber-chicken-circuit fixture whom the Info Center consistently refuses to identify as the developer he is, even sounded clear-eyed about the dire situation. (You can read the entire report here).

Unfortunately, Phoenicians have two emotional speeds: irrational optimism and suicidal depression. While they should take this highly establishment verdict on the situation as a call to arms, I fear they will break out the cyanide capsules or just go to the booster sweat lodge chanting…all together now…Please, God, just give me one more real estate boom…

The reality is that things are even worse than the luncheon crowd heard. Phoenix is in a depression. I've created a searchable tag for it if you're on Twitter (#PhoenixDepression) to catalog all the news and data (my Twitter feed is jontalton). Yes, as my readers have heard for years, the region is too dependent on real estate and now has an inventory of houses and spec commercial space that will take years to work out. And, yes, contrary to the "Goldwater" Institute's sock puppet on the Info Center's editorial page, Arizona has been hit harder than any other state by job losses. Indeed, metro Phoenix led the nation in job cuts in October compared with the same month in 2008. Alas, the troubles run much, much deeper.

The damage to average people is severe, from foreclosures to bankruptcies. In 2009, personal income decreased for the first time in four decades of record keeping. And this was from an already persistent deficit: Arizona's per-capita and household income has been trailing the national average since the 1980s; Phoenix's is far below that of similar sized metros. House prices will not again rise as they did during the bubble years and the home-equity loan piggybank is empty — both developments cutting off an important source of household wealth in a state of low-wage jobs. The regional economy has become much less diverse since 1990, with fewer major headquarters, a diminishing tech sector and few exports besides the semiconductors that are a legacy of a previous generation's economic development efforts. It has become much more dependent on population growth to keep the Ponzi scheme going — and now that's done. In past recessions, Phoenix tended to grow more slowly — no more. It is declining in real terms.

Outside this inward-looking place are forces that don't bode well. Americans are moving less. They're suffering the worst economy since the Depression and we're nowhere near the end of the troubles. Stagnant wages, heavy debt and the end of the retirement security known by my parent's generation will keep many people from moving to Arizona, even the ones who will put up with anything as long as the weather is hot. So all the business plans based on adding 100,000 new residents a year are kaput. These issues will also slam the tourism industry, which is already struggling with debt and overbuilding. The federal government is paralyzed, so little help will come to a state and city heavily dependent on taxpayer money — and desperately needs more transit, commuter rail and other infrastructure. The deindustrialized American economy faces a world of new competition, especially from China. Arizona's "low wage" advantage is gone, and hasn't been replaced with quality. Meanwhile, Phoenix's big play to join the global economy centered inexplicably on Dubai, which has now become an earth-shaking real-estate disaster.

Inside, Phoenix is stuck with more than thousands of empty houses, shopping strips and big boxes. It is saddled with a large underclass, many low-skilled, non-English speaking immigrants, with no ability to move them into the mainstream and up the economic ladder. Things are little better for the Anglo and Mexican-American working poor, and those desperately clinging to the edge of the middle class working two or three jobs. During the good years, leaders failed to implement the policies that would have created high-paid jobs and ladders up. A particularly glaring failure is the largely unfinished downtown biosciences campus. I hear Science Foundation Arizona may finally get $18.5 million, but this is a fraction of what is being invested by competitors and there remains no commitment for future funding. State and municipal finances are a disaster, second worst in the nation and with less of a legacy to live off as is the case in California. At the same time, all the costs from "growth" that were pushed forward keep coming due. All the unsustainability issues have a radar lock and are preparing to fire.

The result may not just be the reset we keep hearing about, but a relative freezing in place of advantages and disadvantages worldwide — barring a double-dip recession. In other words, the major bio centers in Boston, Raleigh and Seattle will be strong; Phoenix will remain an also-ran. Metros and states that benefit from trade will see a relative boost from China's continued effort to corner the market in everything. Those that bet on Dubai will get the lousy T-shirt. But of course life doesn't allow for complete stasis, so this "freezing in place" means the metros and states with the biggest problems will slowly slide down the mountainside. With the future of America very much in doubt at this moment, one can hardly be bullish on places such as Phoenix, Arizona.

And yet, this is exactly when leadership could emerge to diversify the economy, improve the public schools, invest in the universities, build 21st century infrastructure, reform land-use, implement aggressive economic development policies targeting California and Asia, attract non-real estate investment, and enact tax revenue appropriate for a highly populous, urbanized state (e.g., tax the rich with income and other taxes, not the poor with a sales tax; a modest transfer tax should be the beginning of the ways the Real Estate Industrial Complex can repay its long, free ride). The solutions have been put forward again and again, on this blog and elsewhere, over and over. There are people who could actually make this happen if they would step out of their north Scottsdale and Paradise Valley bunkers, abandon the Growth Machine and snuff out extreme politics.

Where will it all end up if nothing is done, if the Kookocracy continues its lunatic plunge over the edge? These are scary times in America. Anything is possible. The one thing that's not is a return to the status quo ante. And that's the one thing the powers-that-be — and many average Arizonans — don't want to hear.