As a resident of South Florida witness to some of the worst driving in the nation, I am always interested in discussions about bringing public mass transit to Florida, but the proposed Tampa-Orlando high-speed rail seems to be extravagant and irrelevant to some of the real public transportation issues facing Florida at the moment. The Tampa-Orlando high-speed rail link is estimated to cost $3.5 billion and upon completion will likely operate with ongoing subsidies. You can bet the Orlando-Miami link will cost a multiple of that amount and that both links will end up costing a lot more and take a lot longer to build than anyone is projecting today. It always does.
The real question is why are those rail links needed? Are they needed to take national and international visitors coming through Tampa and Miami back and forth to see Mickey? The State of Florida should be addressing the growing mass transit needs of South Florida, a major economic focal point of the State, and should be addressing the already critical needs of a growing, aging senior population.
Mass transit requires high density living and employment patterns to work effectively and economically. The good news is that South Florida, defined as the conurbation of Miami-Dade, Broward and Palm Beach Counties, is about as dense as you will find in Florida. Thirty-percent of Florida’s population, or more than 5.5 million persons, live in those three counties, which amount to about ten percent of Florida’s land area, and equates to a density of more than 1,000 persons per square mile.
South Florida’s senior population (65+ years old) is nearly one million today, and if national forecasts hold true here, it may grow 40% within the next five years. Additionally, today’s 65-year-old has a life expectancy of 84 years. During winter months, more than a million seasonal visitors and tourists add to the region’s senior population. An urgent need clearly exists to provide residents and visitors with a real alternative to driving to meet their daily local travel requirements.
The bad news is that it is unclear whether South Florida’s senior population density of less than 200 persons per square mile can support a viable mass transit system, especially in relatively low dense Palm Beach County where seniors are particularly concentrated and most likely to favor for retirement in the future.
The State of Florida should fast track a plan to solve this serious transportation problem and should consider all options in developing solutions. In addition, emerging transportation and land development plans must be consistent so that future development densities support whatever mass transit solution is ultimately adopted. Solving this important problem will be essential to maintaining the favored status of South Florida as a retirement venue and as one of Florida’s most vibrant economies.
Saturday, February 20, 2010
Tuesday, February 16, 2010
US Government Spending Must Fade to Black
Four key numbers—government spending, federal tax revenue, the budget deficit, and national debt- provide important and sobering insight into our current fiscal health. 2010’s raw numbers are dramatic and mind boggling to the point of distraction, but relating them to our $14.3 trillion Gross Domestic Product (GDP) make them relevant, easier to comprehend, and relatable to one another. Those ratios are as follows: government spending/GDP is 28%; federal tax revenue/GDP is 16%; the budget deficit/GDP is 12%; and the national debt/GDP is 85%. Those ratios are horrendous, especially considering, for example, that the European Union requires members to have national debt and budget deficit ratios less than 40% and 3%, respectively, when they join the union, considerably lower than ours at the moment.
The current budget deficit is 12% of GDP (28%-16%); and will add to our national debt. That deficit means that our economy is currently borrowing 45 cents of every dollar it spends, and at that level it should push our national debt to 109% of GDP within a couple of years (85% + [12% x 2]). That would put us in the esteemed company of Greece and well on our way to the disastrous path of Japan.
Arithmetically, there are two major solutions: decrease spending, increase taxes, or do some of each. Politically, the solution is not so easy. The liberals (usually democrats) want to increase taxes, believing that corporations and the wealthy should pay more to meet our needs. The conservatives (usually republicans) want to decrease spending, pointing to government waste and inefficiency and a spending level similar to some of the European socialist governments. They also say that the top 10% of taxpayers already pay more than 70% of all federal taxes, so it is unlikely that further tax increases targeting only the wealthy will yield enough tax revenue to mitigate our fiscal problem.
Obviously, fiscal policymakers would like to tinker with all four numerators of those ratios, but they should also consider policies that might increase the denominator, GDP, which would also help solve the problem. History and the facts seem to favor the conservative strategy of cutting government spending and cutting taxes as effective catalysts for economic growth. Apparently, across-the-board tax cuts worked well for both democrat and republican administrations, under Calvin Coolidge in the 1920s, John Kennedy in the 1960s, Ronald Reagan in the 1980s, and Bill Clinton in the 1990s.
Reducing our future budget deficits will limit our compounding national debt, and should be our immediate objective. However, reducing our national debt should be a very close second objective. When our debt’s interest rates, currently artificially low at 3%, double, triple or worse, the attendant increase in debt payments could cripple our financial system and economy. Rising interest rates will be an inevitable part of the global recovery and it may happen sooner than later. An expanding global demand for capital, global inflation, and a potential reduction in the US credit rating, are among the major factors that could easily cause a dramatic increase in those interest rates and our interest payments. And, as those debt interest payments become a greater proportion of the spending budget they will either crowd out important investment and consumption spending or increase the budget, thereby further expanding our national debt and our fiscal problems. It will come at the expense of our economic growth, productivity and standard of living.
Some expect the government to continue printing money as it and many other governments have done during similar crises in history. This time may be different, however, as the major holders of our debt, especially China, may have something to say about the US deliberately devaluing its debts and their investments. Although inflating out of the problem effectively grows the denominator, GDP, it does so artificially in inflated (not real) terms, and ravages US financial and fixed income assets, such as bank deposits, savings bonds, social security and pension funds. It may also ruin the US dollar. Is that better than a smaller government and reducing government spending?
The current budget deficit is 12% of GDP (28%-16%); and will add to our national debt. That deficit means that our economy is currently borrowing 45 cents of every dollar it spends, and at that level it should push our national debt to 109% of GDP within a couple of years (85% + [12% x 2]). That would put us in the esteemed company of Greece and well on our way to the disastrous path of Japan.
Arithmetically, there are two major solutions: decrease spending, increase taxes, or do some of each. Politically, the solution is not so easy. The liberals (usually democrats) want to increase taxes, believing that corporations and the wealthy should pay more to meet our needs. The conservatives (usually republicans) want to decrease spending, pointing to government waste and inefficiency and a spending level similar to some of the European socialist governments. They also say that the top 10% of taxpayers already pay more than 70% of all federal taxes, so it is unlikely that further tax increases targeting only the wealthy will yield enough tax revenue to mitigate our fiscal problem.
Obviously, fiscal policymakers would like to tinker with all four numerators of those ratios, but they should also consider policies that might increase the denominator, GDP, which would also help solve the problem. History and the facts seem to favor the conservative strategy of cutting government spending and cutting taxes as effective catalysts for economic growth. Apparently, across-the-board tax cuts worked well for both democrat and republican administrations, under Calvin Coolidge in the 1920s, John Kennedy in the 1960s, Ronald Reagan in the 1980s, and Bill Clinton in the 1990s.
Reducing our future budget deficits will limit our compounding national debt, and should be our immediate objective. However, reducing our national debt should be a very close second objective. When our debt’s interest rates, currently artificially low at 3%, double, triple or worse, the attendant increase in debt payments could cripple our financial system and economy. Rising interest rates will be an inevitable part of the global recovery and it may happen sooner than later. An expanding global demand for capital, global inflation, and a potential reduction in the US credit rating, are among the major factors that could easily cause a dramatic increase in those interest rates and our interest payments. And, as those debt interest payments become a greater proportion of the spending budget they will either crowd out important investment and consumption spending or increase the budget, thereby further expanding our national debt and our fiscal problems. It will come at the expense of our economic growth, productivity and standard of living.
Some expect the government to continue printing money as it and many other governments have done during similar crises in history. This time may be different, however, as the major holders of our debt, especially China, may have something to say about the US deliberately devaluing its debts and their investments. Although inflating out of the problem effectively grows the denominator, GDP, it does so artificially in inflated (not real) terms, and ravages US financial and fixed income assets, such as bank deposits, savings bonds, social security and pension funds. It may also ruin the US dollar. Is that better than a smaller government and reducing government spending?
Tuesday, February 2, 2010
South Florida Economy and Real Estate Market Are in the Eye of a Perfect Storm
Despite uncertainties surrounding the national economy, three major components of the South Florida economy-- tourism, healthcare and financial services—add additional complexity to future economic and real estate forecasts. Any declaration by local pundits of a bottoming in the economy or real estate prices in the near term should be met with skepticism and considered somewhat wishful thinking. South Florida's economic and real estate vitality relies heavily on its ability to import dollars from outside Florida, by attracting out-of-state and international visitors, and by encouraging visitation by longer stay retirees and snow birds for several usually winter months every year. Assumptions about those spending patterns appear as uncertain as any currently facing the national business scene at the moment.
First, Florida tourism has been held hostage by a barrage of tropical storms and hurricanes that have left nowhere to hide for several months every year beginning in 2004. Panic reached a crescendo after an unprecedented 27 named storms appeared during the 2005 Atlantic hurricane season. Some believe storm activity has also interrupted Florida's multi-generational permanent population growth by contributing to out-migration in recent years. And, although storm activity has been quiet recently, many leading climatologists expect robust activity for many years to come.
Second, with one of the most significant senior citizen populations in the nation, it is understandable that healthcare services should provide significant ballast for the local economy. Medical insurance and government-supported programs such as Medicare drive a meaningful share of healthcare spending, so it seems reasonable to expect that South Florida's future economic fate may hinge in part on the outcome of healthcare and medical insurance reform, which may take months, if not years, to be fully realized.
Finally, the financial sector, including banking and wealth management, especially for seniors, is another area with critical unresolved issues. With the assistance of government and other public agencies, the banking sector seems to have stopped short of ruin. However, its future viability still faces significant global economic headwinds and national politics may impose further fate-changing reform and regulation on that sector. Those facts, the reality that personal wealth has dramatically fallen since 2007 and low interest rates conspire to naturally depress senior incomes and wealth management fees, all of which means that the future of Florida's financial industry is tentative at best.
First, Florida tourism has been held hostage by a barrage of tropical storms and hurricanes that have left nowhere to hide for several months every year beginning in 2004. Panic reached a crescendo after an unprecedented 27 named storms appeared during the 2005 Atlantic hurricane season. Some believe storm activity has also interrupted Florida's multi-generational permanent population growth by contributing to out-migration in recent years. And, although storm activity has been quiet recently, many leading climatologists expect robust activity for many years to come.
Second, with one of the most significant senior citizen populations in the nation, it is understandable that healthcare services should provide significant ballast for the local economy. Medical insurance and government-supported programs such as Medicare drive a meaningful share of healthcare spending, so it seems reasonable to expect that South Florida's future economic fate may hinge in part on the outcome of healthcare and medical insurance reform, which may take months, if not years, to be fully realized.
Finally, the financial sector, including banking and wealth management, especially for seniors, is another area with critical unresolved issues. With the assistance of government and other public agencies, the banking sector seems to have stopped short of ruin. However, its future viability still faces significant global economic headwinds and national politics may impose further fate-changing reform and regulation on that sector. Those facts, the reality that personal wealth has dramatically fallen since 2007 and low interest rates conspire to naturally depress senior incomes and wealth management fees, all of which means that the future of Florida's financial industry is tentative at best.
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