Earlier in the week, Steve Malanga wrote about the municipal debt racquet in this WSJ op-ed. Not surprisingly, a good part of the article examined dubious decisions that local governments have made in financing sports palaces:
State and local borrowing as a percentage of the countryís GDP has risen to an all-time high of 22% in 2010 from 15%, with projections that it will reach 24% by 2012.
Even more disconcerting is what the borrowing now often finances. One favorite scheme for muni debt is giant and risky development projects.
Californiaís redevelopment regime is an object lesson. Starting in the 1950s, the state gave localities the right to create public agencies, funded by increases in property taxes, which can issue debt to finance redevelopment. A whopping 380 such entities now exist. They collect 10% of all property taxesónearly $6 billion annuallyóand they have amassed $29 billion in debt never approved by voters for projects ranging from sports facilities to concert venues to retail malls, museums and convention centers.
Critics, including taxpayer groups, say most such agency projects add little economic value. Sometimes the outcome is much worse.
In 1999, Fresno conceived plans to revive its downtown area with various projects, including a baseball stadium for the minor-league Grizzlies, which it had lured from Phoenix. The cityís redevelopment agency floated some $46 million in bonds to build the stadium. But the Grizzlies fizzled in their new home, demanded a break on rent, threatening to skip town and stick taxpayers with the entire $3.4 million annual bond payment on the facility. The team is now receiving $700,000 in annual subsidies to stay in the city.
Adding to the cityís woes: Last June, another development project, the Fresno Metropolitan Museum, went bust, leaving the cityís taxpayers on the hook for three-quarters of a million dollars in annual debt payments.
Cities now also use taxpayer-financed debt to engage in fierce bidding wars that benefit private enterprises. Charlotte, N.C., for instance, won the bidding for the new Nascar all of Fame with a $154 million offer, funded by a new hotel tax dedicated to servicing bonds for constructing the hall. But the venue employs only about 115 peopleóand an economic development study estimated the increased annual tourism from the venture wonít even equal what a single Nascar race generates.
Why did politicians offer the deal? For the dubious and hard-to-quantify purpose of ìbrandingî the city with a major attraction, according to the Charlotte Observer.
Yeah, we in Houston know all about financing those minor league stadiums. Anyone taking into consideration what we are going to do with that thing if the Dynamo and/or the MLS doesnít make it?
If that werenít bad enough, the WSJís Chris Rhoads chimed in yesterday with this article on the wasting, publicly-financed ìassetsî that Greece built for the 2004 Olympic Games:
Georges Kalaras used to view with pride the sports hall built near his home here for the 2004 Olympic competition in rhythmic gymnastics and ping pong. Now, he gets mad every time he jogs by.
"Look, it’s locked!" shouted the 38-year-old Mr. Kalaras, who works for the Athens city water company. Two stray dogs tangling with each other behind a padlocked metal fence accounted for the only activity in the complex, which seats 5,200 people.
Mr. Kalaras figured the steel and glass hall, costing taxpayers $62 million, would provide recreational space in his neighborhood. Officials envisioned concerts or shops.
Instead, when the Olympic torch went out after the Athens Summer Games six years ago, the doors closed here, as well as at many of the 30-odd other sites built or renovated for the Olympics that summer.
The vacant venues, several of which dominate parts of the city’s renovated Aegean coastline, have become some of the most visible reminders of Greece’s age of excessive spending. Sites range from a softball stadium and kayaking facility to a beach volleyball stadium and a sailing marina. [. . .]
Even boosters of the Olympics are having second thoughts.
George Tziralis, a technology investor, in 2007 co-authored a glowing report declaring the venues as "greatly improving the quality of life of the inhabitants of these areas, providing valuable resources to the community and the economy."
On a recent afternoon, staring at a pile of bricks on the unfinished entrance behind a locked metal fence encircling the Olympic sailing marina, he was less upbeat.
"I hope you’re calling this article ‘The Nonsense of the Olympics,’" he said. Boats filled about a third of the 120 slips at the marina, which remains closed to people who aren’t boat owners.
Later, Mr. Tziralis, 28, gestured out the window of his Opel Corsa at a huge, locked complex of mostly vacant Olympic properties, located on the former site of the city’s old airport.
"There’s no way there shouldn’t be a park here six years after the Games!" he shouted.
That complex, which cost taxpayers $213 million, includes stadiums for field hockey, softball and baseballósports with little or no following in Greece. The facility for canoeing and kayaking slalom at the site was to become a water amusement park. It didn’t.
In light of the foregoing and last weekís lessons on governmental decision-making, what could possibly go wrong with this?
Stick with this interesting lecture to the end.
Following on these recent posts on the state of cancer research, John Goodman provides this timely and lucid post on the problems with ñ as well as the direction of – cancer research:
Why so little progress [in cancer research despite the large amount of money spent on it]?
Some researchers believe we have been using the wrong model. Weíve been trying to combat cancer the way we fight an infection initiated by the common cold. But cancer is very different from ordinary infections and colds.
Suppose you have strep throat. Your doctor prescribes an antibiotic and the drug immediately goes to work fighting it. Letís say the antibiotic manages to kill 95% of the germs. Thatís enough damage to allow your bodyís natural defenses (white corpuscles) to take over and complete the clean-up job.
Now suppose we try to fight a cancerous tumor the same way. Letís say that through chemotherapy and/or radiation therapy, doctors manage to kill 95% of the cancer cells. In this case, the white corpuscles wonít be able to pull off the clean-up, however. Once cancer cells multiply and become lethal, itís an all-or-nothing proposition. As long as even a single cancer cell remains, it will eventually multiply again. And it will continue multiplying until the fight must be initiated all over again. Eventually the cancer will metastasize (spread all over your whole body), which is a virtual death sentence.
Unlike ordinary germs, therefore, in fighting a carcinogenic tumor you have to kill (or remove) every single cell. If even one cell survives, the cancer will return and become lethal again.
Strange as it may seem, cancer appears to disable the human immune system in much the same way as a fertilized egg in a womanís womb. Why doesnít the bodyís immune system treat a fertilized egg as a foreign invader and try to attack and kill it? Because somehow the immune system is turned off. Cancer cells are able to do much the same thing. Although the ability of women to carry a fertilized egg is pro-life and cancer is anti-life, it seems likely that both phenomena act in the same biochemical way.
Somehow, cancer turns off our bodyís natural defenses. Many researchers believe the most promising response, therefore, is to find a way to turn those defenses back on. By way of encouragement, consider that ìnearly everyone by middle-age or older is riddled withÖcancer cells and precancerous cellsî that do not develop into large tumors. Somehow our bodyís natural defenses are keeping them at bay. Could those same defenses be employed to take on more challenging tasks?
That is a good way of thinking about the two new drugs that were announced last week. Rather than fight cancer the way we fight ordinary infections, fighting cancer by liberating the bodyís natural immune system seems to have much greater promise.
By the way, in case you missed it, U.S. News & World Reportís annual survey of U.S. hospitals recently ranked the University of Texas M.D. Anderson Cancer Center in Houstonís Texas Medical Center as the no. 1 cancer hospital in the country. Texas Childrenís Hospital, which is literally across the street from M.D. Anderson in the Medical Center, is ranked as the no. 5 pediatric cancer hospital in the nation.
If you read just one article this week, make it this one (H/T Mike at Crime & Federalism) ñ William Deresiewiczís lecture to the plebe class at the United States Military Academy at West Point last year. A snippet:
Thatís really the great mystery about bureaucracies. Why is it so often that the best people are stuck in the middle and the people who are running thingsóthe leadersóare the mediocrities?
Because excellence isnít usually what gets you up the greasy pole. What gets you up is a talent for maneuvering. Kissing up to the people above you, kicking down to the people below you. Pleasing your teachers, pleasing your superiors, picking a powerful mentor and riding his coattails until itís time to stab him in the back. Jumping through hoops. Getting along by going along. Being whatever other people want you to be, so that it finally comes to seem that, like the manager of the Central Station, you have nothing inside you at all. Not taking stupid risks like trying to change how things are done or question why theyíre done. Just keeping the routine going.
I tell you this to forewarn you, because I promise you that you will meet these people and you will find yourself in environments where what is rewarded above all is conformity. I tell you so you can decide to be a different kind of leader. And I tell you for one other reason.
As I thought about these things and put all these pieces togetheróthe kind of students I had, the kind of leadership they were being trained for, the kind of leaders I saw in my own institutionóI realized that this is a national problem. We have a crisis of leadership in this country, in every institution. Not just in government. Look at what happened to American corporations in recent decades, as all the old dinosaurs like General Motors or TWA or U.S. Steel fell apart. Look at what happened to Wall Street in just the last couple of years. [. . .]
We have a crisis of leadership in America because our overwhelming power and wealth, earned under earlier generations of leaders, made us complacent, and for too long we have been training leaders who only know how to keep the routine going. Who can answer questions, but donít know how to ask them. Who can fulfill goals, but donít know how to set them. Who think about how to get things done, but not whether theyíre worth doing in the first place. What we have now are the greatest technocrats the world has ever seen, people who have been trained to be incredibly good at one specific thing, but who have no interest in anything beyond their area of expertise. What we donít have are leaders.
What we donít have, in other words, are thinkers. People who can think for themselves. People who can formulate a new direction: for the country, for a corporation or a college, for the Armyóa new way of doing things, a new way of looking at things. People, in other words, with vision.
_3.gif "groupthink (1)")
In this NY Times op-ed, Richard Thaler picks up on a theme that Ken Rogoff and James Hamilton raised last week ñ the similarity between the miscalculation of risks relating to the Gulf of Mexico oil spill and the Wall Street financial crisis:
AS the oil spill in the Gulf of Mexico follows on the heels of the financial crisis, we can discern a toxic recipe for catastrophe. The ingredients include risks that are erroneously thought to be vanishingly small, complex technology that isnít fully grasped by either top management or regulators, and tricky relationships among companies that are not sure how much they can count on their partners.
For the financial crisis, it has become clear that many chief executives and corporate directors were not aware of the risks taken by their trading desks and partners. Recent accusations against Goldman Sachs suggest the potential for conflicts of interest among banks, investors, hedge funds and rating agencies. And it is clear that regulators like the Securities and Exchange Commission, an agency staffed primarily with lawyers, are not well positioned to monitor the arcane trading strategies that helped produce the crisis.
The story of the oil crisis is still being written, but it seems clear that BP underestimated the risk of an accident. Tony Hayward, its C.E.O., called this kind of event a ìone-in-a-million chance.î And while there is no way to know for sure, of course, whether BP was just extraordinarily unlucky, there is much evidence that people in general are not good at estimating the true chances of rare events, especially when human error may be involved. [. . .]
How can government reduce the frequency and the severity of future catastrophes? Companies that have the potential to create significant harm must be required to pay for the costs they inflict, either before or after the fact. Economists agree on this general approach. The problem is in putting such a policy into effect.
Suppose we try to tax companies in advance for activities that have the potential to harm society. First, we have to have some basis for estimating the costs they may inflict. But before the recent disasters, companies in both the financial and oil drilling sectors would have claimed that the events we are now trying to clean up were, well, one-in-a-million risks, suggesting a very low tax.
Alternatively, an offending party could be made to pay after the fact, by holding it responsible for the costs it imposes. BP has volunteered that it will pay for all damages it considers ìlegitimate,î but we can expect a fight over how to define that word.
. . . Suppose a company worth only $1 billion was responsible for this accident. It would go bankrupt and we would be unable to collect. And if we arenít careful, we will encourage companies that have enough money for collection to leave the drilling to those that donít. [. . .]
We are left in a difficult place. Neither the private nor the public sector seems up to handling these kinds of problems. And we canít simply wait for the next disaster, because, as people might say if they had to use G-rated language, stuff happens.
Professor Hamilton zeros in on the group dynamic that leads to the underestimation of risk:
I think part of the answer, for both toxic assets and toxic oil, has to do with a kind of groupthink that can take over among the smart folks who are supposed to be evaluating these risks.
It’s so hard to be the one raising the possibility that real estate prices could decline nationally by 25% when it’s never happened before and all the guys who say it won’t are making money hand over fist.
And this interacts with the forces mentioned above. When the probability of spectacular failure appears remote, and moreover it hasn’t happened yet, it’s hard to set up incentives, whether you’re talking about a corporation or a regulatory body, in which the person who makes sure that the risks stay contained is the person who gets rewarded. When everyone around you starts thinking that nothing can go wrong, it’s hard for you not to do the same. It can become awfully lonely in those environments to try to be the voice of prudence.
Finally, Cato’s Gerald O’Driscoll, Jr. notes the futility of reacting to the oil spill by implementing even more regulation:
What is the missed lesson from all this? When President George W. Bush had his Katrina moment, the federal government’s bumbling response was blamed on him, on the Republicans, and on conservatives. Now it is President Obama’s turn. His administration’s faltering response to the disaster in the Gulf is attributed to his personal failings, staff ineptitude, communication failures, etc. And, of course, the two administrations have shared responsibility for the poor handling of the financial crisis.
A big-government conservative administration failed in crisis, as has a big-government liberal administration. The regulatory state did not prevent excessive risk taking whether in financial services, nor perhaps in offshore oil drilling. Government response to crises once they occur is slow and inept. All this is not because either Republicans or Democrats are in power, but because big government doesn’t work. It can’t deliver on its promises. Big government overpromises and underdelivers. In reaching to do more, big government accomplishes less. That is not an ideological statement, but an empirical observation.
In the case of financial services, virtually all the proposed regulatory reform offers more of the same. Additional regulations will be added to existing ones without addressing why existing ones failed to prevent the crisis. The same process will likely happen with respect to offshore drilling.
The oil spill has triggered an important debate about the value of off-shore drilling, and that debate might conclude that off-shore drilling generates more harm than benefit.
But despite the nightly photos and videos of the oil spill on television, itís important to remember that drilling produces benefits in addition to its costs. Deep-sea drilling has been ongoing for decades with relatively few incidents that even come close to the current spill.
So, while this spill may reveal that deep-sea drilling is too risky, itís also quite possible that this incident was simply the result of poor decision-making combined with bad luck, and that there is a nominal chance that it will reoccur.
And it is very difficult to regulate bad decision-making and bad luck.
Stu
ff happens, indeed.
Iím not an avid hockey fan, but I always enjoy watching the Stanley Cup finals each year. The incredible effort and passion of hockey of playoff hockey is endearing even for the casual observer. I was a bit disappointed that the Flyers lost the Cup to the Blackhawks in Game Six the other night because I envisioned their coach giving a pre-Game Seven speech similar to the one below that Kurt Russell delivered as Herb Brooks in ìMiracle,î the fine 2004 movie about the 1980 U.S. Olympic Hockey team. Russell should have garnered an Academy Award nomination for his performance. Enjoy.
This blog started in February 2004 and the first post about what to do with the Astrodome was in September 2004.
Over the intervening six years, there have been a couple of dozen posts about the various boondoggles that have been proposed for the Dome. To date, no one has put up a penny to redevelop the Dome.
Despite this dismal track record, Harris County officials are still dithering over what to do with the Dome.
At least the current proposals are similar to the one that I made a couple of years ago. That is really the only one that makes much sense for the facility. Typical to Harris Countyís handling of this situation, there is no mention in the Chronicle article that Harris County officials have had any discussions with Texas Medical Center officials about development and financing of such a venture. Thus, at this point, it would appear that the only financing for such a project would be on the County’s dole.
And in an amazing display of blindness, County officials are planning not to convert the land that the Dome sits on into badly needed additional parking for the Reliant Park area if the decision is made to raze the facility. Why not generate some revenue from the land to help pay off the $35 million in bond debt that still exists on the Dome?
Oh well. There are many lessons to be drawn from this experience, but two in particular:
1. If you canít figure out what to do with something in six years, then itís probably time to get rid of it; and
2. Donít ever rely on governmental officials to make sound decisions.
According to Andrea Donderi, as described here by The Guardianís Oliver Burkeman, it depends on the culture in which you were raised:
We are raised, the theory runs, in one of two cultures.
In Ask culture, people grow up believing they can ask for anything ñ a favour, a pay riseñ fully realising the answer may be no.
In Guess culture, by contrast, you avoid "putting a request into words unless you’re pretty sure the answer will be yesÖ A key skill is putting out delicate feelers. If you do this with enough subtlety, you won’t have to make the request directly; you’ll get an offer. Even then, the offer may be genuine or pro forma; it takes yet more skill and delicacy to discern whether you should accept."
Neither’s "wrong", but when an Asker meets a Guesser, unpleasantness results. An Asker won’t think it’s rude to request two weeks in your spare room, but a Guess culture person will hear it as presumptuous and resent the agony involved in saying no. . . .
This is a spectrum, not a dichotomy, and it explains cross-cultural awkwardnesses, too. Brits and Americans get discombobulated doing business in Japan, because it’s a Guess culture, yet experience Russians as rude, because they’re diehard Askers.
Applying this to legal education, my sense is that law schools try to develop Askers into trial lawyers, while the die-hard Guessers among law students probably gravitate toward non-litigation areas. Off hand, I cannot recall in my experience a particularly effective litigator who was anything other than an Asker. On the other hand, I know a number of good deal lawyers who are Guessers. What do you think?