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the lead indicator

Power, This Time for the Keynesians

Sam Chandan

Speaking of power, the Austerians have lost one of their most powerful corroborations. At least for political purposes, the oft-cited and rather particular relationship between sovereign debt and growth has been sundered by a graduate student’s homework assignment. Never has so much of consequence turned on a spreadsheet error. Read More

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A Bridge Too Far: It Isn’t a Lack of Funding Keeping Infrastructure From Being Built

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Ask someone if there’s a problem with American infrastructure and there’s a good chance he’ll point at the nearest bridge.

It needn’t be a grand structure. As a generation of Wharton alumni will confirm, crossing the Schuylkill by way of the modest South Street overpass was a risky proposition until just a few years ago. In its dying days, the bridge was closed to heavy vehicles but open to daredevil and presumably light-footed Penn students. The long-deferred move to replace the 1923 bascule bridge began in 2008, which happened to coincide with city engineers’ declaration it would not survive another winter. Read More

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Employment Remains the Weakest Link of the Recovery

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It’s been clear since long before the Great Recession that something is amiss in the labor market. Unbeknownst to the most recent crop of college graduates, this is not our first “jobless recovery.” That term was introduced to the popular lexicon in the early 1990s. It was revived in 2003; more than a year into that recovery, the turnaround in employment had never been weaker. In retrospect, those were halcyon days when compared with our current run.

What’s gone wrong? Read More

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Girding for Growth in Midtown

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There are good reasons to envisage a refresh of Midtown Manhattan’s office inventory.

A prolonged lull in construction has left us with an abundance of heirlooms but few modish buildings. As a global center of finance, Midtown East’s built environment compares especially poorly with its peer markets. Average rents are much higher in London, but the premium over Midtown is less pronounced when comparing our small basket of best apples with theirs. Rezoning with an eye to new construction has its winners and losers. As new properties come online over the next decade, incumbents saddled with older buildings may find their highest and best use takes them outside the office sector altogether. Read More

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Is Office Space a Thing of the Past?

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Is the office obsolete?

The argument has been going on since before the Internet, when its antecedents were limited to connecting university research labs to the Department of Defense. The adoption of new technologies may afford smaller server rooms and fewer filing cabinets, but the location of people dominates everything else when it comes to office space utilization. At least on the margins, the data show we are using less office space for every employee. We cannot assume that reflects the impact of technology, but it’s not an unreasonable hypothesis. Read More

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How to Have a Banking Crisis

chandan silo for web

A run on the banking system is one of the surest paths to a credit crisis. The mechanics are simple: worried that their banks might fail or otherwise endanger their savings, consumers shift to their mattresses as preferred storehouses for cash. The expectation fulfills itself. In a fractional-reserve banking system, mass withdrawals drive institutions to insolvency. A failure of one bank raises the possibility that others could also fail. And so the process cascades. Read More

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Can the Apartment Market Manage Without Fannie and Freddie?

chandan silo for web

The debate over housing finance reform has taken place largely behind closed doors, with public discourse limited to speculation. Since the collapse of Fannie Mae and Freddie Mac into effective insolvency in September 2008, the public has been shielded from serious discussion about their future. At least for the time being, weakness in the housing market has encouraged the status quo; policymakers have sidestepped the question of the government’s long-term role in shepherding homeownership outcomes. Read More

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Should We Raise the Minimum Wage?

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Among the various proposals put on the table during his State of the Union earlier this month, the president called for a higher federal minimum wage. That was guaranteed to push the ideological buttons. Along the absurdly one-dimensional political spectrum that now defines the norm of policy debate, each side has its arguments for or against such a move. The minimum wage has been around since the Great Depression, when it was set at a quarter.

For all its longevity, divided interests have not succeed in settling the minimum wage debate conclusively, in part because distributional considerations are an important part of the evaluation that clouds clear thinking on both sides. Read More

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America’s Infrastructure Crises

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During his State of the Union address last week, President Obama pushed for renewed investment in the country’s weakening infrastructure.

In the ranking of proposals making the rounds in Washington, this one falls low on the scales of partisanship. Party ideologies aside, the quiet majority in Congress stands to benefit from a program that would see new spending reach virtually every district in the nation. If there is one arena in which policy makers’ individual incentives might trump doctrine, this could be it. Read More

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Price Stability, the Real Estate Hedge and the Federal Debt

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The Federal Reserve dropped a lead foot on monetary policy in late 2008 and intends to keep it there until you or someone you know finds a job.

If you’re reading The Commercial Observer, odds are you’re gainfully employed. The Fed’s attention is elsewhere, fixed on the more than 12 million Americans still lollygagging in the labor statistics. Price stability is the other half of the Fed’s mandate, but for now, employment is the larger challenge. Read More

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Investment In NYC Begets More Investment, Until It Doesn’t.

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Buy American.

It is generally required if you are the government, and simply an admonition if you are not. The jurisdiction of President Hoover’s 1933 legislation may end at the border, but investors around the world are responding to the call in any case. They are not acting without cause. The global instability exemplified by Europe’s existential crisis has fueled a disconcertingly insatiable appetite for riskless assets that has long outlived the technical recession.

Treasury and agency debt markets are flush with eager buyers, even at negative real returns. But the appeal of buying American extends well beyond our favorite export. Read More

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The Year in Economics: Presidential Politics, Job Creation and the Fiscal Cliff

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If a new president or rebounding economy was on your holiday wish list last year, 2012 left you empty-handed. On the political and economic fronts, remarkably little has changed.

November’s election confirmed the status quo in the House, Senate and White House. That augurs slow progress on the central questions of spending and tax reform but also safeguards the administration’s chief accomplishments, including the expansion of health care coverage.

Facing headwinds from policy gridlock, middling consumer activity and developments abroad, businesses approached hiring and other investments cautiously over the last year. Weak job creation proved a remarkably consistent source of frustration. The unemployment rate fell by 100 basis points over the last year, but the tally of net new jobs showed no improvement from 2011. Ever a deceptive measure, the falling unemployment rate captured that Americans opting out of the workforce matched Americans finding work nearly one-for-one. For too many American families, the recovery is too long in coming. Read More

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Greetings From Athens

Sam Chandan.

I am writing this week’s column from above the Atlantic, en route to Athens for a firsthand update on the euro zone’s recalcitrant mortal threat. By the skin of its teeth, the Greek Parliament approved new and deeply divisive austerity measures last week. There have been howls of protest in the streets and from the left-leaning opposition. But if the vote had gone against Prime Minister Antonis Samaras, the entire program of support from the European Central Bank and the International Monetary Fund would have imploded, driving Greece from the common currency and threatening the cohesion of the monetary union.

Efforts to keep the euro zone intact may be well-intentioned, but the halfhearted approach of partial and temporary measures that has dominated other alternatives has only succeeded in magnifying the downside costs and delaying recovery. Europe has done itself a disservice in not acting decisively. With a lesson for the United States, that paralysis is proving a greater threat to long-term prosperity than the sovereign debt crisis itself. Read More