Playing With Money: The Socialist Roots of Monopoly

BOULDER, Colorado -- While watching Niall Ferguson's "The Ascent of Money," I was struck by something he said about the origins of capitalists' favorite pastime on a rainy afternoon, the board game "Monopoly." Apparently, the mustachioed Mr. Monopoly is the direct descendant of a bearded nineteenth century socialist philosopher, Henry George.


"I think I'll have a shave, then buy myself a tuxedo and top hat."

George theorized that the inequity of society could be alleviated through a single tax - a tax on land. Those who owned land had a tremendous advantage over those who did not, as they could subsist off their rents without actually doing any work; his tax system eliminated this unequal power relationship by making it disadvantageous for a few people to hold all the land. His ideas have had little luck being implemented, though some Eastern European countries have experimented with higher land taxes to discourage absentee landowners. Much like the flat tax, maligned by myself in this very blog, Hong Kong seems to be the only place that has made George's system work at all, imposing high land taxes to keep taxes on income low.

Besides his innovative ideas, George was also known for his rabidly dedicated followers. One such person was Elizabeth Magie, who in 1903 devised a game to teach the principles of Georgism. She called it "The Landlord's Game," and as she described it, "The object of this game is not only to afford amusement to players, but to illustrate to them how, under the present or prevailing system to land tenure, the landlord has an advantage over other enterprisers, and also how the single tax would discourage speculation."

Magie acquired a patent for her game in 1904, but it was not manufactured until 1910, which is when the streets and landmarks were added, though these were mostly taken from Chicago and New York, not Atlantic City. By then, the rules more closely resembled the modern game, but Magie intended that each roll of the dice be seen not as an investment opportunity, but a rent obligation. Trespassing on "Lord Blue Blood's Estate" will land one in prison, while a failure to pay a rent will put you in the poorhouse. And the ubiquitous "Go" was instead an exaltation of labor: "Labor Upon Mother Earth Produces Wages."

The game clearly looks like what we all know as today's "Monopoly," but the evolution from "The Landlord's Game" to the game allegedly created by Charles Darrow in 1935 is unclear. That year, Parker Brothers bought the rights to Magie's game for $500 in order to eliminate any competing claims to ownership of their new product. As part of the agreement, the company had to produce and market her original game alongside their new celebration of capitalism. To see the progression from Magie's game to Monopoly, see here, which includes complete game boards and rules for each version; also, check out University of Alabama law professor Alfred Brophy's blog entry on the subject.

I have contacted a few "Monopoly" collectors in an effort to find some version of "The Landlord's Game," but they told me that copies are extremely rare and only come up for auction on occasion. There are no known reproductions of the game since it was discontinued in 1939, but luckily, we do have complete rules and boards for nearly every version of the game, so I think I will make my own, and I would encourage you to do the same. The original rules are here, the first game board here, along with all the necessary pieces (which you will have to make yourself, and you may have trouble finding the various game cards), or you can try your hand at the 1910, 1924, or 1939 versions.

If you are interested in learning more about Henry George's ideas, his adherents remain as dedicated as ever, maintaining the Henry George Institute, where many of his works are available online. If the robber baron ethic or socialist experimentation of the 1920's and 30's don't appeal to you, you can try your hand at another Monopoly-like game for the present day, the online "Bailout Game," in which you decide which banks get TARP money while trying to keep the Dow up and recession at bay.

UPDATE: In my search for an original copy of "The Landlord's Game," I stumbled across the website of Dr. Ralph Anspach, the creator of yet another Monopoly-type game, "Anti-Monopoly" (which is still available online). Introduced in 1974, Anspach went through a lengthy legal battle with Parker Brothers, eventually winning the right to sell his own game, which starts "where Monopoly ends. The board is monopolized in the beginning of the game and players compete with each other to return this virtual economy back to a competitive, free enterprise system."

He has also created and sold "The Original Monopoly Game," which is based on Magie's original game, but also encourages the popular folk tradition of the game. Before "Monopoly" gained, well, a monopoly over this style of game, it was a popular homemade game in which players would write in the names of the streets and landmarks in their own town and customize the rules. Anspach's version tries to recapture this period of the game's history, but unfortunately, it is no longer being produced.

"Chinese Today"?

NEW YORK, New York -- The Chinese Communist Party feels its image needs a burnishing in "the West" and has decided to force one of its state papers to create international editions to spread propaganda, the FT reports.

It looks like China's exports slump hasn't sunk in quickly enough, if the CCP is still willing to waste money on useless propaganda gambits -- though this may counterbalance what I speculate may be the not-too-distant demise of Russia's main international propaganda outlet. For its part, the Kremlin's English- (kind of) language television mouthpiece, Russia Today (or "Russian Today," as non-English-speaking staff once called it mistakenly) is utterly unwatchable. I don't know anything about its viewership numbers, but with Russia's foreign reserves down ~25% since August, I wouldn't be surprised if the plug was pulled on it.

Ironically, the Chinese state paper chosen to be China's second organ of international propaganda (after People's Daily), the inoffensively named, could-be-anywhere-but-probably-not-owned-by-a-government Global Times, refused to confirm that it had been selected to create an international edition.

UPDATE, 1/14: The New York Times reports China is hoping to buy international media assets to start a major news network for propagandistic reasons to counter what it views as negative portrayals in Western and other media.

While many of the world's media outlets are cash-strapped and cutting back on reporters and other expenses, China's state-run media are flush with cash -- both from the state and the Western multinationals that have been advertising heavily in China while they cut back elsewhere. So thank Coca-Cola when China buys the Washington Post. 

This is what's known as the shit hitting the fan. Now, I don't think most Americans or West Europeans would fall for a propaganda outlet (either from China or elsewhere), since they're fairly savvy media consumers. But other areas where China has been trying to gain commercial, political and cultural influence, including Africa, Asia, Russia, the Middle East and Latin America, may be vulnerable once any big propaganda machine gets going and irons out its early kinks. Be afraid.

Film Recommendation: "The Ascent of Money" and Regaining Competitiveness

NEW YORK, New York -- PBS tonight aired a documentary that tells a history of capitalism and banking to trace the roots of the current economic crisis. I would recommend it for anyone unclear on the details of what got us here, to a global economic sinkhole, sclerotic stock market, and frozen banking system (that's probably almost all of us) and for those of us who may know the general story but are curious to see the people involved tell it to the cameras.

The 2-hour program (click HERE to watch it online in its entirety) is hosted by author, historian and Harvard professor Niall Ferguson, who based the documentary on his recent book of the same name. The film has its cringe-inducing moments. Any talk of "black swans" or admonitions that "but then again, they thought they were on Planet Finance; they were in fact on Planet Earth" were unfortunate.


Phantom of the NYSE.

Yet large swaths of the history, distant and recent, of capital markets are told in a limited time -- and told fairly well. Paul Volcker, George Soros, Enron executives and Bill Gross of Pimco are all bundled in with (somewhat awkwardly) cattle ranchers.

The biggest question mark, and one of the biggest conclusions, is the role of China in the US's economic mess -- "Chimerica," as Ferguson has coined this symbiotic Faustian bargain. The housing bubble and consumption bubble (bursting as we read) were inflated by China putting government-mandated savings from exports into US bonds, keeping money cheap for us Americans to grow ever fatter off China's wares. And Ferguson makes it clear that the future relationship between the two will have to change if our economy is to grow back its limbs (I've suddenly given the US economy starfish-like properties).

But, though Ferguson throughout chides bankers who didn't know enough history to understand the present and future, he doesn't himself wager any conjecture as to what will happen to the mixed blessing of "Chimerica," and to the US and global economies.

Ferguson's fellow Briton, the Jordie and Yale historian Paul Kennedy (and, given his surname, a potential ethnic Scotsman), is much quicker to offer a forecast for the future, and in today's WSJ he foresees a geopolitical and economic decline for the US in the coming years. This is of course not a new thought -- after all, the US intelligence services had it before -- and it lies on presuppositions about the ability of China and India (a tiny, extremely defective economy) to continue growing at world-record paces. But Kennedy's vision of the future is certainly a possibility, and must thus be guarded against.

One truly interesting point of his is to note the glibness with which politicians seem to be assuming foreign governments (with China front and center) will eagerly lap up the bonds to be issued to pay for President-elect Obama's proposed stimulus package. Kennedy contrasts the spendthrift ways of today's United States -- reminiscent of the wastrel monarchies of Louis XIV in France and Philip II in Spain -- with the way America issued debt as recently as WWII. Back then, we relied on ourselves to buy bonds, rather than sell our future to the Chinese Communist Party-animals (would that they were real college party-animals!).


Which of these is not like the others? ... And which will Obama be like?

Once again, the difficulties and limits (which we seem to be reaching rapidly) of "Chimerica" are evident. Maybe Obama will sound the call for Rosies the Riveter, but even if he doesn't, individual Americans need to issue and heed their own calls to stop spending all their earnings at Wal-Mart buying another Chinese lamp they don't really need. We need to impose some self-restraint on ourselves again, and rediscover the ethos that once made us productive, imaginative, frugal and visionary. Maybe I'll even go dust off my Emerson.

P.S. More on the above: David Sanger, New York Times correspondent and author of "The Inheritance: The Challenges Obama Confronts," speculates on Charlie Rose (here) that, had George W. Bushtard not invaded Iraq, the US would have used his second term to engage a debate about our economy and economic competitiveness with China. That did not happen. It didn't happen with a bang. Hopefully, in 3 years, as Obama gears to run for re-election and recession slowly slips away, we'll be able to return to that topic.

Rhode Island: The Michigan of New England

BOULDER, Colorado -- While Michigan is often cited (including in this blog) as being on the leading edge of America's economic downturn, many people would be surprised to learn that Rhode Island also has one of the country's highest unemployment rates, which hit a whopping 9.3% in November. This ranked second behind Michigan's figure of 9.6%, and the two states have seesawed back and forth for the top spot over the last few months.

There are many reasons for this terrible situation - the collapse of manufacturing, poor job retraining, and low levels of education. Rhode Island ranks well behind every other New England state except Maine in terms of the percentage of the workforce with a college education - Massachusetts and Connecticut rank first and sixth, respectively, nationwide, while Rhode Island sits in 19th place. The Washington Post recently posted this video about the state's economic plight, and the New York Times ran this piece on the subject back in October.



Rhode Island is a very provincial place, and residents are struggling to cope with economic transition. Mason Briggs is reluctant to take a job in Oxford, Massachusetts, a town a mere 40 miles away from Pawtucket. His wife catalogs all the towns she has worked in, but they are all only a few miles apart. I am not blaming these people for their hardships, but there are reasons why the state's economic malaise has been confined within its short borders. I am not callously suggesting that they pick up stakes and move, but some measure of economic relief is just a short communte down I-95.

I have always believed that reviving America's manufacturing base will be a critical component of restoring the country's economic competitiveness and fixing the imbalances and inequalities that currently exist. But it is important not to get too nostalgic about the post-war golden age of the American industrial worker that so many pine for. As Itchy mentions about battery manufacturing, many of these jobs and industries are dirty and unpleasant, and few of us would like a factory like this in our backyard. Manufacturing may have given every American family an icebox and a wireless, but it also gave us the Love Canal.

These industries also had an impact on education. In places like Michigan, and to a lesser extent Rhode Island, the existence of high-paying, low-skill manufacturing jobs actually created huge disincentives for people to pursue an education, when they felt confident that as soon as they graduated high school, they would be able to get lifetime employment at the local plant. As a result, Michigan languishes in 36th place when it comes to educational attainment, when its industries should be a source of innovation and research.

To combat this problem, some communities have adopted innovative plans. Last year the city of Kalamazoo introduced a plan they called "The Kalamazoo Promise," which established a scholarship fund that would pay full tuition to any Michigan state college for any student that graduated from the school district. The program has not only increased school enrollment, but it has boosted property values, and cities across the country are hoping to imitate it.

Of course, there is one growth industry in Rhode Island: incarceration. The immigration detention center in Central Falls has been doing booming business, especially since Rhode Island became the only state to mandate that all state and local law enforcement agencies enforce federal immigration law. This is a story that has been repeated across the country from Flint, Michigan to Susanville, California, when laid-off workers move from the assembly line to the corrections academy. Let's all hope that the next generation of workers is made up of more engineers than prison guards.

Mind the High-Tech Gap

NEW YORK, New York -- Imagine having your iPhone on your wrist. LG unveiled just that -- a watch that functions as a smart phone -- at last week's Consumer Electronics Show in Las Vegas.

For their parts, Sony, Samsung and Panasonic introduced 3-D television sets and Hitachi rolled out a prototype for motion-controlled TVs (like cathode-ray Wiis) at the show. Meanwhile, this week's North American Auto Show in Detroit will see a Chinese battery maker called BYD roll out its electric car (not a typo).


Watch me some 3-D Becks

As the US demands Barack Obama's somewhat-hazily defined "change" and appears set to embark on a massive hunt for ever-larger deficits without knowing what to spend money on, the wonders of these industry conventions could be educational. For all of these products are made by East Asian companies: Sony, Hitachi and Panasonic hail from Japan; Samsung and LG from Korea; and BYD from China.

America, meanwhile, is losing its edge in research and development spending in the private sector, as The Economist recently reported.

There are many caveats to add: the big electronics companies have been Japanese and Korean for years (when did you last buy a TV made by a US firm?); plenty of US companies grabbed headlines at the CES (like Palm, with its Pre smart phone); and the quality of BYD's product is highly, highly suspect (although Warren Buffett has bought a solid stake in the company).

But the trends are alarming. Samsung now has the second-largest number of new US patents, The Economist notes. Its R&D spending outstrips American heavyweight IBM. And while US firms' spending on R&D in computers fell by 33% between 1996 and 2005, Japanese firms' doubled -- to the number that their US competitors used to spend ($13 billion).

Much of the money US firms once spent on innovative technologies now goes to services. So a computer company may invest in servicing office equipment instead of creating better products. This makes business sense to shareholders, since services are more profitable than hardware in a large range of industries.

But when it comes to the long-term viability of a company, cutting investment in what you actually sell to the people you then service could be a disaster. Why would anyone want to buy a Acer computer, for instance, if it was seen to be cutting costs and producing lesser products with a perceptible lag time behind its competitors? And if your business doesn't operate Acers, why would you ever need Acer to service your HP laptops?


Is it really worth it to kill off the nerd jobs for quick profits, Ogre? (Note: This is NOT Carly Fiorina)

Clearly, the US, like any advanced economy, will be in a pinch if it can't come up with new sources of growth and revenues. Current-account deficits have reached staggering levels, and they may ultimately threaten the country's credit ratings, which in turn would impact America's interest rates, appeal for investors as a destination of capital, and ability of citizens to borrow money from banks at reasonable rates.

While Obama's stimulus has become an attention hog as a panacea to the short-term recessionary problems, long term, as Robert Samuelson of the Washington Post has argued, what's needed is export-led growth. That, naturally, is easier done when the leading high-tech companies aren't cutting back on R&D in order to amp up their "services" offerings.

But one of the underlying problems is that too few Americans have opted to become engineers -- the people who dream up, design and build things -- choosing instead to work as bankers and traders in recent years. There are two ways to fix this problem by creating a larger body of engineers likely to invent things, start companies and create an abundant supply of talent to encourage companies to invest more in R&D. The first is to stop sending home all of the foreign students who study engineering in the US. They should all be given a three-year work permit upon graduating and a green card afterward, since they're scientists, not terrorists.


Beware that offer from Morgan Stanley (circa 2005)

The second is for the government to actually fund and prioritize mathematics and science. The Bush administration, which cut and distorted all sorts of science programs, didn't do much of this. The Obama administration has promised to increase funding for scientific research, and I hope it follows through. Additionally, given the shortage of quality math and science teachers (compared with English or history teachers), higher salaries should be offered in public schools to teachers of these subjects.

But with improved science education, what can be produced competitively? Wind turbines and solar panels are often seen as "non-outsourceable" jobs. The enormous space required to store any number of turbines or solar panels large enough to generate serious amounts of electricity helps to explain why this is so.

The automobile industry has long been considered the heart of US manufacturing, and hopefully Detroit's fortunes will turn upward. But even if that does happen in a dramatic way, plenty of old Michigan and Indiana factories will remain unused. Given the utterly undeveloped state of mass transit in the US -- something almost without parallel among other large economies -- a move to embrace trains, subways, light rails and ferries could create large amounts of orders that might be met in retooled auto factories (though increased light rail usage would likely dampen car sales).

And finally, recent weeks have seen a huge uptick in talk about manufacturing lithium-ion batteries for electric cars. Now, I am immediately skeptical when somebody says, "Let's build the economy of the future around making batteries." It makes me think of middle schools (like the Legionnaire's) built on old battery factories, and health hazards. It's the industrial counterpart to Indian grave sites, almost.


Probably not...........................Closer......................................Chrysler?

Nonetheless, as the Detroit Auto Show indicates, car companies are betting heavily on electric cars, though it's unclear if this will just lead to colossal failures down the line. Already, as noted above, Chinese battery maker BYD is moving up a notch into electric cars with the intention of entering the US market -- though its technology looks suspiciously similar to one developed by MIT-based startup A123 (BYD claims it came up with the technology in 1998; though it seems a dubious claim at best that a then-tiny Chinese battery company was looking into making complex electric-car lithium ion batteries at a time when oil was at all-time lows and only a few Jetsons fans and futurists were even thinking about electric cars).

Given the dominance of Asian battery-makers (in China 40+ factories are under construction, and heavyweights Panasonic and others are heavily invested in the industry), US executives are warning that if America continues to lag, a new era of carmaking could trade dependence on Saudi oil for dependence on Chinese batteries. And, as they point out, those battery-makers could potentially provide their own domestic carmakers with the batteries, putting US car companies at a disadvantage. To this end, as the WSJ noted, a consortium of US firms is pooling resources to kick start a domestic battery industry. Since that time, GM has announced plans to open the nation's first lithium-ion battery factory to power its Chevy Volt. Already, the industry seems to be heating up, concentrated around the Detroit show. Given that the US currently spends about $700 billion on gasoline for transportation, batteries could be a huge industry, and as many are beginning to say, controlling battery production could be the key to dominating the auto industry in the future.

Increased spending on R&D and science education are two things Obama can do in the long-term. But regarding the hot battery-making industry, while gaining leadership in this market could well be crucial, let's also make sure we aren't building our homes on any Mohawk cemeteries. You don't need Craig T. Nelson to warn you of the pitfalls of that.

KHL All-Star Game Highlights Problems of Russian Hockey

BOULDER, Colorado -- Russia's upstart Continental Hockey League (KHL) held its inaugural All-Star Game Saturday on a rink constructed in the middle of Moscow's Red Square. A team of foreign stars led by Jaromir Jagr (of Avangard Omsk) battled the best Russian-born players, captained by former New York Islander Alexei Yashin (now of Lokomotiv Yaroslavl).

This game was supposed to be a sort of coming out party for the new league, but the event itself was underwhelming, and despite the media hype, the KHL faces many of the same serious problems its predecessors did. The league is not really new at all; it is just another incarnation of the Russian Superleague, which jettisoned some of its less successful clubs to the second-tier and added teams from other former Soviet republics, like Belarus, Ukraine, Latvia and Kazakhstan.

The game was underwhelming because it lacked the excitement and raucous atmosphere of the games it was aping, the NHL's Winter Classic series (see Jeff Klein's comments in the New York Times). Buffalo's Ralph Wilson Stadium and Chicago's Wrigley Field each held tens of thousands of fans, while the meagre grandstand on Red Square was built for only three thousand, and it was barely two-thirds full. Most of the spectators were probably wealthy businessmen and their girlfriends rather than actual hockey fans, and this highlights one of the main failings of the KHL. It may have generous corporate backing, but most stadiums rarely sell out, and ticket revenue is paltry. Professional hockey in Russia is not a business; it is a prestige project supported by corporations, not by fans.

Another notable aspect of Saturday's game was that most of the players on the rosters would be recognizable to NHL fans - not because they were stars who had left the NHL for greener pastures in Russia, but because most of them had failed to make it in North America. Many were genuine Russian stars who had never really bothered to ply their trade in North America (Sergei Mozyakin, Maxim Sushinsky), but most were draft busts (Oleg Saprykin, Pavel Brendl) and overpaid veterans who had worn out their welcome in NHL rinks, like the two team captains.

The league's backers crow on endlessly about how the KHL will soon compete with the NHL for talent, and many American and Canadian reporters have been foolish and uninformed enough to believe them (others haven't). Jaromir Jagr's so-called defection to Russia was a small coup for the new league, but it hardly marks the beginning of a stampede. In fact, the financial footing of the KHL becomes shakier by the day as energy prices - the unreliable backbone of the Russian economy - continue to fall, slashing the revenues of some of the league's most important sponsors, like natural gas giant Gazprom (KHL president Alexander Medvedev is also the director-general of Gazprom's export arm and a member of the company's board).

In 2006, the Russian Hockey Federation wrested control of the Superleague from the independent Professional Hockey League, citing the PHL's failure to properly ensure the financial viability of its member clubs. Since then, none of the financial and managerial problems have been fixed. Many of the biggest Russian stars, like Alexander Ovechkin and Pavel Datsyuk, have already been burned by the wheeling and dealing of the Russian league, and they will likely never return to play in Russia. The RHF has instead turned professional hockey into a project of national pride and goaded more companies into forking over sponsorship cash. As Russia's economic situation worsens, these financial lifelines will likely be cut.

It is true that the KHL may become an attractive alternative to the NHL for up-and-coming Russian players, and why shouldn't Russia want to hold onto its own talent? But for the foreseeable future, the only foreigners venturing to the KHL will be those who can't draw an NHL paycheck. Until the KHL becomes a viable business - and for all of its faults, the NHL is still a profitable enterprise in most markets - it will never be able to compete with the NHL or any other North American league.

You can watch the complete KHL All-Star Game on Universal Sports, here.

Pets or Meat: Squirrels to Become Staple of American Diet

BOULDER, Colorado -- Did you know that squirrel can be a delicious and nutritious meal? No, this is not a message from the Arkansas Chamber of Commerce, but rather from the people of England, who are gobbling up the rodents in everything from stews to Cornish pasties.

Annoyed at the infestation of their country by the American gray squirrel (an invasive species), which is squeezing out their beloved native red squirrels, the Brits have decided to kill and eat the interlopers. And as part of their effort to convince you that the United States is just weeks away from complete collapse into an Omega Man-style dystopian future (or perhaps another Charlton Heston film is a more appropriate analogy - Planet of the Apes? Soylent Green?), the New York Times wants to tell you all about this absurd new cuisine. But the reporter concludes:

One might think that because of easy availability, squirrel would be the perfect meal-stretcher for these economically challenged times, but it takes a lot of work to get the meat off even the plumpest squirrel.

Squirrel is not that hard to skin and gut, actually. As the article points out, it is important not to eat the brains, as some people down in Appalachia have contracted ailments similar to mad cow disease from them. Today my friend Tyler sent me these helpful instructions from a Russian book about how to gut a rabbit, but this method could be easily applied to squirrels or other small woodland creatures (the original is posted here):

[A method for disemboweling the carcasses of wild rabbits

1. Firmly wrap your hands around the carcass in the area of the ribcage.

2. Strongly squeeze the carcass in the direction of the stomach, lift it above your head, and with one sharp, strong motion, similar to swinging an ax, swing it downward, bringing your hands between your legs.]

As an additional step, make sure no one is standing behind you when you fling the rabbit's innards out of its anus. As Michael Moore pointed out in his film Roger & Me, rabbits are often the first victims of a recession, as they are one of the few animals that American culture finds acceptable as both pets and meat. But if you lost all of your money in a pyramid scheme, and you are forced to rely on in-home animal husbandry for both your income and your sustenance, make sure you have the proper facilities to legally slaughter, dress, and butcher your furry friends.



Finally, I recently discovered a follow-up documentary that Moore made three years after Roger & Me, which includes interviews with many Flint residents from the first film, including the rabbit lady, Rhonda Britton. The title of the film is, fittingly, Pets or Meat, and you can watch it here on Youtube.

How many yuan (or is it renminbi?) does Michigan cost?

NEW YORK, New York -- This is so sad it's funny. Luckily, rather than invest money in moving the country toward the mass transit the rest of the world has embraced for decades (and we embraced pre-WWII), which would create a recession-shielded, massive source of demand for trains and light-rail that could be produced in Michigan, Obama's following Dubs and giving us all $500 checks to (in my case) put in our savings account, (in most people's cases) pay off debt, or (in a few people's cases) buy Chinese electronics. Enough $500 tax refunds and we can re-prop up demand for consumer goods so China can afford Michigan. Bravo.

Dear Economist: What should I charge China for Michigan?

By Tim Harford

Published: January 10 2009 02:29

Here in Michigan we have a problem: the automobile industry. Thanks to foreign competition and the doubtful management of the Big Three, the state’s economy is in serious trouble. Should we just sell the state to the Chinese? There is a history of this in Michigan – we once traded the city of Toledo to Ohio in exchange for the upper peninsula. So perhaps it would be a good idea. But what would be a good price?
Mrs J, Michigan

Dear Mrs J.,

Make sure you don’t sell yourselves cheap. According to the US Bureau of Economic Analysis, Michigan’s GDP was $382bn in 2007. This is an attempt to measure the value added to all goods and services in Michigan, which includes anything from haircuts to assembling a car – but not, for instance, any components imported from out of state.

The $382bn figure is impressive. It would sneak Michigan into the top 25 economies in the world. Even China’s GDP is less than nine times greater.

So how much would it cost to buy $382bn of productive power? No corporation adds nearly as much value; the economist Paul de Grauwe reckoned that in 2000, value added was $67bn for Wal-Mart and $53bn for Exxon, the two largest companies. Their market value at the time was about five times their value added.

If the same ratio applies, buying Michigan would cost the Chinese almost $2 trillion –roughly what China’s State Administration of Foreign Exchange has to spend. All this assumes that Michigan’s residents, like Wal-Mart’s employees, would be free to leave if they didn’t like the new management.

Still, don’t hold out too long: even before the credit crunch hit, Michigan’s GDP per head was falling in real terms. This may be the right time to sell.

Questions to economist@ft.com

Copyright The Financial Times Limited 2009

Mass Transit Gains in DC

NEW YORK, New York -- In what may be a sign of things to come on a national level, Washington, D.C., appears set to gain two ambitious new mass-transit projects, weeks before an expected federal infrastructure spending bill is to be drawn up.

As the WaPo reports, the capital's two new projects include a Metro extension to Dulles International Airport and a light-rail line through DC's Maryland suburbs.

For those of us in cities like New York, luxuries such as public transit to the airport and light-rail have whiffs of, say, Rome. But the projects seem to represent a DC that appears increasingly forward-thinking in its conception of transport, mass transit, and development.

NPR last month reported on efforts to build out Tyson's Corner, a Virginia suburb currently dominated by exurban big boxes, vast parking lots, and lots of traffic -- fairly standard fare, really, for most of our exurbs (and most of our consumer spending, the linchpin of the economy).

Tyson's Corner: I swear, it's not an Iranian munitions site

Like most postwar American development, the town was built for a society that wanted wide open spaces and the cars that alone can traverse them. Thus, it's virtually impossible to go anywhere in the town on foot, there's lots of cars, few public spaces, and -- in my opinion -- very few things of interest (not counting Dave and Buster's or Ruby Tuesday's or Red Lobster) outside one's home.

That was then. DC's regional officials and businesses, however, now appear eager to sign on to the city planning movement broadly called New Urbanism. The movement (like most, if not all, architecture movements, it has quasi-philosophical overtones) seeks to replace the energy-inefficient, sprawling suburban development patterns we embraced in the GM Age after WWII with denser, infill-based projects. Central to New Urbanism is the tenet that neighborhoods should be not purely residential but contain a mixture of stores, offices, cultural/recreational institutions and homes. The result is meant to be walkable, compact neighborhoods where you can get to the grocer's or to school on foot or use easily accessed mass transit to get to your job -- with smaller homes one of the the likely upshots.

Stated goals include reducing fossil fuels and fostering closer interpersonal bonds among a community's residents (through an emphasis on localized, more economically self-sufficient neighborhoods where in theory you actually walk to the grocery and see your neighbors on the street). But the movement, should it take off, could give the country a chance to refresh its crumbling infrastructure and housing stock and generally mull over its priorities: Do we want to live in every-man-is-an-island haciendas in the Imperial Valley, or are the denser neighborhoods that characterized American cities in the 1850-1950 period worth revisiting? (Retiring "empty nesters," appropriately enough given the huge impact they'll have on our politics and productivity in coming years, are deciding for the latter for us already, as this Atlantic article argues -- though it's early to write the suburbs off yet, as the Economist has noted.)

If there really is a trend in some places toward New Urbanism, then DC is among the US cities most readily embracing it. Tyson's, the Virginia suburb mentioned above, could look like this after its makeover:

The Tyson's of the future? My, we're filling out nicely

But that's the tip of the iceberg for DC -- ironically, given the quickness with which New Yorkers diss the oft-maligned capital for the anti-urban, generic sprawl that characterizes its metro area.

A number of proposals would remake DC's suburban stretches into more urban environments through infill and brownfield development; among them are plans to roll out streetcars this year; create a "city environment" where the old Convention Center stood downtown; build four new dense neighborhoods in the city center near the Potomac and Anacostia rivers (see here as well); for a walkable new town center for the Columbia area (though developer General Growth is going to pieces right now); and a new transit-oriented high-density development in Arlington. Maryland is working on a statewide development plan to encourage denser development at the expense of sprawl. And former Clinton money man Terry McAuliffe is promising high-speed rail between the Old Dominion's cities, should he win his gubernatorial bid.

Enter Bladerunner

Economic conditions are already having an adverse impact, however, including with the Convention Center plan. Yet the DC market is likely to hold up better than other cities', given the recession-shielded government sector, which will probably increase under Obama anyway.

But even if the plans are put on hold, the vision, at least, is there. Meanwhile, the nation's densest, most urban city -- New York -- has in the past year rejected congestion fees for cars entering Midtown Manhattan. And, amid decaying MTA finances, the Big Apple is considering massive service cuts to the subway -- and that while simultaneously raising subway fares 25% rather than do the politically unthinkable and establish tolls on the East River bridges due to fear that outer-borough drivers will vote out the pols who support this measure. (Rant: This is incredibly stupid thinking; and I have no idea what Brooklyners can afford to have a car in New York, buy NYC's expensive gas, and park in Manhattan every day, yet find tolls to be the straw that breaks their back. Beyond that, I can't believe more than a few thousand people drive to Manhattan for work regularly from Brooklyn -- there's nowhere to park. Meanwhile, the returns that tourists and residents alike would reap from improved subway service are inestimable.)

Another big concern is President-elect Obama's understanding of the trend toward urban, mass-transit-oriented development. I'm sure he realizes it's economically and environmentally healthy, but I don't know that he realizes this is where the nation is already trending. His Dept of Transportation pick seems to be one of the least consequential Cabinet picks. And Obama's talked a lot about "shovel-ready" projects, usually his code word for re-tarring Iowa backroads. But he's been scarily silent on mass transit and re-orienting our development priorities, which could benefit hugely from the stimulus package. After all, mass-transit-oriented development needs government-backed mass transit a priori.

Mass-transit's frenemy? Say it ain't so

David Brooks did a fantastic job last month discussing this (and also did back in October). And speaking of New Urbanism, one of its champions has a New Deal plan worked out for Obama. There is an unprecedented chorus of Democratic congressmen and regular folk who gave Obama his huge victory pushing for a stimulus that will have the long-term effect of creating jobs and reinvigorating the nation. Creating huge, lasting demand for high-speed trains, light rail, smart traffic systems that IBM and Cisco make, and energy-efficient dense pockets of new construction are a good start. Giving us $500 to buy new TVs is not. After all, the shopping mall is dying and the heady days of big-box suburban consumer shopping -- and the economic growth it created for so long -- will need to be replaced now that the easy credit underlying it has dried up.

We Need a New Deal, Not Another Refund Check

NEW YORK, New York -- After reading in various media (here, here and here, for starters) that the estimated $500 billion to $800 billion stimulus package being prepared is rumored to include -- perhaps as a carrot to get intransigent, knuckle-dragging Republican congressmen like Mitch McConnell and John Boehner on board -- up to $310 billion in tax refunds, I want to send a quick note to the Obama economic team. Maybe, though, they'd be better if they read (or re-read) these thoughts first, from the CEO of IBM.

Jan. 4, 2009

To the Obama team:

Sirs, please do not let fear of the McConnell-Boehner Roller Derby push you into the tax-cut corner. That will not give our economy the help even Reagan's economists say it needs, either in the short term or the long term.

This is a George Bush way of stimulating the economy -- in fact, he tried it; and it didn't work.

I can only speak for myself. I am an American who makes a salary above the national median, but not that much. And, since I live in New York City, I have expenses well above the median.

I do not need a tax refund. I'll do with it exactly what I did with Bush's tax cut -- put it in my bank account. My neighbors might pay down their mortgages with theirs; or buy a new flat-screen TV, fresh off the Shenzhen, China, assembly line.

For the love of God, invest the once-in-a-lifetime amount of money you'll have wisely. We need to bring our country into the 21st century. Invest in basic research centers for Midwestern cities, so that they might create advanced manufacturing techniques that will allow us to actually produce goods rather than send trillions to China for everything we need. Build worker re-training programs to give those Midwesterners (and South Carolinians and Rhode Islanders) the flexibility to get a job in a new, growing industry. Invest in high-speed trains to link those Midwestern cities with the coasts, and with one another. Help cut transport costs to get American goods to American cities without any logistics costs -- or problems. Invest in a smart grid. In broadband. In medical research. In healthcare and education -- removing huge health costs from the shoulders of employers and preparing a new generation of people to re-energize their companies. That's what will create jobs in the short term and put our economy on better footing for the long term.

Or you could give me another $500 to put in the bank; or give my co-workers $500 to buy a new made-in-China flat-screener. But having a new 31-inch TV won't bring our nation forward, give us job security today, or prepare US students to compete with, as Candidate Obama liked to say, Berlin, Beijing and Bangalore tomorrow.