Issue 44: Des Moines, Iowa; Corn, Coverage and Clean Power

Issue 44: November 15, 2021

Inside this Issue:

  • Costing More at the Store: The Inflation Problem Worsens
  • As Prices Inflate, Economists Debate: Is the Fed’s Transitory Story Stunted?
  • G.E. Divided by Three: The Once-Vaunted General Electric Breaks Itself Up
  • Wisdom, or Is Dumb? The Impact of Stock Market Crowd Trading
  • Holy Bit! The Crypto Market Tops $3 Trillion in Value
  • Chemical Origins: How Today’s JPMorgan Chase Came to Be
  • America’s Homeless Crisis: How it Came to Be
  • 1997 Heaven: A Golden Year for the American Economy
  • Downtown Frown: How Remote Working Harms Cities
  • And this week’s Featured Place: Des Moines, Iowa; Corn, Coverage and Clean Power       

Quote of the Week

“Air travel demand is highly durable. The pandemic temporarily suppressed it, and travel restrictions have constrained it. But at the end of the day, people want and need to take trips, do business and connect with each other in person. Whenever we see travel restrictions lifted globally, there is an immediate surge in passenger bookings.”

– Air Lease Corp. CEO John Plueger

Market QuickLook

The Latest

The troubling scourge of rising prices is getting worse, not better. That’s the chief takeaway from October’s consumer price index (CPI), published last week by the Bureau of Labor Statistics. Prices rose 0.9% just from September. And they’re now up 6.2% versus this time last year. That’s a far cry from the Fed’s longterm target of 2%. It’s also a far cry from 2019’s rate of 1.8%, though not yet in the neighborhood of 1980’s 13.5%.

Just as importantly, the current pace of inflation is starting to seem more pervasive and persistent. No longer are the high index readings driven by just a few categories like used cars or gasoline. Those remain elevated, for sure. But consider all of these other areas with annual gains exceeding 5% last month: food, electricity, new vehicles, furniture, home appliances, footwear, sporting goods and hotel rooms. But good news: The price of sewing machines dropped nearly 6%!

Joking aside, costs related to housing (which carry the greatest weight in the index) were up 3.5% y/y in October. Remember, that’s not reflective of prices paid when buying a house—that’s treated as an investment, not consumption; the costs relevant here are rents and their equivalent for owners (rents in particular are rising fast). Medical care, another big slice of the index, soothingly saw a gain of just 1.7%. But that stems from a big drop in health insurance costs, itself owing to anomalous factors (i.e., rebates paid to customers and the repeal of certain taxes). Hospital care and doctor services were up about 4%.

It’s all a lengthy way of saying that inflation is indeed a significant problem, at least right now. That’s not to say it outweighs other positives in the economy, most importantly that demand is strong, corporate profits are strong and household balance sheets are strong—the railroad Union Pacific for one says emphatically: “The underlying economy is feeling pretty darn good.” Nor is October’s CPI reading sufficient evidence to conclusively judge the Fed—still sticking to its “inflation is transitory” thesis—completely wrong. Maybe Americans will return to work as Covid strains ease, alleviating wage pressures. Even if they do, maybe age demographics are such that overall labor participation rates will continue their longterm downward trend, limiting the economy’s productive capacity. If the economy does become more productive, maybe it will be thanks to cost-suppressing technologies like automation and artificial intelligence. Maybe America’s severe income inequality problem will continue to suppress demand (because wealthier households allocate more of their income to savings, buying stocks rather than stuff). Maybe supply chain bottlenecks will disappear as Americans shift their spending back to services like travel. Maybe commodity prices will ease. Maybe waning government stimulus will dampen demand. Maybe the bond market’s lack of concern about inflation should relax everyone—the bond market, after all, continues to lend long at ultra-low interest rates, which are actually deeply negative now when adjusted for current rates of inflation. Why would any lender do that unless they expected inflation to ease? Inflation means, after all, that they’ll get paid back in future dollars that aren’t worth nearly as much.

To be clear, there are plenty of compelling arguments among the inflation worrywarts too. Maybe cost-suppressing forces like globalization, immigration and just-in-time supply chains are waning. Maybe there’s still too much money in people’s pockets—after trillions in government stimulus—chasing too few goods and services. Maybe labor markets were changed forever. Maybe the more influential impact from the growth in retirees is a shrinking pool of labor that drives up wages. Maybe the more important demographic trend is the entrance of the large millennial generation into their prime spending years. Maybe the Fed’s being too complacent. Maybe bond markets aren’t such a good predictor anymore, with so many government Treasuries owned by entities with motivations beyond mere maximizing their returns, i.e., central banks including the Fed itself. And when arguing that inflation is a problem, never forget the Three H’s: housing, health care and higher education; all three are characterized by low productivity gains and demand that’s artificially boosted by government spending and lending.

There you have it, arguments for and against the likelihood of inflation remaining a big problem. Relief, in any case, won’t likely come too soon, with supply chains now confronting the busy holiday shopping season. Corporate America, for its part, will find it frustrating that it can’t meet all the demand it’s seeing. But it will also feel thankful this Thanksgiving for pricing power that’s in most cases sustaining strong profits. The fast-food chain Wendy’s, for example, spoke of “overall results that are pacing well ahead of our initial 2021 plan,” despite higher labor and commodity costs. “We continue to expect very strong results in 2021.”

Wendy’s by the way, is trumpeting a new strategic partnership with Google, which speaks to Big Tech’s pervasiveness and usefulness throughout all corners of the economy. The once venerable General Electric is itself no technology slouch—it produces state-of-the-art airplane engines and medical equipment. But the storied company, co-founded by Thomas Edison and once marketed by Ronald Reagan, got mixed up in the risky lending that led to the 2008-09 financial crisis. Still trying to right itself, GE said it will now break into three separate companies, one that builds jet engines, one that builds power turbines and one that builds hospital equipment.

It’s not alone in breaking into pieces. Johnson & Johnson announced a split, making its consumer health division a separate company, distinct from its business making pharmaceuticals and medical devices. Remember that the next time you use a Band-Aid or take a Tylenol.

There’s a lot else going on. The U.S. last week lifted its travel ban on foreigners from Europe and elsewhere, boosting the travel sector. On the other hand, it’s premature to call an end to the Covid crisis, with cases rising again in states like Minnesota and Colorado; roughly 40% of Americans remain unvaccinated (or 30% excluding children under 12). Some good news in the realm of fiscal health: tax receipts are up thanks to the growing economy, shrinking the federal deficit to $2.8 trillion last fiscal year, from $3.1 trillion a year earlier. But beware: Another federal debt ceiling fight looms.

Investor rage for electric vehicles was again on display with Rivian’s spectacular IPO—the Los Angeles-area company is backed by both Amazon and Ford. The online real estate firm Zillow, on the other hand, is under siege following a failed attempt at house flipping. The Justice Department, concerned about excessive corporate consolidation, is suing to stop the book publisher Penguin Random House from buying rival Simon & Schuster. Will it have something to say about Canadian Pacific’s acquisition of Kansas City Southern, further consolidating an already consolidated North American railroad industry? How about Nvidia’s planned takeover of Arm? Disney disappointed investors with slowing growth in streaming video subscriptions. John Deere made progress in its labor dispute. The Labor Department said more people are quitting their jobs than ever, in most cases to grab a higher paying job elsewhere (job openings, meanwhile, are most numerous in the transportation, professional, health care, retail, restaurant and manufacturing sectors).

A Fed report on financial stability acknowledged risks associated with heavy corporate debt, structural vulnerabilities in money markets and elevated prices of risky assets. A Kaiser Foundation survey found annual premiums for employer-sponsored health insurance now exceed $22,000, with employees themselves responsible for nearly $6,000 of that. The homebuilder D.R. Horton expects strong demand and supply-chain challenges to continue into 2022, but it did say “it’s pretty clear that the market is not as white-hot right now as it was in the spring.” In Glasgow, the world’s countries agreed to more measures on reducing carbon emissions. In crypto-land, Twitter is exploring the potential of blockchain-based apps while the cryptocurrency exchange Coinbase, reporting earnings last week, said it processed $186b in transactions just during October alone. Trump-era trade tensions seem to be easing as various tariffs are rescinded. This week, President Biden holds a virtual meeting with his Chinese counterpart. Perhaps he’ll announce his decision on Fed chair Powell’s future as well. There might also be a House vote on the roughly $2 trillion care economy bill this week. But a Senate vote would likely come later.

Companies

  • Raytheon, a big aerospace and defense company based near Boston, sold $26b worth of goods to the federal government last year, making Uncle Sam by far its largest customer. In fact, he accounts for almost half of Raytheon’s total revenues. But besides selling things like missiles, advanced sensors and tools for cyberwarfare, the company is a major supplier to the commercial aerospace industry. In 2019, it merged with United Technologies Corp. (UTC), owner of Pratt & Whitney engines. UTC had itself just purchased Rockwell Collins, which provides other products and systems essential to aircraft, from avionics to mechanical systems to passenger seats—its largest customers, naturally, are Boeing and Airbus. Raytheon, however, wound up divesting other UTC businesses like Otis the elevator maker and Carrier, known for its air conditioners. Currently, military demand remains strong and civilian aerospace demand is on the mend. Raytheon employs nearly 200,000 people. And like most U.S. companies right now, it faces supply side strains, not so much with semiconductors but simply with getting trucks to pick up materials and securing enough components and parts. Labor shortages are a worry too, potentially made worse by looming vaccine mandates. It expects to take a roughly $75m hit from lost contracts now that the U.S. pulled out of Afghanistan. But that’s negligible for a firm that expects to generate $65b in sales this year. Collins, by the way, accounts for about 29% of that total, with Pratt accounting for another 26%. Its missile and defense division contributes 23%. And the remaining 22% stems from its intelligence and space division. (Photo courtesy of Raytheon).

Tweet of the Week

Sectors

  • Shipping: These are good times for maritime shippers, with freight rates soaring amid strong demand and bottlenecked supply. But how long will the good times last? J Mintzmyer, an investor in the space who’s currently pursuing a Harvard PHD, thinks they’ll persist. Interviewed on the Market Champions podcast, he compares the shipping industry to the U.S. airline industry, where multiple mergers created lasting pricing power and consistent profits following years of distress. Today, the five largest shipping firms (Maersk, Mediterranean Shipping, CMA Group, Cosco Group and Hapag-Lloyd) control 65% of all business. The top ten, meanwhile, control 85%. He’s careful to distinguish between different segments of shipping, including those handling dry bulk (coal, iron, grain, etc.), containers (consumer products in standard-sized boxes), tankers (carrying crude oil and refined oil products like jet fuel) and gas vessels (liquefied natural gas and propane). Geopolitics matter, evident now as China boycotts Australian coal in favor of coal from more distant markets (which implies more demand on shipping). Efforts to address climate change will be another force sustaining higher shipping rates. That’s because regulations will lead to ships moving at slower speeds to cut fuel consumption (with big vessels, fuel consumption can double with just a modest increase in speed). As for the current supply congestion, Mintzmyer highlights multiple choke points, including clogged ports, not enough ships coming out of China, insufficient container storage space at ports, not enough chassis to move boxes, a shortage of truck drivers and the potential impact of Covid vaccine mandates. Bottlenecks should ease somewhat around February, always a slow time of the year with holiday buying finished and Chinese factories closed for Lunar New Year.

Markets

  • Crypto: According to Coingecko, the market value of all cryptocurrencies now exceeds $3 trillion. For reference, the entire GDP of the U.S. is about $21 trillion. As of Nov. 8th, there were 121 different crypto coins worth more than $1b. That’s a lot of money chasing hopes that these coins will one day produce value or—more commonly and perhaps dangerously—hopes that more people will keep buying them so their price keeps going up.
  • Treasuries: Why can governments issue longterm debt so cheaply, even sometimes at negative real and even nominal rates? Because government debt has value and usefulness as collateral in modern finance. That’s the perspective of Peter Stella, the former head of the IMF Central Banking division. Speaking on the Macro Musings podcast, he emphasizes that government-issued debt is much more important to the international financial system than government-issued money. The discussion mentioned economist William Barnett who devised a comprehensive measurement of money called M4, which includes Treasuries (i.e., debt borrowed by the U.S. government). During the 2008-09 crisis, incidentally, M4 plummeted, implying a sharp decrease in the effective money supply. The vast majority of new money, to be clear, is created by private sector lending, not But private sector lending is greatly influenced—especially post-crisis—by the availability of government securities serving as collateral.
  • Stocks: New York University professor Aswath Damodaran, on the Pivot podcast with Kara Swisher and Scott Galloway, talked about the stock market and its long bull run. One important explanation, he says, is the rise of crowd trading as retail investors gather on social media sites like Reddit and “tell each other the same stories,” buying favored meme stocks at the same time. It’s a reason why momentum can trump a stock’s fundamentals, and why a stock’s price can be very different than its true value. He cites how Tesla is worth more than the entire auto industry combined. Stocks, to be sure, are rising because alternatives—think ultra-low interest bonds—are so unappealing. Indeed, the stock market doesn’t look too overvalued relative to bond prices, which have mostly risen for the past 40 years (prices move inversely with yields). But are ultra-low yields sustainable? Damodaran thinks there’s a “false belief” that the Fed can keep rates low forever. He also notes a contradiction: Stocks are priced right now as if future economic growth will be strong. But bonds are priced as if future economic growth will be weak. And how about those handful of tech stocks like Apple and Microsoft that account for an outsized portion of major stock gains? He’s quick to note that these firms are hugely impactful to everyday life. But they’re also benefiting from the rise of ESG investing, with Microsoft for example the most widely held stock in ESG-specific funds. Just so everyone’s clear, ESG funds focus on environmental, social and governance matters.
  • Labor: The Bureau of Labor Statistics says the U.S. workforce should grow about 6% this decade. But among people aged 16 to 24, the number of workers will shrink almost 8%. One segment of rapid growth will be people over aged 75—the number of people in this demographic appears on track to nearly double this decade, albeit from a rather small base.

Government

  • Homelessness: Bloomberg CityLife recounts the history of homelessness in America, starting with the first big wave following the Civil War and the end of slavery in the 1860s. As the country urbanized, big cities began seeing “skid row” areas like the Bowery in New York. There, help came mostly from charities and churches. The de-institutionalization of psychiatric patients led to a surge in homelessness starting in the mid-1950s. But around the same time, urban renewal projects destroyed many affordable unsubsidized apartments, boarding houses and single-room occupancy (SRO) hotels, especially in minority neighborhoods. In the decade following 1973, the article notes, more than 1m SRO units were lost to demolition or conversion to other uses. In the 1960s, President Johnson’s “Great Society” introduced improvements to social services and federal programs like Medicare and Medicaid. But investment in public housing plummeted after the 1970s, just as social benefits were slashed during the Reagan administration. The 1980s were also a time of de-industrialization, leading to a “growing ‘service class’ of people living paycheck to paycheck, with few opportunities for upward mobility.” Mass incarceration then created generations of people with criminal records that all but shut them out of job and housing markets. The path from prison to homelessness became common. The article also describes prisons and jails as today’s de facto psychiatric institutions. The AIDS epidemic, waves of drug epidemics and lack of access to affordable medical care further pushed people into homelessness. More recently, the economic revival of cities, neighborhood gentrification and strict zoning laws have made it near impossible to build any new housing in places where it’s most needed. Encouragingly, the nation’s homeless population decreased an estimated 12% between 2007 and 2019. But that masks big increases in certain cities like New York and Washington, DC. California, for its part, today has more than 40% of America’s chronically homeless population, meaning people who’ve been without homes for at least 12 months and can be diagnosed with a substance abuse disorder, mental illness, or a physical or developmental disability. About one quarter of the nation’s unhoused population are thought to be chronically homeless.

Places:

  • Des Moines, Iowa: Corn? Soybeans? Hogs? Yep, that’s Iowa. But financial services? Iowa is indeed an agricultural powerhouse, ranking second behind California in the value of its farm output. But in the state capital Des Moines, you’ll more likely encounter someone measuring risk than harvesting crops. Des Moines is home to more than 70 insurance companies, not to mention the industry’s Global Insurance Symposium held each year. Principal Financial and Nationwide are the two largest insurance firms in the area. The largest private-sector employer is Wells Fargo, which houses its giant home mortgage business in Des Moines, employing nearly 15,000 locals. According to the Census, no major metro area in the country has a higher concentration of workers in financial services. The category accounts for a full 15% of all nonfarm payroll jobs, higher than even New York City’s 11%. Just north of the city (in Ames) is Iowa State University, which offers actuarial science degrees to aspiring insurance professionals. Drake University in downtown Des Moines offers these as well. Combined with lots of jobs in state government, local government, education and health care, the financial service sector forms the backbone of a strong Des Moines labor market, currently sporting an unemployment rate of just 2.9%. The national rate is 4.6%. Agriculture certainly matters. In fact, many of the city’s insurance firms were founded in the 19th century, offering risk mitigation to farmers. Nationwide, as it happens, used to be called Farm Bureau Mutual. Other big employers in the Des Moines metro include manufacturers like Vermeer, which sells various agriculture, construction and mining equipment. Tractor maker John Deere, though based in Illinois, has its customer financing arm in Des Moines. Rockwell Collins, now part of Raytheon (see the Companies section above) has a big presence too. The Greater Des Moines Partnership, an economic development group, ranks Hy-Vee, a supermarket chain, as the metro area’s fourth largest private-sector employer after Wells Fargo, UnityPoint Hospital and Principal. A broader geography encompassing 16 surrounding counties forms what’s called the Cultivation Corridor, home to many bioscience and biotechnology ventures focusing on improving agricultural productivity. Thanks to an abundance of clean and renewable wind power, Des Moines has become a leading site for energy-hungry data centers; Apple, Facebook and Microsoft all have data centers there. So does Amazon, which also has a distribution center and—combined—employs about 3,500 locals. Then there’s JBS, a Brazilian meat producer that operates a large pork processing plant northeast of Des Moines, staffed mostly by immigrants from Latin America, eastern Europe and Southeast Asia (notably Burma). Also part of the plant’s 2,300-member workforce are numerous refugees from the East African country Sudan. Sure enough, 8% of the Des Moines metro population is now foreign born, in a state that’s 95% U.S.-born. Overall, it ranks just 84th in the country by population, too small to have a large airline hub or a major league sports franchise. It’s growing through, with 15% more people now than in 2010. That makes it one of the fastest growing midwestern metros, with Minneapolis, Omaha, Kansas City and St. Louis all growing more slowly during the 2010s. Omaha is the closest “big” city geographically, roughly two hours away by car. Minneapolis and Kansas City are more like three-to-four hours and Chicago closer to five. What else accounts for the impressive population growth besides a healthy job market? According to Moody’s Analytics, the cost of doing business in Des Moines is 13% below the national average. The cost of housing is manageable too. Brian Crowe, executive VP of economic development for the Greater Des Moines Partnership, highlights investments in downtown cultural amenities to draw more talented professionals. He also trumpets the area’s potential to help the world transition to a carbon-free economy: “We can lead in the Green Revolution.” Des Moines does face environmental risks, including floods. In 2016, it experienced what was deemed the costliest thunderstorm in U.S. history. The good news about future risks? Residents won’t have to look far for insurance.
  • West Virginia: Some good news for an economically troubled part of the country. Japan’s Toyota will invest $240m to upgrade its facility in Buffalo, West Virginia, just northwest of the capital Charleston. That would position it to play a role in the carmaker’s transition to building electric vehicles. The development has a political twist. West Virginia Senator Joe Manchin, a critical swing vote on federal legislation, isn’t happy about a Biden Administration proposal aimed at helping unionized auto workers. The Toyota facility employs non-union workers.

Looking back

  • JP Morgan: He was America’s most powerful banker at the dawn of the 20th Now, two-plus decades into the 21st, J.P. Morgan’s namesake bank remains number one in the world of high finance. But it wasn’t always a smooth ride. Former JP Morgan executive Nicholas Sargen tells the bank’s recent history in his book “Fall and Revival: How the Wave of Consolidation Changed America’s Premier Bank.” Prior to the 1980s, JP Morgan was still first and foremost a global lender to selected firms and individuals with strong credit. That was the role it chose after the Glass-Steagall Act of 1933 prohibited banks from practicing both commercial banking (traditional lending) and investment banking (raising money for companies and trading securities, etc.). But relying primarily on conservative loan-making would soon start to get dangerous. By the early 1980s, companies were increasingly obtaining capital not with bank loans but by working with investment banks to issue debt in capital markets (in other words, selling corporate bonds). J.P. Morgan knew it had to offer more investment banking functions itself, which was permitted in London if not on Wall Street. One question it faced was whether to buy or build new capabilities? Though it did get involved with bad loans to Latin America in the 1970s, it emerged from that crisis much better than its peers, positioning it to acquire rivals. It passed, however, on a big opportunity to buy a major stake in Citi (Citi, in 1990, would get a big investment from Prince Al Waleed of Saudi Arabia instead). JP Morgan would also pass on an opportunity to buy State Street, a specialist in private banking, custody services and asset management. All the while, other banks were merging. Chemical Bank, for one, bought Manufacturers Hannover in 1992, and then Chase Manhattan in 1995. Chemical, though the acquirer, kept the Chase name. It became the largest U.S. bank at the time, overtaking Citi. It was also the nation’s largest corporate lender, the largest in trading revenues and the leader in securities processing. As you can see, the Glass-Steagall restrictions were becoming more relaxed under the Fed chair at the time, Alan Greenspan. After Citi merged with the insurance giant Travelers in 1998, Glass-Steagall was officially repealed. As more banks merged, JP Morgan’s competitiveness became in doubt. When the hedge fund LTCM imploded in 1998, it wasn’t the House of Morgan that led the effort to find a solution, as it had during major financial crises for more than a century. It was Goldman Sachs and Merrill Lynch leading the way instead. What’s more, JP Morgan was a laggard in providing finance to the new technology and internet firms beginning to transform the economy. All of this contributed to sluggish stock performance, and hence vulnerability to takeover. Looking for a partner, it held merger talks with the new Wall Street king Goldman Sachs, who liked Morgan’s strength in derivatives trading, among other things. Alas, a deal never happened. Then came the Dot.com bubble in 2000. That year, on Sept. 14, Chase Manhattan (still largely run by the old Chemical Bank management team) announced it would buy JP Morgan for $31b, adopting the name JPMorgan Chase. As the New York Times reported at the time: “Chase has been striving to transform itself into a global financial powerhouse and acquiring Morgan could sharply accelerate the process. Since the early 1980’s, Morgan has changed from a commercial bank with a blue-chip list of clients into a firm focused on investment banking.” Chase, keep in mind, unlike Morgan, was a leader in lending to the mass market via credit cards, mortgage loans and auto loans. For Sargen, JP Morgan’s big mistake was failing to make strategic acquisitions when it had the chance, most importantly its decision to not buy State Street. The book ends with the Chase takeover. But JPMorgan Chase would merge again in 2004, with Chicago’s Bank One. That not only created an institution strong enough to emerge as a winner after the crisis of 2008-09. It also gave the bank Jamie Dimon, a former Citi president who left to run Bank One. Dimon, who still runs JPMorgan Chase today, is widely considered Wall Street’s most powerful and influential banker.
  • 1997: In our latest weekly look back at old Federal Reserve meetings, here’s one from September 30, 1997. Last week, we looked at things from the perspective of 1990, a time of heavy job losses and shrinking output. Seven years later though, the picture was polar opposite. GDP had grown nearly 5% during the first half of the year, with unemployment falling below 5%. Yet inflation was less than 3%, puzzling veteran policymakers with fresh memories of the 1970s. In some ways, it felt like 2021, with labor markets tight and lots of talk about difficulties recruiting and keeping workers. As the Boston Fed noted: “While a shortage of talent exists across all industries, the gap between supply and demand is greatest for computer programmers, software engineers and information systems developers.” One Fed official remarked: “It was said that Wendy’s Restaurants across the nation once had a notice in the center of every table that said ‘special of the day.’ Now every table has a list of ‘positions available.’ On the other hand, unlike in 2021, wages weren’t rising much in 1997, and nor were prices for goods and services. Longterm interest rates were still declining, which “appeared to reflect a reassessment on the part of some market participants of the fundamental relationship between economic activity and price pressures.” As another Fed official stated: “Investors seem increasingly enthralled by the ‘New Era’ view that we are in an extended period of much-improved trend growth, propelled importantly by technological advance and by revolutionary changes in the economies of the developing world, with inflation no worse than a remote risk because of intensified competition.” This was the dawn of the information age, the golden era of globalized commerce and the height of American power and influence. One district noted a big increase in spending on office and computing equipment, in part to address concerns about the “Y2K” problem (remember that?). The economy, in a word, was booming. Stock prices were surging. Credit was cheap and abundant. The Boston Fed talked about investment managers receiving “bonuses like sports stars.” Hospitals and other organizations were starting to move back-office work to India. Japan’s economy, whose growth and innovation intimidated many Americans in the 1980s, turned sluggish and stagnant in the 1990s. The Soviet Union was gone. Europe was preparing to launch the euro. And back at home, cities like Seattle and Las Vegas were on the rise, representative of good times ahead for the West Coast Crescent and the Sun Belt. The Atlanta Fed mentioned the advent of a “new southern auto industry.” Washington’s debt and deficits were plummeting. Oil was cheap too, helping to explain why inflation—despite such impressive economic growth—remained subdued. Other explanations given? The emergence of global competition, an increase in immigration and more competition among firms. Said the Fed’s Vice-Chair Alice Rivlin at the meeting: “There is accumulating evidence that the economy is more flexible and responsive and less inflation-prone than it used to be.” There were of course some painful undercurrents still lurking in 1997. Tens of thousands of manufacturing jobs were moving to Mexico (it would be another decade or so before they started moving en masse to China). As the Sun Belt and coastal cities boomed, places like upstate New York suffered with companies like Eastman Kodak, which cut thousands of jobs. The textile and apparel sector, meanwhile, the original U.S. industry, had long ago moved from New England and the MidAtlantic to the South, and now was moving overseas.

Looking ahead

  • Cities: The Weeds, a podcast produced by Vox, featured a conversation about the future of American cities, with a focus on how they’ll be affected longterm by the rise in remote working. Guest Derek Thompson of The Atlantic notes how remote working was already gaining in popularity before the pandemic, with adoption sharply accelerating thereafter. One impact so far on cities is the so-called “donut effect,” whereby city centers see a decline in population as people flee to surrounding suburbs and exurbs. This coincides with the large millennial generation reaching the stage of family formation, when many people choose to live in suburbs. Currently, according to Thompson, 20% of all management and professional workers are toiling remotely. And nearly 10% of all open job postings are for remote work. It’s not a huge percentage, but enough in Thompson’s assessment to have serious negative repercussions for commercial real estate, transit systems and retail in urban centers.

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