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There was a popular book in 1973 – A Random Walk Down Wall Street. (by Burton Malkiel, now in its 9th edition, 2007) – that pooh-pooh’ed the idea that one investor’s stock picks could always be better than another investor’s stock picks. The punch line is that you could randomly throw darts at the Wall Street Journal financial pages and do just as well as anyone else investing in the stock market. I first read it in 1980, while taking Investment 101 in business school at night and editing economic research documents for the Federal Reserve Bank of San Francisco during the day. I had a very memorable argument with John P. Judd, then senior research economist and more recently special advisor to the Bank president and CEO Janet Yellen.

John thought the Wall Street brokers were crazy for thinking they could make more than average returns on investment. I thought the Federal Reserve was crazy for thinking they could control the money supply. John was already a PhD economist; I was still working on my Bachelor degree in business administration.

Twenty years later I also have a PhD in economics, but there are still two camps pulling in different directions in their dangerous tug-of-war on the economy. There are the double-dip pessimists led by Yale Economist Bob Shiller and most recently discouraged by Paul Ferrell of MarketWatch. And there are the “Mad Money” optimists who believe that Jim Cramer will tell them everything they need to know to get and stay rich, while Ben Bernanke consoles them with sound bites like “increased optimism among consumers … should aid the recovery.”

At the heart of the problem is the same, original argument I had with John Judd – “is there a way to beat the averages” – except that this time around Wall Street is in bed with the Federal Reserve. You can no longer tell the crazies apart.

Which brings me back to the Random Walk. If Wall Street has their way, they will inflate the market just enough to induce you to put your money back in. Don’t forget the Weenie Roast of 2008. If the government – either Congress or Treasury or the Federal Reserve – has their way, they will let it crash again, too. Don’t forget that it was only Wall Street that got bailed out the last time. I think the chances are 50-50 either way.

Queensland might be thought of as the Florida of Australia. Like Florida, Queensland is the "Sunshine state." For years, Queensland has been the fastest growing state in the nation, just as Florida has been the fastest growing large state in the United States. The Gold Coast in Southeast Queensland might be characterized as Miami Beach on steroids.

Both states have also faced housing difficulties. With its smart growth land rationing policies, house prices escalated wildly in Florida and then collapsed as America's "drunken sailor" lending policies came home to roost. Queensland has had similar "urban consolidation" land rationing policies and the same house price escalation has occurred. However, the price bust did not follow, because lending standards were more strict. This is because adults were in charge of finance in Australia instead of the cartoon characters that drove policy in the United States. Australian lenders at least asked borrowers if they had a job and checked their pulse.

But there are still housing problems in Queensland. The Urban Development Institute of Australia Queensland has just released its two Richardson reports that, among other things, suggest that restrictions on housing are increasing household sizes. In recent years, only one new house has been produced for each new resident, which compares to an average household size of 2.5. Presumably younger people are living longer with their parents and perhaps, with the strong foreign immigration to Australia, there is substantial "doubling up," as houses are shared by people who would not otherwise live together, such as multiple families (internationally, census authorities define a household as all of the people living in a single house).

Median lot prices and median house prices have risen strongly in Queensland, which has led to a decline in housing construction and a loss of construction jobs. The report recommends allowing more housing development on greenfield sites and developing additional infrastructure on the urban fringe where more housing would be developed. Finally, the report urges that the state establish benchmarks for the time it takes to approve and build greenfield developments.

The Richardson reports are just another indication that the severity of the housing crisis and its causes is more broadly understood in Australia. Queensland would do well to follow its recommendations.

Photo: Gold Coast

In a city notorious for its vast gap between rich and poor and the involvement of children in gang activity and drug trafficking, a music school is providing an opportunity for the young people of the favelas to put their energies to better use in performing for themselves and their communities. The school's band has now toured the world and received visits from heads of state. This documentary tells the story of Sao Paulo's Meninos Do Morumbi and how it has affected the lives of its students.

Barack Obama’s home state is in the news but not for positive reasons. Fitch downgraded Illinois debt. At the end of March, according to the Bond Buyer:

Fitch Ratings late Monday downgraded Illinois’ general obligation rating one notch to A-minus and warned of possible further action by leaving the state’s credit on negative watch ahead of $1.3 billion of short- and long-term GO issuance in three deals over the coming weeks.
Gov. Pat Quinn had hoped that the General Assembly’s passage last week of pension reforms would stave off any negative rating actions and buy the state some additional time to address a nearly $13 billion budget deficit and liquidity crisis in the current legislative session.

Fitch isn’t Illinois’ only problem. The Chicago Tribune wrote a devastating editorial concerning Illinois’ economic performance:

once-thriving Illinois in February had 475,000 fewer jobs than it did in November 2000. Even replacing every one of those jobs wouldn't fix the sorry state of this state: Factoring in population growth over the last decade, Illinois needs 600,000 new jobs just to get the employment level back to where it was. The cumulative cost to Springfield of those lost jobs: $6 billion in tax revenues through fiscal '09 and, barring some miracle, $10 billion through fiscal '11.

Illinois politicians keep trying to blame job losses on the Great Recession. But this is only the latest bad patch in two decades during which Illinois has lagged the nation at growing jobs. Geoffrey Hewings, head of the U. of I.'s Regional Economics Applications Laboratory, says something else has to explain why Illinois unemployment keeps running well above the national rate: "Our economy looks like the U.S. economy" in terms of its blend of manufacturing, service and other sectors. "Yet since 1990, we've underperformed the U.S. in job creation."

In fact, for the decade before this recession began, other researchers have pegged Illinois' job creation rate at 48th in the U.S., ahead of moribund Ohio and Michigan. Can't blame recession for that.

Illinois lawmakers spent much of the last 20 years treating private-sector employers as if they were stupid — unable to understand that they and their workers eventually would have to pay for too much state spending, borrowing and promises of future obligations — none more egregious than the now severely underfunded retirement benefits for public employees.

This kind of editorial might scare away future business expansion in Illinois. It wasn’t easy for the Tribune to write this one because it’s so negative that it even might scare advertisers away. But, the truth can’t be ignored much longer. Special interest groups are thriving, but taxpayers are not. The long time Illinois Speaker of House is more responsible than any individual for Illinois’ persistent financial problems. Illinois declines, but Madigan’s property tax appeals law firm thrives.

There has been a lot written lately about the return to the city. I’ve noted myself how places like central Indianapolis have reversed decades of population declines. That’s exciting. And the New York Times, for example, just trumpeted how “smart growth is taking hold” in America.

But let’s not kid ourselves here. In my view this represents a possible inflection point, but it is way too early for the type of triumphalist rhetoric being bandied about by advocates.

Let’s take a look at the change in the regional population share in core counties in 2009 vs. 2008 for the Midwest cities I typically focus on.

For St. Louis, I use St. Louis city + St. Louis County as the core. For Minneapolis-St. Paul, I used Hennepin+Ramsey as the core.

As you can see, only two regions managed to increase core county share of population, and these by a minuscule amount. Everyone else lost core county share. Keep in mind that even these “core” counties have many places with suburban characteristics. Now you might prefer a purely core city measure, and if so, be my guest. But don’t be surprised if the data gets even worse in many cases. Even in Chicago, which might have experienced the biggest urban core construction boom in America, the city lost population while Cook County gained it. Looking at the core city would make Chicago’s share loss worse.

I think this shows there is still some work to do, to put it mildly.

So why the difference versus the EPA study the NYT trumpets? Well, for one thing, the EPA study is worthless as a measure of urban health. They measure only new building permits, not people. This I think taps into a subtle suburban mindset in our outlook, that new housing units must represent net new inventory and net new people moving in, but in urban areas that’s not necessarily the case.

The sad fact is, many of our urban cores have experienced significant housing abandonment and demolition. So in addition to construction of net new units, there’s a countervailing force of reduction. For example, the greater downtown area of Indianapolis has been seeing lots of construction. But the regional center comprehensive plan noted that between 1990 and 2000, the net number of dwelling units actually decreased. “The actual number of housing units declined over the 10-year period as some housing became dilapidated or was demolished and as some projects were emptied to await renovation (the Census only counts habitable units).”

What’s more, as yuppies move in, and others move out, there is bound to be an effect on household sizes. Is it is really a good idea to price out larger immigrant families to the inner ring suburbs so that DINK’s can move in? How’s that for the environmental footprint of the region?

I’m glad we’ve got big increases in urban construction and even population increases in some neighborhoods, but let’s not get ahead of ourselves by trumpeting a “fundamental shift”, as the EPA does, when the demographics don’t back it up.

The New York Times article is also a disappointment. It fails to do any independent analysis of the data and only talks to people who are cheerleaders for the study, making it a sad piece of journalism.

Someone recently described me as an “apologist for sprawl”. I in no uncertain terms reject that label. I am a passionate urban advocate who wants to see our core cities thrive and prosper. I want more growth there. I live in a city in a walkable neighborhood and rarely drive.

But advocacy research of the type urbanists are quick to decry in others does a disservice to the cause. To change the trajectory of our cities and our built environment in America, we need to start with something called “reality”. I am optimistic that there’s a change in the air. But let’s not make claims about “fundamental shifts” that are simply not supported by any realistic look at the totality of the data.

This post first appeared at The Urbanophile.