People are rethinking cities

National Geographic magazine has an issue on urban development. Seems to be a collectible. Here are some important articles I liked:

To build the cities of the future, we must get out of our cars. It has fantastic pictures by Andrew Moore and Robert Kunzig has done great by summarising the developments walk-friendly cities.

It refers to the emerald city planning guide by Calthorpe Associates. You can download it here.

The cities of the future infographic is super awesome.

The related articles also features one of my favourites: Want to visualize inequality? View cities from above. It features pictures by Johnny Miller. The Johnny Miller website is treasure trove of many such pictures.

The development of Tokyo is documented quite well. 

The photos feature titled This man spends 8 hours every day commuting. He's not alone. is quite good. In my paper How cities Develop I have explored the commute as distance travelled in acceptable commute time. Those insights seem to be bearing out. 

---

Buy my books "Subverting Capitalism & Democracy" and "Understanding Firms"

Urban Development problem in India - the lack of proper Development Plan

Recently, I had the opportunity to examine the Draft Development Plan released by Maharashtra State Road Development Corporation (MSRDC). The plan is quite badly designed. Yet, what hurt me more was the fact that this plan was developed for Special Planning Area (SPA) which is not developed as much so the development is almost green-field urbanization. And yet, even when we are given a clean slate we make such primary mistakes in planning. I wrote about the shortcomings in an Article in Moneylife.in titled "How can smart cities be built on dumb development plans?"

I have looked at the population, water demand estimation, power demand estimation, waste estimation, transportation planning etc. On every parameter this plan falls short. Have a read and leave comments.

---

 Buy my books "Subverting Capitalism & Democracy" and "Understanding Firms".

Comment on Sumner's article on Reallocation to housing in 2001

Scott Sumner has an interesting article today about reallocation into housing in 2001.

1. I agree with Professor Sumner's general view that during a slump (or reallocation) the right metaphor is like a bicycle going uphill. Fed is the cyclist pedaling vigorously. But if the effort is not about a certain threshold (NGDP) the bicycle will roll backward. You argue that the effort was below the threshold. I agree with this.
2. While I understand the simplification, I am not convinced with housing vs tech. The reallocation should search for better (more investment worthy) assets. I don't think housing was "better" asset. It was chosen (I think it was deliberately chosen) as it was the only one that could absorb large volume of investments. I believe, had we not interfered, markets would have discovered alternate energy or some other investment-starved sector. 
3. Housing is wrong choice. It is a dual-good. It sometimes works as consumption good other times it is investment good. Possibly housing as a consumption good may have been a cushion. But as investment good, it was only other bubble. Subprime is not a shock but a logical conclusion of an investment good being pumped with excess investment.
4. I think there is a threshold level for money ( I use term loosely) in the economy. If total money in the system goes higher than this the system (if we let it be) creates deflation to destroy this excess. This deflation happens at the hands of those who have money invested. It happens in the rich balance sheets. The problem is it often overshoots the ideal level hence we want to control the process. In our zeal to control the process, we shift the deflation hotspot to public balance sheet or citizens balance sheets. This creates a problem of affordability. The few rich balance sheets could have afforded to deflate to a large degree but many poor balance sheets cannot deflate even to hundredth of a degree. Further, the rich balance-sheets willingly took the risk of investment while poor balance sheets were stuffed. This is the socialization of losses we talk about.

I have discussed some of these ideas in my book "Subverting Capitalism & Democracy". 

---

Buy my book "Subverting Capitalism & Democracy" is available on Amazon.

How much is real estate as a percentage of total assets?

I often wonder what the does the fixed asset block at a country level looks like. 

Companies report their asset base in terms of land and property, plant and machinery, investments, cash and deposits, even goodwill (brands or excess payments for acquisitions) etc. In a company the investments we are told what is approximate value of this investment. (In some cases you have to work around but you can tell). 

If we have the total asset and those invested in real estate, then we know how much percentage change in real estate prices will impact the economy. True, it won't tell us GDP impact, but it will tell us the scale.  The impact will manifest in variety of direction but the quantum of impact is a critical variable. 

Let me give an example. A small meteor can strike anywhere on the planet and we really don't care. For a medium meteor, the point of impact matters. It creates a tsunami or a crater etc. But if a truly large meteor strikes then it does not matter where it strikes. The result is the same - total wipeout.

To parallel with financial crisis, I think we still do not know what is the size of real estate problem. The real estate problem encompasses the following:

1. Housing i.e. houses and residential buildings in possession of consumers.
2. Rental housing - those residential buildings owned by businesses but meant for renting.
3. Real Estate owned by companies. Like land for factories etc.
4. Commercial Real Estate like malls, theaters, office complexes.
5. Agricultural land owned by people and companies
6. It does not include lands that we cannot sell or lease like forest lands for example or gardens.

Then we need to find out  what is the amount of loan for which this stands as collateral. We can then estimate the impact of 1% change of valuations. My guess is the total size of real estate assets will be like 2/3rd of total global assets. The total loans outstanding against these assets is an unknown. We can agree that the problem is not small. The question is how big is it.

---

My book "Subverting Capitalism & Democracy" is available on Amazon.

Impairing household balance sheets

The western household balance sheets are substantially large. But the recent crisis has brought about serious change in asset valuations. As the assets devalue and there is a corresponding impairment in the equity or debt side of the balance sheet.  If asset devaluation reduces your loans then balance sheet quality remains unaffected. For the US housing assets, the debt side was reduced. Hence while winding down of housing reduced the size of balance sheet it could not have impaired its quality. So the problem of US housing may have been lesser than anticipated from household balance sheet point of view.

The bailout, however, shifted this burden from bank balance sheets to government balance sheets. Now, government balance sheets are fed from household and corporate incomes. Thus what was earlier a housing loan problem is now a tax problem. In other words, the problem shifted from household balance sheet to household cash-flow.

On the credit card debt will be more tricky. Credit card debt will not be reduced in usual circumstances. The hit will be on equity side, thus severely impairing the balance sheets.

The cash-inflows are reducing while the outflows remain. The bailout has added a large chunk of committed cash out flow. Households will have to find matching inflows to offset this burden. Thus there is tremendous free cash flow problem.

Increasing government inefficiency, as government gets bigger, will only add to this burden. Unlike housing loan there is no jingle-mail option for taxes. Taxes, like death, are a certainty. So the bailout has shifted what was essentially a quality-neutral adjustment into a large impairment in balance sheet quality. 

So the western households will have to go through a severe pain before consumption returns to the pre-crisis level. This problem is going to haunt us for next half a decade unless we come up with some really radical solution.

---

My book "Subverting Capitalism & Democracy" is available on Amazon.