Friday, May 31, 2002's witty "Moneybox" correspondent, Rob Walker, has his thoughts about Richard Florida's "creative class" theory here. Walker usually takes a forthright position in his articles, but this time he's surprisingly hedged about Florida's research and analysis. Part of his tentativeness may come from Walker's own perspective, living in New Orleans--which has got to be one of the most tolerant communities in the world, not just the U.S., but which ranks far lower when it comes to technology and talent. Conversely, Dallas doesn't strike anyone as all that tolerant, and isn't renown for its world-class universities, either. (I'd take Tulane over SMU; wouldn't you?)

Of course, New Orleans may be an exception. As Calvin Trillin once noted, you'll understand New Orleans much better once you realize that it isn't the southern United States; it's northern Costa Rica. But with such strangely un-hip places showing up high in Florida's rankings (Harrisburg, PA? Scroll down to medium-sized city rankings), and with the seductiveness of the theory perhaps overpowering critical faculties--who wouldn't want to buy into a theory holding that being cool is the way to get rich?--it's no wonder Walker approaches Florida's theories with such trepidation.

Wouldn't Florida himself say that skepticism is appropriate? I mean, isn't skepticism hip? Seriously, Walker notes that Florida's book raises lots of interesting questions--even if some of the answers may be too simplistic or just wrong.

Sunday, May 26, 2002

I thought this week I'd write in my Tribune column about insurance underwriting and corporate accounting, if only for the sex appeal. I know, I know, a cheap way to drive readership. But the Halliburton story is telling; nobody should take a fiscal projection from either Bush or Cheney seriously, based on the track record in both public and private life.

East Valley Tribune, May 26, 2002

Name the business, its insurance premiums are zooming. Costs for coverage required of tenants under leases, or borrowers under mortgage loans, or for contracts or licenses, has increased tremendously over the past two years.

Nonprofit organizations are particularly hard-hit. A southeastern Arizona hospital closed its obstetrics department. A national nonprofit, with a substantial endowment and excellent reputation, gets quoted an essentially contingent premium, where policy costs equal claims paid. Insurers are delaying their quotes, so many businesses only will get policies--and learn their costs--at the last minute.

It’s far different from a decade ago, when casualty insurance was extremely competitive. Companies vied for business, and even the largest had limited pricing power. A booming stock market encouraged insurers to bid aggressively, because companies made healthy returns investing premiums before paying future claims.

Now, with rising stock prices merely a memory and weaker insurers retrenching, customers faced restricted choice and higher prices even before Sept. 11 changed many insurers’ risk calculus.

Ten years ago, with the economy in recession, businesses faced far lower costs for one essential--insurance--than today. Businesses could expand and create jobs more easily, because they had a lower cost structure. But unlike 1993, rising insurance costs today will restrain the economic recovery.

Rapidly rising insurance premiums mean either that America under George Bush is far riskier than when Bill Clinton was president, or that the 1990’s insurance market really didn’t reflect the true costs of the risks assumed, so insurance companies must now catch up. At The Tribune, where it’s an article of faith not requiring any actual evidence (heck, even if the evidence actually is to the contrary) that Bush is better for national security than Clinton, it must mean the latter.

In other words, the market got it wrong. Despite all the money riding on their analysis, insurance companies seriously misjudged these risks and therefore mispriced their products.

No real surprise; most underwriting and accounting decisions depend on today’s judgment about future events, and the more distant those events, the greater the risk of getting it wrong. Which makes this past week’s disclosures in The New York Times about an analogous accounting judgment during Dick Cheney’s tenure as CEO of Halliburton--his prior gig before the vice presidency--so very, very interesting.

Before 1998, whenever a customer disputed how much money it would pay for cost overruns and change orders on a construction project, Halliburton recorded revenue only after resolving the claim. Until the customer agreed, the company couldn’t say for certain how much (or how little) it eventually would receive.

In 1998, Halliburton faced Wall Street skepticism about its merger with Dresser Industries and year-to-year declines in both sales and revenue. Under Cheney’s leadership, Halliburton--with approval of its auditor, Arthur Andersen (natch)--changed its accounting for these claims, and started estimating future results and booking as revenue today what the company guessed it would recover from the disputed amounts down the line. The change let Halliburton double its 1998 pretax operating profits.

This convenient change--which Paul Brown, chair of the NYU Business School accounting department called “clearly a way of pumping up revenues”--and Cheney’s dreadful Dresser merger finally have caught up with Halliburton. The company’s stock has fallen by more than 50 percent since Cheney left. In fact, Halliburton stock today sits below its price on Oct. 1, 1995, when Cheney became CEO, while the S&P 500-stock index, despite recent losses, is still up 86 percent since then.

That’s Dick Cheney’s record as a businessman. Remember, last year we bought a tax cut based on 10-year revenue projections from these guys. Ouch!

Tuesday, May 21, 2002

Apparently, Blogger went down today, so I'm republishing yesterday's post--with a couple new links.

If you're interested in "creative class" analysis, you should read a longer article by Richard Florida on his research and conclusions in this month's Washington Monthly. It also contains a link to his website, where you can see how your community ranks if you're not in Phoenix. I'm not totally convinced; any ranking that puts both Allentown and Harrisburg, PA in the top 10 "most creative" medium sized cities may need some fine-tuning. However, the theory du jour is no longer "bowling alone"--it's now time to focus on whether our community has enough gay people and rock bands to encourage economic growth. Also note subtle triathlon reference, letting me link to my results (split times now available). I'm still telling everybody.

Column for May 19th:


The latest sociological theory gaining mainstream “buzz” is Carnegie Mellon University professor Richard Florida’s “creative class” analysis. Florida’s research finds future economic success dependent on attracting and keeping young, single people in key creative disciplines.

These creative class members have cutting-edge skills, are attracted to the new, and--vital for start-up businesses--can work longer hours and take greater risks because they don’t have children. Florida considers this fast-growing cohort of highly educated, youthful, and well-paid workers in technology, finance, entertainment, high-end manufacturing, and the arts absolutely key to future economic growth.

(As most business leaders, politicians, and editors are older and married, we’re uncomfortable with the future belonging to the funky. It’s hard respecting our juniors; we’d rather slam the young for not bowling in leagues.)

Creative class numbers are growing, as the age of marriage (particularly among the college-educated) has risen significantly. They’re also a key demographic, because even after marriage and kids, the amenities and dynamism that attracted them still matter in middle age.

Florida ranks a community’s ability to attract members of the creative class along with new ideas, high-tech businesses, and regional growth. He sees economic success as dependent on the “three T’s”: technology, talent, and tolerance.

These members of the “creative class” don’t think of themselves as a class, but share beliefs in creativity, individuality, difference, and merit. Companies have switched their recruiting to attract these folks--with relaxed dress codes, flexible schedules, and Frisbee-and-foosball perks--but municipalities, by and large, have not.

Too many cities have tried to compete for these knowledge-based workers with a tired recipe of begging for high-tech jobs and subsidizing professional sports and cookie-cutter retail malls. But Buffalo, New Orleans, and Pittsburgh all lost out to Boston, Washington, DC, Seattle, and Austin in economic development, largely because those cities attracted a critical mass of creative class residents.

In Florida’s analysis, Phoenix ranks 22nd, right in the middle. We do well because of many high-tech jobs and openness to new residents. But we lose points because of our large percentage of service-class jobs and “lifestyle” issues. Creative class types value diversity, authenticity, and quality--attributes sometimes in short supply here.

Florida writes that creative class people value interesting experiences. They want to try new cuisine, listen to new music, and do new things. They especially want to meet people unlike themselves, in a community open and tolerant to all different sorts of people. They prefer active recreation to passive spectating at an institutional event--the undiscovered band in a new club instead of a huge middle-aged rock group reunion concert.

Places with chain stores, restaurants, and nightclubs, offering the exact same experience as everywhere else, don’t attract tomorrow’s economic talent.

Florida also notes that today, with political will difficult to muster for almost anything, numerous cities somehow develop the consensus to invest hundreds of millions in professional sports stadiums. However, his focus groups reveal that to the creative class, professional sports simply don’t matter.

In Phoenix, we say we want to attract talent, high-quality jobs and workers, but we won’t do any of the things those people truly want, and what we are doing (that new “multipurpose facility”) is simply irrelevant to them.

Despite their youth, investing in the creative class is also a better long-term strategy. We’ll put a couple hundred million into the stadium, but in a decade or two, the Cardinals will get a better deal and move on. Those same dollars could be invested in libraries, urban parks, hiking trails, and bike paths--which won’t relocate if we don’t give them a better revenue-sharing package.

If Florida’s right, then Tempe Town Lake--where creative class types can row crew, kayak, or even swim in triathlons--means far more to 21st-century economic development than any NFL team.

Monday, May 13, 2002

The Tribune ran a 150-word editorial calling for abolishing the National Endowment for Democracy on Saturday, May 4th; this column was my first chance to respond. To his credit, Bob Schuster gave me good placement, along with a drawing of the world partially covered by an American flag, and a breakout quote, in bold, of the "In today's interconnected world" sentence in the next-to-last paragraph.

Endowment promotes values of democracy in international arena

It should take more than eight months after Sept. 11 to revert to thinking that the rest of the world simply doesn’t matter. With the ongoing war on terrorism, and our troops and military advisors deployed in Afghanistan, the Philippines, the Republic of Georgia, and elsewhere, you would think that encouraging democracy is clearly in America’s national interests. You’d be wrong.

Last week, The Tribune editorialized against the National Endowment for Democracy based on reports that NED indirectly funded groups opposing Venezuelan President Hugo Chavez. NED funding allegedly fed suspicions that the United States supported the short-lived coup that temporarily deposed Chavez. While the editorial dismissed that assertion, The Tribune still called for eliminating the NED.

(Disclosure: I participated in two programs sponsored by an NED affiliate, one in Albania assessing assessed whether conditions would permit free and fair parliamentary elections, and in a symposium in Georgia for newly-elected members of parliament. Having seen what NED helps accomplish, I’ve become an even bigger supporter.)

The Tribune is wrong on two counts about NED. First, rumors of U.S. involvement in the Venezuelan coup didn’t begin, or much depend, on NED. Public comments by Assistant Secretary of State Otto Reich, National Security Advisor Condoleeza Rice, and others left the clear impression that high U.S. officials had spoken with coup plotters both before and afterwards. Bush administration officials, even if not explicitly encouraging or exactly advising the plotters, certainly made no effort to dissuade them or to speak out for democracy.

(No surprise here. We’re busy using U.S. money, power, and prestige to reinstall an elderly king in Afghanistan. The Bush administration believes in democracy--at least when it’s convenient. When not, there’s always the Electoral College. Or, in certain time zones, the divine right of kings.)

The NED connection, indirect and tenuous, is merely a sideshow, intended to distract attention from the administration’s record on Venezuela. You can read more about the administration’s possible involvement in the coup and its “situational” support for Latin democracy at Joshua Marshall’s website.

The bigger mistake, however, is that the work NED supports, while definitely not flashy, is absolutely vital to U.S. interests. With about $33 million a year, the NED funds two nonprofit organizations--the International Republican Institute and the National Democratic Institute, both of which already raise private funds, too. (I’m an NDI contributor.)

IRI and NDI send current and former politicians and experts, from both the U.S. and overseas, to meet with party and elected officials in countries first developing democracy. As private organizations, IRI and NDI can work with political parties and nongovernmental organizations quietly and in ways that U.S. officials simply cannot.

The two organizations often work with different, competing political parties in the same country. IRI and NDI experts offer practical advice, and often the most important lesson is observing the underpinnings of democracy in action: That ideas matter; that political opponents can disagree but still unite in times of national urgency; that the majority must treat the minority fairly, for someday the minority could become the majority.

(These are things Americans need to remember, too. But while we forget them occasionally, countries where NED’s affiliates work are learning them for the first time.)

It took years to develop our democratic traditions; when we started, only white male property owners could vote. It took us a Civil War and centuries. In today’s interconnected world, where technology gives a few fanatics the power to wreak unimagined destruction, we simply can’t wait centuries for other countries to develop modern democratic institutions and traditions.

NED does vital and subtle work, which no other organization will do if NED doesn’t. It’s a small price to pay--and it’s in America’s national interest to pay it.

Tuesday, May 07, 2002

"Hey--I'm telling everybody!"

That's a punchline to an old joke; email me if you want the setup. But here are my results from the Tempe International Triathlon held this past Sunday (May 5, 2002): 2:48:46, which was 13th of 23 in my age group and 474th out of about 600+ overall (unofficially, at least). I was hoping for under 3 hours for my first triathlon, and did so.
Column for May 7, 2002:

The one joke I omitted from the Symington-at-the-Clinton-dinner routine (space limitations) is that he sat next to, of all things, the executive director of the state trial lawyer association. Now, in his political life, Symington was a "tort reformer." But if a conservative is a liberal who's been mugged, I guess it's also true that a liberal is a conservative who's been indicted.

The one joke Bob Schuster omitted was the following:

First, let’s deal with Clinton's, ahem, public image problem. State GOP Chair Bob Fannin pretended not to understand why Democrats might flock to see the former president, despite his excruciatingly well-publicized sex-and-lying-about-it problems while in office. “I don’t know what the fascination is with a disgraced former president,” Fannin groused.

Maybe the GOP chieftain should recall the past meeting of the State Republican Committee, where Fife Symington got an enthusiastic, lengthy, and similarly “fascinated” standing ovation. If Arizona Republicans have no problem with their disgraced former governor, why can’t Arizona Democrats enjoy Bill Clinton?

On to the column:


I don’t often dine with former Gov. Fife Symington. It must mean that Bill Clinton really is a transforming political figure.

Now, you might dismiss Fife and me both attending an Arizona Democratic Party fundraising dinner this past week as a “Harvard guy” thing. But you’d miss the point. Actually, it’s a world-class opportunity for political stand-up humor.

You might consider Symington buying a $5,000 table at a Democratic Party dinner as a token of recognition of the presidential pardon Clinton issued during the last hours of his administration. But it’s more than that, really. It showed that there’s at least one debt that Fife wants to try to repay. Of course Symington had to be at the Clinton dinner. If it hadn’t been for Clinton, then odds were Symington couldn’t have been there.

During his speech, Clinton took a couple of moments to explain both why he became a Democrat and why he remained one. In my case, I became a Democrat largely because my father was one. But I’ve remained a Democrat in no small part because I once got involved in a business deal with Fife Symington.

That transaction--the famed Mercado loan--turned out to be like joining the Reserves. When it’s least convenient, you get recalled to active duty, even if only briefly. Before Tuesday night, I previously saw the former governor while I testified for a couple of days as a witness in his bankruptcy court trial. It was nicer to be together with neither of us under oath.

Political dinners also let me buttonhole my favorite utility lobbyists. You might find electricity deregulation boring, but to me it’s as fascinating as, say, foreign policy or spectrum allocation. Thus fortified, let me respond to the recent letter to the editor by the Goldwater Institute’s Robert Franciosi.

Two weeks ago, I wrote that deregulation ignores that the most important things in electricity, reliability and adequate supply--which requires extra capacity. Deregulated suppliers have no incentive to maintain reserves; as Warren Buffett noted, the deregulation model actually gives suppliers incentives to tighten supply, and puts their own interests at odds with the rest of society.

Franciosi slammed me because (1) lots of deregulated businesses, like hotels, airlines, movie theaters, and chip-makers all need reserve capacity to meet peak or unexpected demand, and (2) deregulation will keep nasty people like me away from electricity policy.

Apparently, nobody at the Goldwater Institute has ever encountered a fully-booked flight, then changed their date of travel or decided to drive instead. Franciosi must never go to the movies on Saturday night or had the theater sell out. Of course, he always could decide to see a different movie, or rent a video. However, it’s not clear what we’re supposed to do when deregulated electricity suppliers sell out; run air conditioners on kerosene?

And chip-makers? I’ll bet laid-off Motorola employees (including those yet to get a pink slip) can’t wait to have the strategic vision of Chris Galvin responsible for keeping the lights on.

As for the personal attack, when it comes to deregulation, I’m the conservative. It’s the Goldwater Institute and The Tribune proposing radical and untested change.

Face it--if electricity were health care, then in this debate it’s Robert Franciosi and Bob Schuster who are Hillary Clinton and Ira Magaziner.

Friday, May 03, 2002

Column for April 24, 2002:

I'm posting this column because after a long recess, I took on electricity deregulation once again--which prompted a response from my sparring partners at the Goldwater Institute, which in turn will show up in this week's Trib column. So here's the initial column from April 24th that started this latest series of exchanges.

But first, the background: The Tribune devoted the April 21 Perspective section to letters, then did four anti-enviro pieces for Earth Day on Monday, had other stuff to do on Tuesday, but put me in a package with former state Sen. Stan ("New Blood") Barnes on electricity deregulation today, which even runs above right-wing fave Marianne Jennings. (Sorry, it was time to write about electricity deregulation again. I'll try to do something less eye-glazing this week.) Stan is listed as "president of Arizonans for Electric Choice and Competition, which supports competition in the electric generation industry." I'm going to try to get my tag to read that I'm "president of Arizonans for Virtue and Rectitude, which supports mom, the flag, apple pie, and the election of Janet Napolitano as Governor of Arizona." Sounds about as fair.

Deregulation Ignores Need for Capacity Cushion

Last Monday, the earth moved: The Tribune had a second thought about electricity deregulation.

It was only a small one, over an Arizona Corporation Commission deregulation rule requiring retailers, beginning Jan. 1, 2003, to buy half their electricity on the wholesale market. Thus, Arizona Public Service couldn't use its subsidiaries for more than half its customers' power needs unless APS charged itself less than the market price.

Developing a robust wholesale power market probably demands this rule. If utilities aren't required to buy from outsiders, competition may never arrive. Even with market-based intra-company prices, new suppliers won't enter Arizona without knowing they'll actually have wholesale customers.

If APS can buy power at the same price from itself or from some stranger, why would it let a competitor profit instead of APS's own subsidiary?

Unfortunately for the 50 percent rule, it's not guaranteed that a sizeable Arizona wholesale power market will exist in eight months. Serious bottlenecks hamper regional power transmission, and Enron's bankruptcy and California's experience have cast a pretty dark pall over the industry.

APS believes it has plenty of generating capacity, but can't tell if others will supply half its needs beginning Jan. 1. But if APS limits its outside purchases of electricity, a robust market may never develop.

The Tribune editorial had no answer, only that the commission should "proceed cautiously" and consider "possibly scaling back" the requirement, "at least initially." For an editorial page that is not always right but is never in doubt, this hesitation is big news. Maybe this first doubt will lead some less-committed deregulation partisans to rethink the entire experiment.

Maybe you should listen to Warren Buffett, CEO of Berkshire Hathaway, and generally considered one of the world's best investors. The "Oracle of Omaha" holds forth each year at the Berkshire annual meeting, called the "Woodstock of Capitalism." Last May, responding to shareholder questions, Buffett and fellow Berkshire director Charlie Munger both remarked that electricity deregulation ignores the most important thing about the power system: Our need for surplus capacity.

Markets are efficient mechanisms for balancing the desires of numerous buyers and sellers--for equalizing supply and demand. But in electricity, we don't want supply and demand to balance; we always need extra supply in reserve.

Munger used the analogy of designing a bridge to handle exactly the maximum likely load, and no more. You'd rather drive on a bridge designed to handle a substantially greater load. For both bridges and electricity supplies, you always want a margin of safety.

You never know when less rain in the Pacific Northwest means less hydroelectricity, or if natural gas deliveries get interrupted in Texas, or when two generating plants serving Arizona need to shut down for maintenance or accidents simultaneously.

We need an electrical power system that rewards people, with a decent return on their capital, for building excess capacity that may not be used for years. Not too high a return or too much capacity; too much costs too much.

But without top-down regulation, why would any supplier enter a market just to provide a necessary--but almost always unused--15-20 percent cushion in supply?

Deregulation gives suppliers a disincentive to maintain excess capacity. Each supplier wants higher electricity prices; they make more money that way. But increasing supply makes electricity cheaper, and costs suppliers lost revenue.

Nobody would invest the kind of serious money needed to build generation capacity to make less--especially when tight supplies mean making more. As Buffett said, deregulation creates a situation "where the interests of the utility companies have diverged in a significant way from the interests of society."

The old regulatory system clearly isn't perfect; it's inefficient and rewards mediocrity. But, as Buffett noted, "the problems that would arise from, say, a little bit of sloppy management are nothing compared to the problems that arise from inadequate generation."

So explain to me again: Why are we deregulating electricity?
Here's the link to my biography at my law firm's website.

Thursday, May 02, 2002

A plea for leads: If anyone has any inside dope on the International Genomic Consortium, please pass it on. It's not clear that any other communities are actually bidding for the IGC, despite what the IGC people say. Check out Angela Gonzales's article from the Phoenix Business Journal about a month ago. There's certainly nothing in the newspapers in the supposedly-competing cities. Why would they keep it a secret in Atlanta or Bethesda, but need a public campaign here? Something doesn't seem right, even if the name "Richard Mallery" didn't set off loud alarms for anyone who's lived in Arizona for more than three weeks.
Column for April 28, 2002:

A couple of my jokes got cut to fit: that if you want to get tough on crime, spending on courts must increase, because even if you're busy convicting the innocent, those trials still cost money. And that if you limit corrections spending to population-and-inflation, it means that the slogan becomes, "If you do the crime, you'll do the time--provided that the total number of prisoner remains within constant dollar per capita calculations." And that if new parents insist on having more kids as a percentage of total state population than during the 1980's, then those "extra" kids don't get an education unless you can get a childless family to sponsor increases in family size beyond inflation and population growth. But the (overly subtle) International Genomics Consortium line remained in.


The Arizona Legislature still hasn’t discovered a budget for the new fiscal year starting July 1. No disrespect intended, at least this week; the legislators have a tough job.

They must find a budget that (1) doesn’t raise taxes and (2) while cutting spending, doesn’t cut particular types of spending--and these special off-limits items change weekly.

Sometimes it’s K-12 education; sometimes it’s nursing home inspections, or fighting crime, or lengthening sentences for sex offenders, or DNA testing for death row prisoners, or higher education, or transportation.

Then, after choosing which programs merely get nicked and which get slashed, we also need new public and charitable millions to lure Richard Mallery’s erstwhile nonprofit client to pull our economic development rabbit out of his biomedical hat.

The legislators have to vote on this stuff all at once, and make the books balance. Editorial writers can pick one each week--surely there’s room in the budget to (insert pet cause here)--then return next week with yet another pet cause, all the while insisting that the problem is “too much spending.”

The statistical basis behind the “too much spending” argument is that Arizona appropriated spending has increased faster than inflation and population growth. If state government only spent the same amount, in constant dollars per person as a decade ago, the budget would be in surplus--or so goes the argument.

The problem is that the argument looks at the budget as a whole, and never explains why state appropriated spending has increased faster than population and inflation. The School of Public Affairs at ASU analyzed the budgets of the eight largest state agencies, accounting for over 90 percent of the spending, between 1991 and 2000. Their inflation-adjusted per capita spending did increase about 13 percent.

But only half of the “big eight” budgets increased faster than inflation and population: K-12 education, health services, courts, and corrections. The others--AHCCCS, economic security, state universities, and community colleges--all saw constant-dollar per capita spending decline.

The population-and-inflation crowd ignores that Arizona made some popular, but expensive, public policy choices during the 1980s and 1990s. We lengthened criminal sentences and made prison time mandatory. Naturally, the two big agencies with the biggest increases, adjusted for inflation and population, are the courts (34 percent) and corrections, including juvenile corrections (42 percent).

The spending that grew the most in absolute terms, however, was for K-12 education, which largely gets determined by formula anyway. School funding depends principally on how many kids are in school that year.

Inflation-adjusted spending per pupil didn’t increase all that significantly between 1991 and 2000, even if inflation-adjusted spending based on the entire state population did. (That’s how you get to be 49th out of 50 states in education funding.) In other words, we had more students in school, on a per capita basis, and it costs more to educate this proportionally greater cohort of kids.

So when a politician or pundit calls for cutting spending based on inflation and population growth, remember what that really means: Locking up fewer criminals and educating fewer kids.

Good thing Gov. Hull signed that contraceptive equity bill last week; we need to make sure Arizona’s school-age population doesn’t increase faster than inflation-adjusted dollars per capita.

Maybe that’s what the “just cut spending” crowd means by “family values.”
Welcome to LiberalDesert, where Sam Coppersmith fights Arizona right-wing dry rot since Thursday (at least in this format). My East Valley Tribune column actually dates back to 2000; I generally run on the op-ed page each Sunday in the "Lack of Perspective" section.

The usual format for this blog will be my weekly column, the first business day after it runs in the paper, preceded by a brief introduction, which usually consists of which jokes and japes the Trib's editorial page editor, the estimable Bob Schuster, cut from that week's edition.