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September 21, 2009

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Thanks for reminding us why you're indispensible. Two years ago when the cusp of the current crisis was becoming evident, Bob Robb was giddily comparing our employment stats to Portland's. Stupid growth was better than smart growth! The Kotkins and Kudlows really didn't care what the endgame was so long as somebody was making money in the process. Now, Phoenix looks like a dinosaur with heat prostration. Revival, we're told, is a just a tax cut away.

If the free market always knows best, then the fate of Phoenix is exactly where it should be.

I've never seen a real-estate crash like this one. By the time we've picked up the pieces and worked through the excess inventory - ten years hence or longer - it's likely global warming will be so obvious that real-estate agents will have to spin it as a lifestyle amenity. Water more than heat will be the key issue here and it's not likely that future shortages can be dismissed as a hoax by the rubes in talk-radio land.

We've been careening down this slope for over 20 years and there's nothing buffering us from a very hard landing. If it's not over, we're free to contemplate euthunasia. Frenetic growth covered up a multitude of sins that will now stand dangerously exposed. We're going to see real-estate trusts tearing down their own building stock to avoid paying property taxes. We'll see ghost malls and potholed freeways. We'll see Phoenix's cachet so tarnished that comedians will joke about us like they do Detroit today.

Mr. Talton wrote:

"China and Europe are making leaps ahead of America in renewable energy, and Arizona is not on the radar even within the backward U.S. Neither Arizona nor Phoenix even have a strategy to recruit companies from the LA area."

Quite right:

"The Sonoran Desert is among the most efficient spots on Earth for solar power plants and rooftop solar arrays...But most solar panels, mirrors, frames and other equipment are made elsewhere. In case after case, the state has fallen short of the competition. At least 10 companies have looked at Arizona in the past two years but decided to move their factories and about 4,500 workers to other Western states."

http://www.azcentral.com/arizonarepublic/news/articles/2009/03/08/20090308biz-solarincentives0308.html

There is some good news locally: APS developed a (relatively) inexpensive single-track tracking system that gets nearly the efficiency of double-track systems but at half the price. This technology would increase efficiency of solar panel collection by nearly 30 percent. But it's selling the technology to a New Mexico based solar company.

http://www.azcentral.com/arizonarepublic/business/articles/2009/09/20/20090920biz-insider0920Randazzo.html

The industry is big and growing bigger:

"With more than 50,000 new jobs, the renewable energy industry in Germany is now second only to its auto industry. One thing that has never existed in America — with our fragmented, stop-start solar subsidies — is certainty of price, connectivity and regulation on a national basis.

" 'We are seeing the industrialization of the solar business. In the last 12 months, it has brought us $1.3 billion in revenues. It is hard to build a billion-dollar business...About 95 percent of our solar business is outside the U.S.. Our biggest U.S. customer is a German-owned company in Oregon. We sell them pieces of equipment.' "

-- Mike Splinter, CEO of Applied Materials, one of the world's largest solar manufacturers, with 14 solar panel factories: five in Germany, four in China, one in Spain, one in India, one in Italy, one in Taiwan and one in Abu Dhabi...and none in America.

http://www.nytimes.com/2009/09/16/opinion/16friedman.html

Note that Germany is NOT a low-wage labor market for manufacturing. These are good paying jobs and the industry is growing. Maintenance of both manufacturing plants (solar fields) and installed panels at homes and businesses will also add numerous higher paying jobs.

"Even in the solar industry, many worry that Western companies may have fragile prospects when competing with Chinese companies that have cheap loans, electricity and labor, paying recent college graduates in engineering $7,000 a year.

"Since March, Chinese governments at the national, provincial and even local level have been competing with one another to offer solar companies ever more generous subsidies, including free land, and cash for research and development. State-owned banks are flooding the industry with loans at considerably lower interest rates than available in Europe or the United States...Beijing’s aim is to generate 20,000 megawatts of solar energy by 2020."

http://www.nytimes.com/2009/08/25/business/energy-environment/25solar.html?_r=2&hp

This commenter's remarks are at least worth considering as an alternative view to the prevailing wisdom:

"It's the same old story. Our last great economic hope is the renewable energy industry. Without tariffs our renewable energy industry will be out-competed by China. There never was a level economic playing field. That's the point behind having tariffs.

"When this country began, our industrial development was long retarded by cheap British and other European manufactured goods. We only became an industrialized country when Congress put tariffs on these goods in order to give American companies a chance to develop industry. In fact these tariffs were one of the causes of the American Civil War; but it resulted in development of U.S. manufacturing industry and propelled us to leading nation status."

http://www.oregonlive.com/business/index.ssf/2009/09/chinese_solar_startups_take_on_1.html

Is any successful player on the international economic scene practicing protectionism to build up its industry? Yup. Guess who?

"The Chinese government is requiring that 80 percent of the equipment for China’s first municipal power plant to use solar energy, to be built in Dunhuang in northwestern China next year, be made in China."

http://www.nytimes.com/2009/08/25/business/energy-environment/25solar.html

And this:

"China’s currency and trade policies, though highly effective, would be hard for the United States to emulate.

"For instance, government intervention in currency markets has prevented the renminbi from moving appreciably against the dollar in more than 14 months, and has pushed the renminbi down by 18 percent against the euro since March. (Note: This keeps Chinese exports attractive to foreign consumers.)

"Government agencies have been told not to buy imported goods with money from economic stimulus programs unless no domestic alternative is available. Washington has imposed a less restrictive rule, misleadingly known as “Buy American,” requiring that construction materials for the stimulus program be bought from any of the 39 countries that have agreed to free trade in government procurement — which China has not."

http://www.nytimes.com/2009/09/18/business/global/18yuan.html?_r=1&adxnnl=1&pagewanted=2&adxnnlx=1253549840-uRHTqf2bJq1uMeuTfEMeuQ

P.S. As one of the articles above puts it, in pooh-poohing the notion of a trade war, "China and the United States need one another: China needs the U.S. to buy its goods, and the U.S. needs China to buy its debt." Some symmetry!

Nice new blog layout, Jon.Just came back to Phoenix from the Bay Area, where I've been for 4 months talking to smart people. Ran into Andy Conlin Sunday at LGO (much less crowded these days. He told me how the Goldwater Institute sued the City of Phoenix over City North and the case is to be argued in the Az Supreme Court on 9/30. Could put an end to the City's ability to do anything with taxpayer money for economic development. So why don't they just return the money to us and let us take our chances without more policemen?

Just heard this morning that 1 in 5 vacant houses in Phoenix are being bought by investors. Sounds like the bust will be back sooner than we thought!

On a side note, when is the Maricopa Board of Supervisors going to grow a pair? Stapley has been arrested again by Sheriff Joke after all the charges from his last arrest were dismissed. Interestingly, DS is repped by the Federal attorney dismissed by Bush, Charlton.

1 in 5?

"The lure of once-in-a-lifetime deals on bank-owned homes is driving investor purchases, which experts say account for 50 to 70 percent of recent home-buying transactions. Still, it's the ability to generate revenue by renting the homes to tenants - in some cases, previous owners - that makes the properties such attractive investments."

http://www.azcentral.com/business/realestate/articles/2009/06/12/20090612biz-rentalhomes0612.html

Incidentally, close to 40 percent of all home sale transactions are foreclosures. Normal range is 3 to 5 percent.

http://www.azcentral.com/business/realestate/articles/2009/08/28/20090828biz-resales0829.html

And:

"The same phenomenon that has driven down home-sale prices appears to be occurring in the apartment market, they said, with cash buyers lowering prices as much as is necessary to attract paying customers."

http://www.azcentral.com/business/articles/2009/09/09/20090909biz-apartments0909.html

Outstanding article, Jon. I was one of many who enjoyed your work on the Republic and knew you were right, about everything. Such a refreshing and stark contrast to those Goldwater hacks. I like to call them the Don't Believe Your Lying Eyes Institute.

I had to chuckle at this: "I love Science Foundation Arizona, too (Ironic that Ireland, its model, crashed in a Phoenix-style real-estate bubble). Too bad the Legislature stabbed it, and the universities, in the back." Yeah, I also love the idea of the Science Foundation, but their director Dr. William Harris, no so much. He gave a speech to the Nucleus Club in Phoenix this past summer and I knew I wasn't going to like him when he started singing the praises of Thomas Friedman and globalization. He said he had the exact same idea for a book as Friedman's The World Is Flat. He got testy with me when I asked why corporate partners of the Science Foundation, such as Intel and APS, were constantly down at the Legislature demanding tax cuts while bemoaning the budget cuts that imperil the Foundation. Dr. Harris didn't like that question. He proceeded to lecture me about George Steinbrenner and Ireland. 'Tis a tragedy when scientists become corporate stooges.

"APS *developed* a (relatively) inexpensive single-track tracking system that gets nearly the efficiency of double-track systems but at half the price. [emphasis mine]"

The key term is "developed". They did not invent the technology, but took ownership of a promising technology that works best at larger scales and could be developed best only at a few select locations that include the APS STAR Center.

APS continues to make its 'investments' in distant, centralized generation. In such a system, transmission losses often nullify efficiency increases for photovoltaics. The 'investments' that Arizona makes in solar energy are paid for by "ratepayers" by ACC mandate.

The ACC is the very same body that allows repressive rate schedules to continue. The mechanism for these repressive rate schedules is detailed on the Rate Crimes Energy Blog: http://ratecrimes.blogspot.com

"He [Dr. William Harris] said he had the exact same idea for a book as Friedman's The World Is Flat"

So, a slow writer with bad ideas is the Director of Science Foundation Arizona? This says a lot about Arizona. At least Friedman has been furiously backpeddling from his myopic vision of the future.

"backpeddling" - pun intended.

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