(SOUNDBITE OF ARCHIVED RECORDING)
ROBERT ZOELLICK: Failure to take decisive action in Europe and the United States may shake the entire global economy, throwing developing countries off track. And they are today's engine of global growth.
(SOUNDBITE OF NEON INDIAN SONG, "FALLOUT")
ROBERT SMITH, HOST:
Hello, and welcome to PLANET MONEY.
I'm Robert Smith.
ADAM DAVIDSON, HOST:
And I'm Adam Davidson.
Today is Tuesday, Sept. 27. And that was Robert Zoellick, president of the World Bank, you heard at the top.
SMITH: Today on the podcast, what do hipsters, bulldozers and Chubby Checker have in common?
DAVIDSON: All right. I'm picturing the most awesome party in Lawrence, Kan.
SMITH: (Laughter). Not really. They actually have nothing in common. It was a totally unfair question, except - except each one of those things, hipsters, bulldozers and Chubby Checker - each one is a perfect example of how certain economic principles work in real life.
DAVIDSON: We're going have a roundup of our favorite PLANET MONEY explainers. That's all in a minute. But, first, the indicator - the patented PLANET MONEY indicator - with Jacob Goldstein.
JACOB GOLDSTEIN, BYLINE: Today's PLANET MONEY indicator, 6.6.
At the current rate, it would take 6.6 months to sell all of the newly built homes that are up for sale in the U.S. Now, I like this indicator - it's called months of supply - because it really gives you a good sense of how supply and demand are working in the housing market. And, you know, during the boom, it went way down. And then at the beginning of the bust, months of supply shot way up. It actually hit more than a year at one point.
Right now, 6.6 months - this is a little bit higher than the long-term average but not much. And it's actually been hovering right around here for several months now, which suggests, at the very least, the housing market is stabilizing.
DAVIDSON: All right. So I want to get kind of excited about this number. Like, it makes me picture, all right, six months - 6.6 months, in fact. So that means by what...
SMITH: It seems doable.
DAVIDSON: It seems doable. November, December, January, February, March, April - April will be - you know, we'll have sold all these homes. But that's 6.6 months on a very low base, right? I mean, there's been very few new homes built. So is this good news? Is it bad news? How should I take this in?
GOLDSTEIN: Well, so, yes, the base is crazy low. In fact, we're on track this year to build the fewest homes on record. And that goes back decades. I think it goes back to the early '60s. So from the point of view of the construction industry, this is bad, right? Construction workers basically stopped building new houses. And they haven't really started again. This is a jobs problem.
But the other side of this is, remember, we've been through five years of falling home prices now. This has been driven in some significant part by the fact that there have been a glut of homes on the market. There have been too many homes up for sale. So the fact that this glut is diminishing, the fact that home prices are stabilizing - that is a good thing.
DAVIDSON: So things have stopped getting worse, which is a crucial step before things start getting better.
GOLDSTEIN: Right. You know, we're sort of bouncing along the bottom here in the housing market, which is not as bad as falling further down into the hole.
DAVIDSON: I should jump into this presidential race. Bouncing along the bottom, Davidson 2012.
GOLDSTEIN: It could be worse.
DAVIDSON: It could be worse.
SMITH: It could be worse.
DAVIDSON: Thank you very much, Jacob.
SMITH: Thanks, Jacob.
GOLDSTEIN: Thanks, guys.
SMITH: OK. Usually, we tackle just one topic on the PLANET MONEY podcast. But today, I will admit it - Adam and I have short attention spans. And so we're going to play a bunch of different stories that we love.
DAVIDSON: What was that?
SMITH: What? Oh, stories.
DAVIDSON: Oh, stories, right. So the PLANET MONEY team - we really have two major jobs. We create this podcast. And then we also create stories every week for Morning Edition and All Things Considered. And we hear from our podcast listeners fairly often that they don't get to hear us if they don't happen to be, you know, near a radio when we're on and that they'd like to hear more of our radio stories on the podcast. So that's what we're doing today.
SMITH: Yeah. So starting off, we'll start with something dramatic, a bank run. Give us the traditional image of a bank run, Adam Davidson.
DAVIDSON: I picture men in long black coats with hats on top of them standing in line in a Depression-era photograph.
SMITH: Breaking windows...
DAVIDSON: Breaking windows, trying to grab cash from Jimmy Stewart.
SMITH: (Laughter) Exactly. But, you know, bank runs as we know these days are not always that dramatic. I mean, sometimes the money almost just sneaks out of a bank. In fact, we've been talking about this on our blog quite a bit. There's a slow-motion bank run that's been going on at big European banks. And Jacob Goldstein explained it for us on Morning Edition.
(SOUNDBITE OF ARCHIVED BROADCAST)
GOLDSTEIN: Who's causing this slow-motion bank run? In a way, it's us. In your retirement account, you probably have some money in stocks, some in bonds and some in cash. That money in cash - it's not actually a bunch of bills sitting in a vault somewhere. It's probably invested in what's called a money market fund. This is where the invisible run is happening.
David Glocke is a money market manager at Vanguard, where he manages $130 billion.
DAVID GLOCKE: You know, money market managers - we kind of have a bunker mentality, you know? We're not looking to take risk. We're trying to hide from it.
GOLDSTEIN: For a long time, part of the way Glocke hid from risk was by making loans to big, safe European banks. But these days, the banks don't seem as safe as they used to. Those big European banks and especially big French banks have loaned lots of money to Greece and to other troubled European countries. This makes people like David Glocke nervous. If Greece doesn't repay the French banks, the French banks may not be able to repay David Glocke.
How much do you have invested in French banks right now?
GOLDSTEIN: The French banks say people like David Glocke have nothing to worry about. But in the past few months, lots of other U.S. money market funds and other big institutional lenders have yanked hundreds of billions of dollars out of European banks. This slow-motion, invisible bank run has not yet turned into a full-blown panic. But it is worrying enough that, just yesterday, the European Central Bank and other central banks from around the world stepped in.
They told the European banks, if the David Glockes of the world won't lend you the money, we will. This program is scheduled to run for about six months, so it should buy some time for European banks. That could be enough but only if Europe puts together a plan to bail out Greece and the other troubled European countries and only if investors like David Glocke at Vanguard actually think the plan will work.
GLOCKE: I expect at some point when conditions have improved in Europe that we'll begin to invest in those banks again.
GOLDSTEIN: You think six months is enough time? You think they'll have their act together in six months?
GLOCKE: I certainly hope so.
GOLDSTEIN: But if Europe doesn't resolve the debt crisis, this slow-motion bank run is likely to continue. And one key thing about bank runs - they tend to feed on themselves. So what starts out in slow motion can turn into a full-speed crisis.
SMITH: That was PLANET MONEY's Jacob Goldstein.
DAVIDSON: Now, what makes this global, economic, financial crisis so complicated is that you have all these major players battling this crisis - and sometimes in ways that are almost exactly counterproductive. So Jacob was talking about how all these people are pulling their money out of European banks. Now, in normal economic times, if people don't want to give money to save banks, then the banks just increase the interest payment. They give them more money.
SMITH: And more incentive to come back in, yeah.
DAVIDSON: And more incentive to come back in.
DAVIDSON: So maybe the whole world should just work together to increase interest rates. And then...
SMITH: There's one small problem with that.
DAVIDSON: Oh. What's that, Robert?
SMITH: A little something called a recession we went through and bad economic times. And correct me if I'm wrong. But I feel like we made this mistake once before, raising interest rates while the world was being plunged into recession.
DAVIDSON: Exactly. In the Great Depression, what made a recession into a Great Depression, it's widely seen, one of the main players was that the Fed - the Federal Reserve - at the time pushed interest rates much, much higher, which, as listeners to our show know, is a huge drag on our economy.
So at the same moment that banks would love to be able to pay higher interest rates so that people would keep their money there, probably the single-most powerful man in the world of interest rates, Fed Chairman Ben Bernanke, is doing something else. He's running a complex series of operations to lower interest rates. Now, in normal times, the Fed really only controls one major interest rate, the Fed funds rate, just the overnight rate at which banks lend money to each other. But they've pushed that down almost all the way.
So, Robert Smith, you did a wonderful story. We were all laughing and singing along here in the office when you did it. You did a story explaining this thing. And we should tell you that the way the Fed describes this particular type of monetary policy - they call it Operation Twist.
SMITH: Yeah. If only there are music that could go along with that.
(SOUNDBITE OF ARCHIVED BROADCAST)
SMITH: It is not a coincidence that Operation Twist sounds a lot like the dance craze from the '60s because they share a common inspiration, Chubby Checker.
(SOUNDBITE OF SONG, "THE TWIST")
CHUBBY CHECKER: (Singing) Come on, baby. And let's do the Twist.
SMITH: In the early '60s, there was a transformation on the dance floor. Up until then, boys danced with girls by actually holding each other. But after seeing Chubby Checker do the Twist, those kids dropped their hands, moved apart.
(SOUNDBITE OF SONG, "THE TWIST")
CHUBBY CHECKER: (Singing) And go like this.
SMITH: Meanwhile, at the Federal Reserve, the nation's economic leaders were coming up with a different crazy move.
RANDY KROSZNER: Economists know about this as a sort of a famous episode from the 1960s.
SMITH: Randy Kroszner was once a governor of the Federal Reserve. Now he's a professor at the University of Chicago. And Kroszner says that back in the early '60s, the country had some of the same problems we face today, a weak economy and a growing debt. And the Fed thought...
KROSZNER: Well, maybe there's a way to try to bring down the financing costs for the government.
SMITH: The Fed came up with a plan to nudge down long-term interest rates. In fact, they wanted it to be known as the nudge. But come on. Nobody wants to dance the nudge. It became known as Operation Twist after that dance craze.
(SOUNDBITE OF ARCHIVED RECORDING)
CHUBBY CHECKER: (Talking) Hey, everybody. Get in line. We're going to make a twist train.
SMITH: So it's 50 years later. Nobody twists anymore. And Operation Twist was a footnote in Fed history. So why try it again? Well, the Fed has a problem. Usually, the Federal Reserve stimulates the economy by lowering short-term interest rates. If you want more money to flow around the economy, you make borrowing cheaper. But the Federal Reserve has already driven those short-term rates down to almost zero.
KROSZNER: They've been hammering at that pretty hard. So they're looking for an additional hammer.
SMITH: The Fed needs another trick to perk up the economy. And, all of a sudden, that old dance was back in fashion.
(SOUNDBITE OF SONG, "LET'S TWIST AGAIN")
CHUBBY CHECKER: (Singing) We're going to do the Twist. And it goes like this. Come on. Let's twist again like we did last summer. Yeah...
SMITH: So The Twist tries to twist down the interest rates on longer-term loans. And the Fed does this by buying and selling Treasury bonds out in the marketplace. They basically sell a bunch of short-term bonds that they have lying around. And the Fed will use that money to buy up a bunch of longer bonds, say, 10-year Treasury bonds. And that demand helps push the interest rates down.
KROSZNER: Ten years because a lot of home mortgages are very closely associated with the 10-year rate.
SMITH: If the Fed tries the Twist again, and if it works like it's supposed to, then it should get even cheaper to get a mortgage or to take out a business loan. And people will start to spend again. But there are no guarantees. I mean, just think about houses. There are a lot of reasons why people don't buy homes. Maybe they fear losing their job. Or they think that prices are still heading down.
KROSZNER: The interest rate is one very important price. But it's not the only one.
SMITH: The consulting firm Macroeconomic Advisers ran the numbers to see if the Twist will work. If the Fed buys enough bonds, they figured that something like 350,000 jobs will be created over the next two years - not bad but pretty modest. Antulio Bomfim is one of the economists who did the study. And he says there's only so much the Federal Reserve can do by just manipulating the interest rates. He says the Fed is like Chubby Checker dancing by himself without any help from Congress or the president.
ANTULIO BOMFIM: Monetary policy cannot do this alone in terms of helping bring the economy back to a better footing at a faster pace.
SMITH: Yeah. So perhaps the Twist is the wrong metaphor here because the Federal Reserve needs a partner.
BOMFIM: Needs a partner. It does.
SMITH: They needs to waltz or something.
BOMFIM: Yes. Yes. Yeah, that's a good one.
(SOUNDBITE OF STRAUSS II'S "THE BLUE DANUBE")
SMITH: But until Congress and the president and the Federal Reserve stop stepping on each other's toes, there's not going to be any waltz. The Twist is just about the only move the Fed has left.
(SOUNDBITE OF SONG, "TWIST AND SHOUT")
BEATLES: (Singing) Baby, now. Shake it up, baby. Twist and shout. Twist and shout. Oh, come on...
DAVIDSON: Robert, I have to say among the many things I admire so much about that story is you actually pulled off using the music to make a point. It wasn't just a cheap gimmick.
SMITH: Oh, it started out as a cheap gimmick. But in the end, I made it make a point. That's the secret (laughter).
DAVIDSON: Right. No. No. I know you would've been perfectly happy to make - to use it as a cheap gimmick.
SMITH: I have no problem with that whatsoever.
DAVIDSON: Yeah. Yeah. It was really fabulous. But I feel like you - I missed something. So you said they did this in the '60s. And now they're copying it. Did it work in the '60s?
SMITH: You know, this is one of the most amazing things about this story because, as you know, we like to treat economics like it's a science, right? It's 50 years later. And there's not, in fact, very much agreement about whether the Twist accomplished what it set out to accomplish in the 1960s.
As you well know, Adam, there are so many factors going on in an economy. It's almost impossible to isolate just one move of the government or the Fed. And for a long time, economists said, yeah, the Twist didn't really work in the 1960s. But very recently, an economist with the Fed came out with another version of the study. And he did a very minute analysis and found that, in fact, if you look sort of in the days after the Fed actually went out and bought these, they did, in fact, manage to nudge - I'll use their term - nudge down long-term interest rates a little bit for a little while.
DAVIDSON: The very fact that people are still arguing furiously over 1960s-era monetary policy decisions just reminds me how ridiculous people are when they just confidently insist, this economic policy is a disaster, or this one is going to solve everything. I mean, in 2060, we're still not going to know whether Ben Bernanke is doing a good job now or not.
SMITH: OK. So let's leave theory behind and move out into the real world. We're going to see how things are actually existing out there in the country. Last spring, our colleague Chana Joffe-Walt, who is on maternity leave right now, as you may know - she traveled out to Youngstown, Ohio. And you've been there, right? Or you've been around this section of Ohio, right?
DAVIDSON: Yeah. Yeah. It's one of those classic Rust Belt cities - you know, once-thriving steel mill town. You've seen the movie. The young people move away for a better opportunity. It becomes more and more depressed. But then in 2006, the city leaders had a brilliant plan. Forget growing our way back to dominance. Let's just give in. Let's just accept that we're going to be a smaller city from here on out. Here's Chana.
(SOUNDBITE OF ARCHIVED BROADCAST)
CHANA JOFFE-WALT, BYLINE: Before 2006 and the bold plan, there were other ideas. Or, rather, multiple variations on the same idea. Youngstown was going to replace the steel industry with a car factory. That never happened. OK. With a NASCAR racetrack. Nope. With a riverboat casino? Never materialized. Same deal with a blimp factory that was supposedly going to open by the airport. Here's Mayor Jay Williams.
JAY WILLIAMS: That was the mentality. It was grasping for straws. If you came in with what seemed to be a even marginally viable economic idea, there was a rush to make that the thing that was going to save Youngstown.
JOFFE-WALT: In 2006, though, the city abandoned all that. Actually, the city walked away from the most fundamental assumption of economic development of city planning, the idea that a city needs to grow. Here's Bill D'Avignon, head of Youngstown City Planning.
BILL D'AVIGNON: We needed as a city to recognize that we're a smaller city. We're not going to grow. We're never going to be the Youngstown that we thought we were going to be. And we needed to start to make decisions based on being a smaller city.
JOFFE-WALT: A smaller city of 82,000 people, according to the 2000 census. So they wrote a plan called the Youngstown 2010 that essentially said let's stop obsessing about growth by the 2010 census and instead focus on maintaining the population we have. But without the dream of growth, Youngstown just had a bunch of empty houses that everyone had now accepted no one was ever coming back to.
DOLORES MARIE: They take the thing and just knock the home down. You know, the bulldozer knocks 'em down. Tear 'em down every time.
JOFFE-WALT: This is Dolores Marie. She's 83 years old and lives on the southwest side of Youngstown. In six years, the city demolished nearly 2,000 abandoned buildings, mostly empty homes. Dolores has seen most of her block razed.
MARIE: Whenever they decide to do it, they might knock down maybe two or three in the run of that week. And then they'll move down to another section and just do the same thing.
JOFFE-WALT: The problem with shrinking cities is that they don't shrink in a smart, organized way. It's chaotic. Thousands of people will leave one neighborhood, and maybe five or a dozen people will stay behind. So Youngstown has been offering financial help for those people left behind, offering to move them to a place with more neighbors. Here's Bill D'Avignon again, the city planner.
D'AVIGNON: The theory is, is that streets could be closed, the infrastructure no longer needed, trash would not have to be picked up in that area.
JOFFE-WALT: That would save the city a lot of money. But nearly everyone responded to the offer to move the way Delores did.
MARIE: I said, I have six kids I raised here. And I said, another thing, I've been here - I don't even feel right moving into any other neighborhood. I want to be here.
JOFFE-WALT: So the plan is moving a little slower than expected. Bill says, eventually, the people left in these neighborhoods will move or they'll pass away, and no one will come take over their houses. Then the city could close entire neighborhoods. But no one claims the plan has been wildly successful so far. The new Ohio 2010 census numbers came out. Youngstown's population shrank by 18 percent in the last decade.
D'AVIGNON: You know, our goal of maintaining a mid-sized city we haven't been successful at. We continue to lose population. We can't force people to stay in the city of Youngstown.
JOFFE-WALT: They can just follow the people who leave with their bulldozers, take down their homes and hope that the population does eventually stabilize while there's still some city left to enjoy.
(SOUNDBITE OF MUSIC)
SMITH: That was our very own Chana Joffe-Walt. So we've done Chubby Checker. We've done bulldozers. Finally, today - hipsters. And, you know, it's easy to look at the story of Youngstown, Ohio and say, God, you know, like, what an unlucky place. They just bet wrong, right? You know, they thought steel was going to be big forever. They thought they could compete forever. They bet on the wrong industry. And now there's not much they can do. But I know, Adam, like, you did a project with Wired magazine this summer that said, you know what? Cities can control their own destiny a little bit. Right?
DAVIDSON: Yeah. It was actually a fascinating project to work on. It was the cover story of Wired, the June issue. And then we did a series of radio stories. We'll play one of them here. And what we learned is that amidst all the misery, all the bad economic news, there are these pockets of real economic growth in America, pockets where jobs are growing, new businesses are thriving. And the city that really crystallized it to me was a total surprise. When I say Omaha, Neb...
SMITH: I think corn and cornhuskers and interstate freeway going through 'cause that's just about the only time I've seen it. So.
DAVIDSON: Well, that's what I would have thought. Except, it has become this model of the new creative city, a city built around the creative energies of young, hip, ambitious professionals who are making a good fortune there.
SMITH: And, on Morning Edition, you took us there.
DAVIDSON: I'm at one of the more interesting cultural events I've been to in years. Wait. Shh. It's about to start.
UNIDENTIFIED PERSON #1: (Whispering) We've got waters for you guys. Letha (ph) lives in Brooklyn. Leslie (ph) lives in San Francisco.
DAVIDSON: We're in a new art house movie theater in Omaha. Fellini's masterpiece "Amarcord" is playing.
(SOUNDBITE OF FILM, "AMARCORD")
DAVIDSON: OK. It's over. Now, a group of artists from around the world are going to discuss how their work compares to this celebration of small-town Italian life.
HESSE MCGRAW: I'm Hesse McGraw. I'm the chief curator at the Bemis Center. I think I know almost all of you.
DAVIDSON: This movie theater, Film Streams, is a marvel. It's brand-new, gorgeous and only plays sophisticated independent film. Next door is the Slowdown. Esquire magazine called it the best indie rock club in the country.
JASON KULBEL: So this is the club, Slowdown. Let me get some lights on over here.
DAVIDSON: Like Film Streams - like really most of the things that are really cool in Omaha - this club, the Slowdown, is very new. It's basically two giant spaces. One, a big bar area with lots of tables and stools, and then you turn a corner, walk down some steps, and there's the stage and the dance floor.
KULBEL: This side over here is kind of the dream, if you will. This is, you know, kind of what we envisioned when we built the place.
DAVIDSON: This is Jason Kulbel. He owns and runs the place, which is the cultural heart of the new Omaha. While I was there, I met some architects, several Web designers, all of whom said they moved back home to Omaha at least in part because of this club and the movie theater next door. They're part of this remarkable wave. Omaha has seen the reverse of its long history - young professionals moving back from big cities. It all started with these young guys and some surprisingly good music.
(SOUNDBITE OF CURSIVE SONG)
DAVIDSON: Back in the 1990s, there was a small underground music scene centered around the sketchy and possibly illegal club, the Cog Factory. Local kids played what became a well-known sound, Omaha indie rock. This is one of the best-known bands, Cursive. Other big bands were Bright Eyes, The Faint. But Omaha just was not the kind of place to nurture a music career. Omaha always had been a town devoted to business. First it was fur trading then the stockyards and the railroads. Folks who wanted culture in their life tended to move to bigger cities - Minneapolis, San Francisco, New York. Jason's college buddy, Robb Nansel, convinced a few of the bands to stick with his local label, Saddle Creek Records. But then they had nowhere in Omaha to play. The Cog Factory was shut down because it had never paid any taxes. Jason and Rob decided that Omaha should have a music venue, some cheap place for bands to play. They looked at a bowling alley, some abandoned warehouses where the toilets sometimes worked. They spent a long time in a battle with a community group scared of these young punks ruining the neighborhood. This is Robb.
ROBB NANSEL: It took eight years or something like that before it became a reality. And so obviously the idea morphed from, like, being a rundown warehouse space to what we just walked through.
DAVIDSON: In those eight years, Jason and Robb grew up. They learned how to be businessmen, how to work with a bank, with real estate developers. They borrowed several million dollars and built this new complex. Opening the Slowdown and Film Streams created this community of artists. It caught the attention of local developers. They spent hundreds of millions in the neighborhood creating live-work spaces, cool offices in reclaimed warehouses, a bunch of nice new restaurants. One developer said that those three friends, Jason, Robb, and Rachel Jacobson, who built the movie theater, have brought at least a hundred million dollars in value to the city. But Jason assures me, they're still cool. They didn't get any of that money. They're all still broke.
(SOUNDBITE OF MUSIC)
SMITH: That was PLANET MONEY's Adam Davidson. So, Adam, after hearing both of those stories, do cities have a choice? I mean, can you choose to go in the direction of Omaha or Youngstown? Is that something that you can control your destiny?
DAVIDSON: You know, I spent a lot of this year asking that question, trying to figure out to what degree can city governments, county governments, state governments, federal governments control their own economic destinies? And, I have to say, you know, good policy helps a lot. Coordinating public-private partnerships, all that stuff can help a lot. But at the end of the day, I think it's much more luck than planned.
(SOUNDBITE OF NEON INDIAN SONG, "FALLOUT")
SMITH: We'd love to hear what you think about this special podcast where we collect stories from the radio and bring them to you. Drop us an email. Planetmoney@npr.org.
DAVIDSON: Or, you can talk to us through the blog, npr.org/money. I'm Adam Davidson.
SMITH: And I'm Robert Smith. Thank you for listening.
(SOUNDBITE OF SONG, "FALLOUT")
NEON INDIAN: (Singing) If I could fall out of love with you. I need to fall out of love with you. Wish I could...
NPR transcripts are created on a rush deadline by Verb8tm, Inc., an NPR contractor, and produced using a proprietary transcription process developed with NPR. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.