Tuesday, 8 February 2011

Is it time to challenge the Forbes' Miserable Cities List

Stockton is back on top of the Forbes’ Misery Index, but now it has company.  The Index expanded to 200 metro areas, tweaked the formula by adding some housing market indicators, and now the heart of the Central Valley occupies 4 of the top 5 spots.  Modesto and Merced are new to the rankings and joined the top 5, and Sacramento moved “up” from 17 to 5.  Welcome to the misery club, valley neighbors.

The Sacramento Bee quoted me a few times in a story, including this…

 "That misery index is a slap to the face,“ said Michael, whose campus is in Stockton. "We’ve been dealing with it in Stockton for years, and it’s a contrived thing.”
I am not one to sugar coat the problems with the valley economy.  The data is indeed the data. However, the Forbes index is now starting to do real harm, and I have a few issues with the indicators they selected. A few small adjustments would change the list a lot, and I think make it better. Here are some suggestions…

Economic Indicators:

There is no measure of income, which is a major oversight, it should be first on the list.  Median household income in the Stockton area is about equal to the national average.

In addition to economic well-being, the unemployment rate also measures demographic attributes such as age and race that are strongly correlated with labor force participation.  Hard-working Valley folks are less likely to drop out of the workforce and this impacts the unemployment rate.  Indeed, the labor force has kept growing in the Valley as the unemployment rate rises, whereas it has fallen off due to discouraged workers in other areas.

Housing Indicators:

The Valley was crushed by the inclusion of housing market indicators this year, 3-year change in home values and foreclosure rates.  Are these the right indicators?  No, they are redundent and highly correlated.

If these indicators were included 3 years ago, the Valley would have fared well, since we were at the top of the price appreciation lists.  That is why this is a stupid indicator, the size of the drop just measures the size of the bubble - as does foreclosure rates - and it would have provided a false positive signal a few years ago.  I would not completely eliminate these, the real estate roller coaster certainly has certainly created misery, but our housing indicators should measure both leval and change.

There should be a measure of the current level of housing costs, not just the rate of change.  Perhaps something like the Wells-Fargo Housing Affordability Index which compares housing costs to incomes.  Back in 2005-06, Stockton was one of the least affordable places in the country.  Now it is about average, a little above average in fact.

Taxes:

Forbes’ includes the top income and sales tax rates in it’s index.  Why are they ignoring property tax rates, the other big tax relied upon by state and local governments?  Property tax rates are lower in California than many of Forbes’ preferred locales, and sales tax is a tool areas use to extract taxes from visitors (ask Florida and Nevada).

It would be good to have a measure of overall tax burden, taxes as a % of personal income in addition to the top rates.  The high marginal rates are a problem in California, and I don’t have an issue with highlighting them, but two measures of top tax rates are repetitive.  I would take out one of the tax rate measures (or perhaps combine the top rates into some type of index), and add a measure of overall tax burden. 

Other Indicators:

Forbes also includes weather, crime, traffic congestion, political corruption, and sports teams records on their indicator list.  I don’t have a problem with this, especially weather, crime and traffic.  I do suggest adding some indicators of the youth and vitality of a region.

I would definitely add the average age.  We should penalize cities for being old and miserable.  The Valley would do well here.

I wonder about adding a measure of diversity.  It definitely adds vitality and richness to a city, but I am not sure how to measure it and whether it would make the index look like a liberal, pc, college professor creation.

Summary of Suggested Changes:

Out:  3-year decline in home prices, sales tax rate, political corruption, sports records.

In:  Median household income, housing affordability, overall tax burden, age.

Keep:  Unemployment rate, Foreclosure rate, income tax rate, weather, crime, commuting time.

In the past, I tried to ignore this Forbes list (tough since everyone asks me about it), but I am now sufficiently annoyed that I think I will assign a student intern to compiling some alternative indicators and creating our own version of a misery index.  We have problems, and certainly Stockton won’t rank high, but I wonder who would be number 1 and what cities would move up and down if we made these changes. 

Have a suggestion for indicators that should go in or out?  Please put it in the comments or email us at
forecast@pacific.edu.

Update:  Greg Basso fights back. 

About the Author

Ethan Jacob

Author & Editor

I am Ethan Jacob Executive Director of the Center for Business and Policy Research at the University of the Pacific, where I have a joint faculty appointment in the Eberhardt School of Business and the Public Policy Program in the McGeorge School of Law..

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