The Climate Money Trail

One of the most lucid recent commentaries that addresses the question of climate politics and money is by Australia’s Joanne Nova, who posted “The Money Trail” on March 4th. As we wonder again whether the consensus of scientists regarding climate change – if there ever was such a thing – is now unraveling in the wake of climategate, glaciergate, amazongate, methanegate, etc., it is important to also take another look at the money trail.

My own position on climate change has been consistent for many years. Back in 1995, when I launched www.ecoworld.com, I was determined, among other things, to present both sides of the climate change debate. A post from 2008 entitled “Environmentalist Priorities and the Global Warming Scare” offers links to dozens of reports EcoWorld published on the issue of climate change. These reports provide ample references to primary sources of data, and document a growing conviction that anthropogenic CO2 emissions have little to do with any recent climate change, that predictions of impending catastrophic climate events are improbable, and that the cure is worse than the disease. But what about following the money?

A June 2009 CIV FI post entitled “The Climate Alarm Industry” lists several reasons why it is ludicrous to accuse climate skeptics of being motivated by financial incentives, when the financial incentives to be a climate alarmist are several orders of magnitude greater:

Financial incentives to promote anthropogenic CO2 as a dangerous pollutant:

– Insurance companies charge higher premiums
– Fossil fuel companies keep prices (and profits) high
– Politicians enact new taxes
– Public sector entities get new taxes to fund their pensions
– Environmental organizations get more funds
– Left wing activists get a new basis to attack private ownership
– More public sector funded jobs are created
– Lawyers have a new basis to file lawsuits
– CPA firms begin to audit carbon accounting
– Wall street gets to trade emissions credits
– Climate researchers get more grant requests funded
– United Nations bureaucrats get a guaranteed revenue stream

Before quoting some of Joanne Nova’s astute observations on this same topic, here are three articles by Dr. Richard Lindzen, a professor of atmospheric science at MIT who is one of the most credible climate skeptics in the world. These articles are interesting both because they summarize and debunk many of the scientific arguments in favor of climate alarm, but also because they document in great detail the politicization of the academic community in favor of alarm. Read “Is There a Basis for Global Warming Alarm,” “Climate Science – Is it Currently Designed to Answer Questions,” and “Why Global Warming is Unlikely to be a Safe Area for Investment.”

In “The Money Trail,” Nova quantifies some of the financial incentives motivating climate alarm. Consider these points:

“The US government spent $79 billion on climate research and technology since 1989 – to be sure, this funding paid for things like satellites and studies, but it’s 3,500 times as much as anything offered to sceptics. It buys a bandwagon of support, a repetitive rain of press releases, and includes PR departments of institutions like NOAA, NASA, the Climate Change Science Program and the Climate Change Technology Program. The $79 billion figure does not include money from other western governments, private industry, and is not adjusted for inflation.”

“What the US Government has paid to one side of the scientific process pales in comparison with carbon trading. According to the World Bank, turnover of carbon trading reached $126 billion in 2008. PointCarbon estimates trading in 2009 was about $130 billion. This is turnover, not specifically profits, but each year the money market turnover eclipses the science funding over 20 years.”

“Commissioner Bart Chilton, head of the energy and environmental markets advisory committee of the Commodity Futures Trading Commission (CFTC), has predicted that within five years a carbon market would dwarf any of the markets his agency currently regulates: “I can see carbon trading being a $2 trillion market.” “The largest commodity market in the world.” He ought to know.”

“Unpaid skeptics are not just taking on scientists who conveniently secure grants and junkets for pursuing one theory, they also conflict with potential profits of Goldman Sachs, JP Morgan, BNP Paribas, Deutsche Bank, HSBC, Barclays, Morgan Stanley, and every other financial institution or corporation that stands to profit like the Chicago Climate Exchange, European Climate Exchange, PointCarbon, IdeaCarbon (and the list goes on… ) as well as against government bureaucracies like the IPCC and multiple departments of Climate Change.”

Joanne Nova, like any responsible skeptic, has done her homework. Here is her take on the actual science of climate change:

“And as far as evidence goes, surprisingly, I agree with the IPCC that carbon dioxide warms the planet. But few realize that the IPCC relies on feedback factors like humidity and clouds causing a major amplification of the minor CO2 effect and that this amplification simply isn’t there. Hundreds of thousands of radiosonde measurements failed to find the pattern of upper trophospheric heating the models predicted, (and neither Santer 2008 with his expanding “uncertainties” nor Sherwood 2008 with his wind gauges change that). Two other independent empirical observations indicate that the warming due to CO2 is halved by changes in the atmosphere, not amplified. [Spencer 2007, Lindzen 2009, see also Spencer 2008]. Without this amplification from water vapor or clouds the infamous “3.5 degrees of warming” collapses to just a half a degree — most of which has happened.”

With a citizen’s initiative entitled the “California Jobs Act” currently working its way onto the November 2010 ballot that will suspend implementation of California’s “Global Warming Act,” it will be interesting to see what arguments the opponents of suspension will muster. Will they accuse skeptics of being “flat-earthers,” or call them even worse names? They would be better advised to rejoin the scientific debate, if they value their credibility. Will they accuse the skeptics of “following the money?” Because in that regard they will be making a terrible mistake. The bigger money trail is not hard to see – and is yet another example of Wall Street collusion with big government. To wrap up, here is Joanne Nova’s take on the attacks made on climate skeptics:

“The starkly lop-sided nature of the funding means we’d be fools not to pay very close attention to the evidence. It also shows how vapid the claims are from those who try to smear skeptics and who mistakenly think ad hominem arguments are worth making.”

No Profits, No Pensions

California Gubernatorial candidate Jerry Brown knows he’s in a fight. His presumptive Republican opponent, Meg Whitman, not only is doing a good job presenting herself as a socially moderate, fiscally conservative candidate, but she has abundant personal wealth she can tap in order to finance her campaign. So Jerry Brown has to turn to the only reliable source of campaign cash out there, the public employee unions.

In Joel Fox’s report of March 22nd entitled “Brown Embraces the Public Unions,” Fox quotes Brown as saying “California’s fiscal problems are not the unions’ fault but that of Wall Street and corporations.” Get ready for a campaign season filled with more bashing of corporations. And here are some reasons why this rhetoric is absurd, nihilistic, corrosive, deceptive, utterly bankrupt, and at least to-date, tragically effective:

Public sector unions are by far the most powerful source of campaign cash in California. They can pretty much spend as much as they want to make sure their candidates get elected, and their opponents are defeated. Without these unions, Jerry Brown wouldn’t have a chance against Meg Whitman. But is Brown only singing the union song in order to get their financial support? After all, in late February 2010, in a closed meeting with a group of California business leaders, Brown admitted the single greatest mistake he made as Governor back in the 1970’s was his decision to sign legislation allowing public sector workers to unionize.

Public sector unions have successfully convinced Californians that Wall Street and corporations are basically to blame for all the problems in our society – from deficits to poverty, from bad public policies to social injustice. But public sector unions are in bed with Wall Street. In the United States, there is no source of new investment capital bigger than public employee pension funds – most of it flowing through Wall Street brokerages. The public sector unions, through their pension funds and through the state and municipal governments – which they control – worked with Wall Street and enabled Wall Street. It was Wall Street who packaged the investments that public pension funds purchased – and it was Wall Street and the public sector unions who, more than anyone, wanted to believe they could earn 8.0% annual returns forever.

That’s not all. In 2006, California’s legislature, controlled by public employees, enacted AB32, California’s “Global Warming Act.” Already, agencies and utilities throughout California are tacking “global warming mitigation” fees into their billings. And in less than two years, when AB32 takes full effect and California starts auctioning tradeable CO2 emission allowances, it is Wall Street firms who will broker these CO2 allowances, and it is Wall Street who will package all the CO2 “offset” prospectuses. Read the “scoping plan” from CARB, which lays out how AB32 will be implemented. You will learn how CO2 “offset projects” – which will receive the proceeds of the CO2 emission allowance auctions – will earn reimbursements by how much they reduce CO2 emissions. For example, by mandating even more draconian high-density than we already endure here in California, municipalities will be able to calculate the emissions they have saved relative to “sprawl,” and collect annual reimbursements. Pet projects that create jobs at taxpayers expense for union workers, such as light rail, will go in regardless of practicality, and also receive carbon offset funds calculated on the basis of their potential to reduce CO2 emissions. California’s global warming act, which will do nothing to address alleged global warming, is a scheme, hatched by public sector bureaucrats to transfer more money from taxpayers into the government. And Wall Street will stage-manage the entire process – making billions in fees.

When Jerry Brown, on behalf of public sector unions, demonizes Wall Street, he’s being a blatant hypocrite, but at least he has a point. In the case of industrial corporations who want to employ people and build actual products, however, Brown and the public sector unions have no point. According to Brown and the unions, if only corporations would behave themselves and pay their “fair share,” all of our problems would disappear. Where is the logical end-point of this nonsense? The last politician to tell the truth about taxes and corporations probably was Ronald Reagan, who correctly pointed out “corporations don’t pay taxes, because they pass the taxes through to the consumer as a cost – ultimately it is individuals who pay taxes.” The public sector union’s answer to this truth, observed by Reagan and confirmed by history, is for government to simply reduce corporate “profits.” If the corporations were forced to make less in profit, supposedly they could afford to pay higher taxes AND charge a fair price to consumers for their products. But profits are the life-blood of economic growth and wealth creation. Without profits, there is no reinvestment in equipment and upgrades, no research and new product development, no new job creation, no dividends to shareholders, and no stock appreciation which provides the return to public employee pension funds. No profits, no pensions. And in any event, corporations in California are beat down, intimidated by public sector unions and environmentalist attorneys, reeling from the effects of recession and the impact of excessive, punitive regulations. California’s business community has been practicing appeasement with the public sector unions and environmentalist attorneys for years – they cower like Théoden, King of Rohan, wasting away, corrupted by fear, waiting for Gandalf and Aragorn to awaken him before all is lost. But we live in California, not Middle Earth.

What public sector unions ought to know, and cannot admit, is that tax revenues they collect and allocate, especially through public pension fund investments, are the engine that fuels Wall Street, and they are as responsible as anyone else in this economy for the excesses and abuse of the financial sector in America. What they also should know, as they watch their pension funds crumble, is the fiscal policies they have forced onto compliant politicians are unsustainable and are cannibalizing the wealth of the country. To distract voters from this financial fact: that California’s public sector bureaucrats, on average, now make 50% more in base pay, 100% more in current benefits, and 200% more in retirement security – compared to the taxpayers who now serve them and pay for this hideous inequity – public sector unions and the candidates they control must preach the politics of resentment and envy, hatred of wealth and environmental panic, corporate demonizing and phony Wall Street bashing. They must brainwash our children in their union-dominated public schools, and bamboozle our electorate through their massive campaign advertising, so they can continue to feed for a few more years on the ailing carcass of what was once the greatest free-market economy in the history of the world.

For more on public sector unions and government solvency in California, read:

The Razor’s Edge – Inflation vs. Deflation, March 15th , 2010

Pension Rhetoric vs. Pension Reality, February 24th, 2010

California’s Union Ballot Initiatives, February 18th, 2010

Sustainable Pension Fund Returns, February 2nd, 2010

California’s Personnel Costs, January 24th, 2010

Maintaining Pensions Solvency, January 9th, 2010

Real Rates of Return, June 26th, 2009

The Razor’s Edge – Inflation vs. Deflation

Deficit spending has been touted as a potential driver of inflation, because only with devalued (inflated) currency can we hope to erode the real value of our mounting levels of government debt. Continuing to print U.S. dollars, it is claimed, can only lead to too many dollars in the system, and hence a devalued dollar. We should be so lucky.

A few years ago, in Sept. 2007, in a post entitled “Inflation vs. Deflation,” I cited a recent (at the time) quote from Paul Kasriel, an economist with The Northern Trust Co. in Chicago. He explained the danger of deflation quite well, describing what happened in Japan:

“Japan experienced a deflation in recent years because the bursting of its asset-price bubble in the early 1990s created huge losses in its banking system. The Japanese banks had financed the asset-price bubble. When it burst, the debtors could not keep current on their loans to the banks and therefore were forced to turn back the collateral to the banks. The market value of the collateral, of course, was less than the amount of the loans outstanding, thereby inflicting huge losses of capital to the Japanese banks. With the decline in bank capital, the Japanese banks could not extend new credit to the private sector even though the Bank of Japan was offering credit to the banks at very low nominal rates of interest.”

Another way to put this is as follows: Liquidity is a function of two factors, money supply and collateral. But the impact of available collateral is far more critical to maintaining liquidity than the money supply. Let’s suppose the entire privately held asset base of the United States is 25 times GDP – it’s probably worth much more than that, but let’s use these multiples – this suggests that the total private collateral in the U.S. is worth nearly 400 trillion dollars. On the other hand, let’s suppose the combined deficit spending – otherwise known as “stimulus” spending – in the U.S. is 10 trillion dollars per year – it’s much less than that, at least so far. Yet this 10 trillion dollars, in terms of liquidity, is a mere trickle compared to the value of the collateral, which is the basis of credit lending. What happens if entire sectors, such as the housing sector, decline in value by 50% or more? What if the entire asset base of the U.S. declined by 50%? Can a ten trillion dollar annual trickle of newly minted dollars make up for a decline in the borrowing base (the asset base) of 200 trillion dollars? No chance. This is what happened in Japan in the 1990s, this is what happened in the United States in the 1930s, and this is the specter we face today. Deflation is the devastating scenario that every fiscal and monetary policymaker in the United States is doing everything they can to avert. Inflation would be a cake-walk by comparison.

To further understand why deflation looms as a greater threat to the U.S. economy than inflation, consider what additional bubbles still remain in the U.S. economy. Two huge sectors come immediately to mind – the municipal bond market, and the commercial real estate market. Municipal bonds are at risk of default because public entities, nearly everywhere in United States, are on the verge of bankruptcy. The reason they teeter on the edge of bankruptcy is because these public entities have negotiated pension and compensation plans for public sector workers that are far more generous than anything available to ordinary workers or professionals in the private sector, and these inordinately expensive personnel costs have now far outstripped the willingness or the capacity of taxpayers to pay through even higher taxes. Barring dramatic and immediate reforms – lowering compensation and benefits in order to eliminate these deficits – municipal entities in much of the United States are on a collision course with bankruptcy. If they default on their bond payments, the value of municipal bonds will collapse. Meanwhile, investment has been pouring into bonds as the returns on equities have corrected. The bond market in general, and the municipal bond market in particular, is a massive asset bubble that is on the verge of bursting.

The commercial real estate market is in similar danger. Currently landlords are enduring high vacancies but are, in general, refraining from releasing space at lower rates. They know that if they lower leasing rates for their space, this will cause the value of their commercial property to be reassessed, reducing the amount of collateral their property will support. This reduction, in turn, will trigger calls for principal reduction payments by banks who service the mortgages on these properties, since lowered property values can put property owners into default on their loan covenants. A similar situation already exists with residential properties, except in this case instead of tolerating vacancies to keep rates high, banks are holding foreclosed properties to avoid flooding the market which would cause the price of residential real estate to drop even further. It is difficult to overstate the threat of deflationary impacts if any these precarious situations snowball, once a breach occurs.

Another potential bubble of staggering magnitude is the public employee pension funds. It is ironic, that public sector unions, who pretty much control the messaging in elections (which they buy, using taxpayer’s money), in our public schools, and through their supporters in the media, have taught the gullible among us to loath capitalism, resent private wealth, and vilify Wall Street, yet their public employee pension funds are now engaging in perhaps the most irresponsible example of casino capitalism yet. Rather than support reducing the bloated pension benefits they are currently obligated to fund, and rather than accept a conservative real rate of return on their investment portfolio of 3.0% per year, the public employee pension funds are engaging in investment activity that is riskier than ever in a desperate attempt to reflate their asset base. Read this from Pension Pulse’s Leo Kolivakis, written on March 9th, 2010, in a post entitled “Public Pension Funds Doubling Up to Catch Up“:

“Private pensions are in no mood to crank up the risk, but public pension funds are back to business as usual, and even looking to leverage up to obtain their magic 8%. Many public plans are still sticking to the motto that more private market assets will lead them out of their troubles. They’re in for a nasty surprise. Last January, I wrote that the alternatives nightmare continues, and I don’t see it getting much better. In fact, as mighty endowment funds like the Harvard Management Company look to unload real estate and other private equity holdings, private markets will likely suffer a long drought, especially since public markets are not going to deliver anything close to what they delivered in the last 30 years. So what are public pension funds doing? Cranking up the risk, investing in failed banks, leveraging up, shoving more money in private equity and hedge funds, whatever it takes to achieve that insane 8% average annual return they’re all still fixated on.”

Bonds, real estate, and pension funds, ultimately, are all collateral – the primary engine of liquidity. Over the long-term, the only way to stabilize the value of collateral is to establish a sustainable positive cash flow. When the financial history of early 21st century America is written, it is interesting to wonder how historians will characterize the behavior of public sector unions, who were indifferent to deficits, who were incestuous with Wall Street, who rode the waves of unsustainable debt and deficit-fueled phony booms to guarantee their members would enjoy magnificent benefits calibrated on bubble values, but contracted to endure even after the bubbles burst. Will the refusal of all-powerful public sector unions to embrace fiscal reform be seen by future historians as contributing to the collapse of the bond markets, the pension funds – and under the burden of new taxes instead of reform, property values, as the nation’s collateral imploded? At the least, it is fair to say that what today’s leadership of public sector unions decide – whether they embrace concessions for the sake of the nation, or not – is one of the biggest opportunities remaining to avert further financial calamities.

Nonpartisan Healthcare Legislation

This phrase, “nonpartisan healthcare legislation,” is an oxymoron, unfortunately, but let’s try. And in the interests of full disclosure, my preference is to see private institutions continue to bear the primary responsibility for providing healthcare in America. So rather than moving healthcare into government-run programs, the primary goal of healthcare legislation should be to rewrite the regulations that govern healthcare. The marketplace can deliver healthcare more efficiently than the government, providing more quality healthcare to more people for less money – but to do this in an equitable manner, good regulations are essential. An earlier post, “Healthcare in America” listed some of these ideas – this post is to elaborate on those and add a few ideas that aren’t getting the discussion they deserve:

(1)  Allow individuals the same tax deductions for their health insurance premium payments as businesses receive. No special breaks or special fees, no ceilings or floors on eligibility for the deduction, nothing. Whatever an individual or an employer spends for healthcare is deductible, and whatever healthcare benefits an individual receives are not taxable.

(2)  Make it easier for associations and organizations to offer group health insurance plans, instead of only favoring companies who may or may not provide an individual a job for life. This is the only realistic way individuals who have the financial means to purchase quality healthcare, but don’t work for a company that has a group plan, to ensure their health insurance won’t be canceled if they get sick.

(3)  Eliminate interstate barriers to health insurance companies so they can operate and compete in every state. This is certain to lower costs – it will increase competition and favor companies who have lower overhead. At the same time, abolish the exemption health insurance companies currently have from anti-trust laws.

(4)  Enact tort reform so malpractice lawsuits are reined in. Not only do the inordinately inflated malpractice insurance premium payments charged to doctors increase overall costs, but even more significant are the costs of over-testing and over-treating as a precaution against lawsuits.

(5)  Enforce right-to-work laws in the healthcare industry nationwide. De-unionize healthcare workers. Or reinvent unions to restore the meritocracy to the workplace and allow management to manage. It isn’t the over-market wages that are the biggest problem with unions – this is something union advocates should appreciate more. Union reformers are equally concerned with the cost of benefits and the work rules. These benefits can cost, when you take into account current benefits plus future retirement benefits – literally more than the actual wages. The irony is that these benefits would cost less if healthcare regulations, and the regulatory environment for all essentials – healthcare, water, land, mineral resources, energy – were optimized to promote development and competition. And when you have a unionized health industry workforce, even more costly than the over-market wages and benefits are the work rules – resistance to more efficient procedures, resistance to reducing headcount, resistance to promotions based on merit instead of seniority, inability to fire incompetent workers, and credentialism, which requires hiring overqualified, overeducated (and hence overpaid) medical staff. These indirect costs are staggering and synergistic. Credentialism, for example, is the union’s answer to the meritocracy, by replacing job performance with credentials as criteria for advancement. Credentialism also creates artificial scarcity, since competent personnel who would respond well to on-the-job training and become exemplary medical technicians and nurse practitioners, are excluded because they lack the requisite degree. This is all a consequence of unions. Labor unions and healthcare do not mix well, if you want to provide quality heathcare to more people at a reasonable cost.

(6)  Require health insurance companies to make one simple disclosure in their pricing schedules, updated every twelve months: “During the most recent fiscal year, our company spent X percent of our total revenues paying claims directly to healthcare providers.” This simple disclosure would add a critical variable to aid in consumer evaluation of every health insurance company in America – because the higher this percentage, the more likely this company would be pricing its health insurance at competitive rates.

(7)  Create a privately administered fund that would insure the insurers to cover pre-existing conditions. Just as plans for seniors such as Medicare Advantage cover the gap between what Medicare pays and what a procedure may actually cost, this fund, which insurance companies would all pay premiums into, would cover the difference between what they would charge a healthy new entrant to their plan and what the premium would be if they were evaluated based on their preexisting condition. Depending on how the rollout of association-based health insurance companies is implemented, this fund might not even be necessary, since group plans are generally prohibited from banning coverage to new applicants with pre-existing conditions. But having a super-fund of this manner could also provide another tier of coverage beyond policy limits, enabling insurers to provide another option for consumers who wish to purchase the ultimate in health care.

(8)  Streamline the approval process for new drugs. In general, the rest of the world adopts drugs, often developed in the U.S., years before the same drugs are approved for use here.

(9)  Recognize we are going to need a multi-tiered system of healthcare in America. Rather than forcing everyone to purchase healthcare, by instead enacting tort reform, allowing interstate competition, and de-unionizing the medical profession, free clinics and quality emergency room care will again be affordable institutions that can be supported through private philanthropy and government grants. This is where people who can’t afford healthcare will get their medical treatment. People of modest means who want better healthcare than this can – either through their employer or through associations they can join – purchase existing HMO coverage, or if they consider healthcare to be a huge priority for their families, they will purchase existing PPO coverage. We don’t have to reinvent the entire industry to get decent healthcare for everyone in America, but we do have to accept that someone who is willing to pay premiums totaling $12,000 per year for their health insurance is going to get access to more medical options than someone who whose gross income is $12,000 per year.

Implementing these nine suggestions would bring down the cost of healthcare at the same time as preserving choice and quality. Something that isn’t acknowledged enough is that proponents of healthcare reform all want the same goals – they want America’s healthcare system to remain solvent and continue to offer more quality healthcare to more people. It shouldn’t surprise anyone that the costs of healthcare continue to go up – every year we can cure more ailments! There is a cost to this ongoing improvement. But by properly regulating a free marketplace, we can have the best of all possible worlds.

The most tragic consequence of all this inaction is there isn’t even incremental reform. Any one of these nine suggestions should be on the table. Some of them probably could get voted into law right now, and perhaps should, one at a time. But in the heat of partisan battle, and in the desire to do everything at once, nothing gets done.

The Once & Future Governor Jerry Brown

Yesterday the 71 year old Jerry Brown made his formal entry into the California Governor’s race. In a three minute announcement posted on www.jerrybrown.org, he highlighted his experience as well as took some indirect shots at his opponents. What kind of a Governor Jerry Brown was, and what kind of a Governor he would make, are an interesting topic for discussion.

Jerry Brown first served as Governor of California in the years 1975 to 1983. Elected when he was only 36 years old, Brown inherited a State that was experiencing one of the best economies in its history. The first efflorescence of the high-tech boom happened during Brown’s years as Governor, it was also the heyday of the west-coast aerospace boom. Other sectors of the State’s economy, from housing to agriculture, and everything in between, had not yet fallen prey to the plague of over-regulation and environmentalist gridlock that has since diminished opportunities in the Golden State. Brown presided over some very good years for California.

Brown is still criticized by mainstream journalists for being Governor when Proposition 13 was passed. This is guilt by association at most, he campaigned hard against the initiative. But when Prop. 13 passed, something happened that is instructive about Jerry Brown – he implemented it with a vengeance. He respected the will of the voters. Something the critics ignore, however, is that Prop. 13 didn’t hinder California’s ability to balance its budget, it was something else Jerry Brown did that caused our current fiscal crisis – his decision in 1977 to sign legislation allowing public sector employees to unionize.

The consequences of Prop. 13, which dramatically lowered property tax rates, have not led to insufficient tax revenue to California’s state and local governments. The culprit is public sector unionization, which has created an over-sized public sector workforce where, on average, workers cost about twice what people doing similar work requiring similar skills might cost employers in the private sector (when normalizing for current benefits and the funding requirements for future health and pension benefits). While this point is open to debate, it is relevant to note that Jerry Brown himself, in a very recent private appearance before a group of California business leaders, admitted the single greatest mistake he made as Governor back in the 1970’s was his decision to sign legislation allowing public sector workers to unionize. This fact – that Jerry Brown understands how the government bureaucrats, through their unions, have themselves taken over California’s the government, buying our elections, controlling legislation, determining their own compensation – is perhaps the most encouraging thing about Jerry Brown. At age 71, Brown isn’t thinking about his next career move. He may decide to take these guys on, and fix what he helped break so many years ago – our democracy.

Brown is rightly praised for having been a tight-fisted Governor, reining in spending even before Prop. 13 was enacted. He is also proven to be tough on crime, not only as Governor but also as Mayor of Oakland. These are formidable credentials for any Democrat running for office against moderate Republicans. But it should be noted that one of the reasons Governor Jerry Brown was able to rein in spending was because he canceled many infrastructure projects that California now desperately needs. California has a system of freeways, dams, aqueducts and power plants that is designed for a state with 20 million people, as the population edges towards twice that. If you are wondering why you are stuck in traffic, enjoying gridlock five days a week, Jerry Brown is part of the reason why.

This brings us to the biggest potential problem with Jerry Brown. Like his contemporary in high California office these days, Governor Schwarzenegger, Brown has bought the entire package of environmentalist extremism. In the name of fighting global warming, along with all the assorted environmentalist imperatives, Jerry Brown is one of the architects of artificial scarcity. This, too, is an assertion that invites in-depth debate, but Jerry Brown has aggressively and consistently supported environmentalist legislation. Here’s the problem with environmentalism when it gets out of balance and goes too far, as it has: It should be the goal of regulated public utilities, and public policy in general, to make resources cheaper, not more expensive. Contrived scarcity is an invention of misguided environmentalists, and it is championed by the rest of the Democratic machine because the funds that are gathered through taxation for “mitigation,” and additionally saved through deferred investment (since every infrastructure improvement is a crime against the planet), flow instead into the pockets of overpaid unionized public sector and public utility employees, who control our government. This connectivity eludes Jerry Brown, at least for now, and for this reason, he is potentially a very dangerous man.

What makes Jerry Brown intriguing is he is a wild card. He is independent-minded, he is intelligent, he is flexible, he is courageous, and he knows the system backwards and forwards. Journalists used to make fun of Jerry Brown for once recommending California start up its own space program. What is so bad about that? It would be a spectacularly better use of funds than overpaying public sector bureaucrats, or continuing self-perpetuating, corrosive entitlement programs. And it would yield spectacular technological spin-offs. Jerry Brown’s willingness to go out on a limb like this makes him a quintessential Californian, and the kind of visionary who could bring California back from the brink.

If Jerry Brown is elected Governor, the real question is not can he do the job, but who will show up? Will Jerry Brown accede to the reality of public sector union power and quasi-fascist environmentalist extremism – the power centers who currently are breaking California to their will, bankrupting us to line their pockets and salve their ideologies, and turning us, basically, into an occupied State? Or will Jerry Brown empathize with the seismic wave of populist sentiment that knows something is wrong, but can’t find coherent expression or clear solutions? Will Jerry Brown provide these answers – by reforming public sector unions, and developing infrastructure designed to reduce the price of resources instead of raising them? Jerry Brown has the capacity to make either of these scenarios our future. How he campaigns may provide clues to how he may govern, or not.