The Boondoggle Archipelago

Across California, there is a growing string of islands, exquisite gems in the urban ocean. Dredged from the pockets of taxpayers, constructed by elite artisans, these pristine islands have been created at stupefying expense. But their beauty is seductive. Spend more!

Each time an island is completed, or even proposed, glowing reports are logged across the land. So fortunate are those who shall live on these islands! So wonderful are those who shall build these islands, and care for their inhabitants! What a magnificent, marvelous thing we have done!

Or have we? From deep within the ocean a seismic wave is building, triggered by reality and propelled by common sense. Because these islands, more properly referred to as homeless shelters, supportive housing, and “low income housing,” are far too small, and far too precious, to ever, ever accommodate every castaway that needs a roof over their heads. They will never offer the required land mass to solve the problem. Instead, history shall know them as California’s Boondoggle Archipelago.

The builders of the Boondoggle Archipelago hide behind laws they won’t try to change, and behind court rulings they won’t challenge, and happily follow the rules. Happily, because the rules are rigged to ensure that the vast majority of California’s homeless and low-income families shall remain forever adrift, and so long as there are castaways, there’s money for the builders.

A short cruise across the urban ocean from north to south, visiting various typical islands in California’s Boondoggle Archipelago, should offer ample […] Read More

The Cost to Taxpayers of Enhancing Sonoma County Employee Pensions

In the early 2000s, along with many other cities, state agencies, and counties in California, Sonoma County enhanced their employee pension benefits.

As of 6/30/2018, Sonoma County’s pension system had $2.7 billion of invested assets, but nearly $3.1 billion in actuarial accrued liabilities. To what extent is its $400 million unfunded liability attributable to the pension benefit enhancements? Put another way, how much have these enhancements cost Sonoma County’s taxpayers?

Just as it is impossible to know with perfect accuracy the amount of a pension fund’s actuarial accrued liability, it is impossible to precisely calculate the cost to taxpayers of Sonoma County’s pension benefit enhancements. There is enough data available in the financial statements provided by Sonoma County’s pension fund, however, to provide credible estimates.

To improve the credibility of these estimates, the assumptions made herein are designed to understate the costs. For example, the impact of the increased cost is not assessed until the year the enhancements were fully implemented. In the case of general Sonoma County employees, that was 2005, and in the case of public safety employees of Sonoma County, that was 2006.

Sonoma County’s original pension benefits were based on the typical annual percentage accrual, multiplied by years worked, with the total percentage multiplied by the final pension eligible salary to calculate the retirement pension. For example, up until 2005, Sonoma County’s general (non-safety) workers would accrue their pension benefit at a rate of 2 percent per year. An employee who worked 30 years would have […] Read More

How Trump Can Declare War on the Homeless Industrial Complex

California’s homeless crisis is now visible to everyone living in the state. Along with tens of thousands of homeless who are concentrated in various districts of the major cities, additional thousands are widely dispersed. If you drive into most major urban centers, you will see their tent encampments along freeway junctions, under bridges, along frontages, beside drainage culverts. Even in very small towns, they congregate by the dozens in parks and parking lots, along the streets and in the alleys. In California’s largest cities, by the tens of thousands, they erect makeshift housing along sidewalks, using tarpaulins draped over shopping carts, tents, boxes. It is completely out of control. Billions have been spent to ameliorate the situation, and these billions have only served to make the situation worse than ever.

It’s hard to identify ground zero for California’s homeless crisis. But the San Francisco Bay Area and Los Angeles County host, between them, well over 100,000 of California’s estimated 130,000 homeless. And in both of those metros, local government policies have utterly failed. This failure is partly because local elected officials are hampered by state laws which make it nearly impossible to incarcerate petty thieves and drug addicts, or institutionalize the mentally ill, and court rulings that prohibit breaking up homeless encampments unless these homeless can be provided free and permanent “supportive housing.”

The state and federal governments have even mandated that providing “housing first,” and getting every homeless person under a roof prior to any allocations of funds […] Read More

CalPERS is Investing in Chinese Companies

On October 1st, 2019, the People’s Republic of China celebrated its 70th anniversary. The centerpiece of their festivities was a massive military parade down the streets of Beijing, and the centerpiece of that parade was China’s newest intercontinental ballistic missile, the Dongfeng-41. This missile travels at a speed of Mach 25, carries multiple nuclear warheads, and can reach the United States in under 30 minutes.

California’s public employees will be pleased to know that their retirement funds have invested in companies controlled by the Chinese military, which manufacture parts for the DF-41 missile, along with a range of aircraft, unmanned aircraft systems, and airborne weapons.

For that matter, these pension funds not only invest in Chinese companies (and index funds, tracked by mutual funds, that are heavily weighted with Chinese companies) directly involved in manufacturing military equipment and surveillance equipment, they also invest in Chinese companies involved directly or indirectly in human rights, labor rights, and environmental protection violations all over the world.

California’s largest public employee pension fund, CalPERS, provides a case in point. In search of the elusive and eternal 7 percent annual return, CalPERS nonetheless foregoes investments in Iran, Sudan, assault rifles, tobacco products, and thermal coal. But CalPERS continues to invest in Chinese companies.

A review of what is still the most recent report on CalPERS investments, dated 6/30/2018, show there is no summary wherein their international investments are subtotaled by country. A keyword search under “China” turns up 172 companies, partnerships, etc., nearly […] Read More

San Francisco’s Prop. A – Expensive Insanity Marches On

The definition of insanity is doing the same thing over and over and expecting different results. – Albert Einstein

There is no solid evidence that one of history’s greatest geniuses ever said this, but its applicability to California’s housing crisis is too big to let attribution get in the way. Because California’s politicians are trying to solve the problem by doing the same thing over and over, and the result is always the same – the problem just gets worse.

One current example of how California’s ruling class continues to attempt fabulously expensive, laughably feeble “solutions” to increasing the stock of “affordable housing” can be found in San Francisco’s Proposition A, “Bond Issue for Affordable Housing.” Voters will decide whether or not to approve Prop. A on November 5th.

One misperception regarding these bonds may be found on the proponent’s website “Yes on A,” where they claim “this $600 million bond will fund the construction of more than 2,800 affordable housing units over the next four years.” This implies a cost of $214,285 per unit. But that’s not even half the story.

The average cost these developers are turning in to construct “affordable housing” and “permanent supportive housing” in California’s big urban areas bottoms out at around $500,000 per unit. For example, in Los Angeles, the Measure HHH bond, approved by voters in 2016, poured $1.2 billion into construction of supportive housing. Three years later, with only a few units ready for occupancy so far, the […] Read More

Towards A Nationalist Economic Policy

Suggesting that managed inflation and currency devaluation are pathways to greater national prosperity is bound to invite howls of derision. But critics may be ignoring factors, which, if acknowledged, might point towards consensus. At the least, it might provoke a more useful discussion.

With that in mind, here are four economic realities in America today:

1 – Despite that the word “fiat” is often used as a term of derision, all currencies are fiat unless backed by redeemable commodities. China is stockpiling gold amidst rumors they may try to tie the Renminbi to gold. Good luck with that.

2 – Throughout history, nations with the ability to sustain capital formation through financial innovation are the ones that succeeded. Prudently managed fractional reserve lending, a financial innovation, enables far more liquidity in the economy.

3 – The biggest engine of liquidity is not printing currency – there’s only about five trillion in actual printed US dollars extant in the world – it is debt formation, backed by collateral, that finances massive projects and asset acquisitions.

4 – American has been on a borrowing binge since the 1980s and total market debt – consumer, commercial and government – now stands at nearly 3.5 times GDP. This level of debt is unsustainable.

On this final axiom there should be agreement. As for the others, concerned observers might agree to disagree. Suffice to say that the economic disruption, and unintended consequences, that would accompany transition to a commodity backed currency […] Read More

Venice Beach’s Monster on the Median

When President Trump arrived in Los Angeles on Tuesday, he had a few words to say about the city’s homeless problem. “We can’t let Los Angeles, San Francisco and numerous other cities destroy themselves by allowing what’s happening,” the president told reporters. “In many cases [building tenants] came from other countries and they moved to Los Angeles or they moved to San Francisco because of the prestige of the city, and all of a sudden they have hundreds and hundreds of tents and people living at the entrance to their office building. And the people of San Francisco are fed up, and the people of Los Angeles are fed up.”

In response, Mayor Eric Garcetti posted a video on social media in which he stated: “It is time for us to pause politics and not to demonize Americans who are on the street.”

Garcetti also warned the president that it’s not possible for authorities to “arrest their way out of the issue.” Instead, Garcetti would like “federal government aid to L.A. with surplus property or money to create additional shelters.”

But Trump better not release a dime of federal money until there’s a federal investigation that exposes how Los Angeles has wasted hundreds of millions on housing for the homeless in one of the most outrageous misuses of funds in American history.

Paradise Lost

To see just how ineffective homeless policy in Los Angeles has been to-date, and how Garcetti’s schemes will only destroy neighborhoods, wasting hundreds of […] Read More

The Enemies of American Infrastructure

Between 2008 and 2019, China opened up 33 high speed rail routes, connecting 39 major cities along four north-south and four east-west main lines. The 18,000 mile network runs trains at an average speed of around 200 miles per hour. By 2030, the Chinese expect to double the mileage of their high speed rail network by expanding to eight north-south and eight east-west main lines. In less than 20 years, the Chinese have completely transformed their rail transportation network.

This is typical for the Chinese. China is also building three new airports – offshore. Dalian, along the north coast opposite the Korean peninsula, Xiang’an, on the central coast facing Taiwan, and Sanya, off the coast of Hainan Island in the strategic South China Sea. All three airports are to be built to the highest international levels, with 12,000 foot runways able to accommodate the Airbus A380, the world’s largest passenger airliner. All three are built on “reclaimed land,” i.e., the Chinese intend to bulldoze a few mountains into the ocean and flatten them into runways. And all three, from start to finish, will be built in under ten years.

China’s ability to construct big infrastructure, fast, is beyond debate. The Three Gorges Project, the largest dam in the world, created a deep water reservoir an astonishing 1,400 miles long. Its hydroelectric capacity of 22.5 gigawatts is the largest in the world. This massive construction project was done, from start to finish, in 12 years.

While […] Read More

Inflation vs Deflation – Only One Choice

Critics of government deficit spending correctly point out that perpetual debt accumulation is not sustainable. They’re right. But before they criticize an economic policy that aims to use inflation to whittle away the real value – and hence the actual burden – of accumulated debt, they’d be wise to consider the alternatives. Because there aren’t any.

Deficit spending has been touted as a potential driver of inflation, because only with devalued (inflated) currency can Americans hope to erode the real value of 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.

When American households join the Federal Government in spending more than they make, the only way to keep this up is to lower interest rates and increase the value of the underlying collateral. This second factor, the value of collateral, is particularly important for the American consumer, who has relied on home equity appreciation to enable ongoing borrowing which in-turn enabled ongoing spending beyond their means. The so-called financialization of the American economy over the past few decades has been specifically aimed at increasing the value of assets in order to stimulate more borrowing and spending.

The deflationary risk caused by debt accumulation becomes most acute if and when this asset-price bubble bursts. When the market value of the collateral suddenly becomes worth less than the amount of the loans outstanding, banks cannot extend new […] Read More

Deficits Are Secondary to WHAT You’re Paying For

“I am not worried about the deficit. It is big enough to take care of itself.” – Ronald Reagan

If you pay attention to the libertarian purists, President Reagan earns mixed reviews on his economic policies. After all, in 1983, the federal budget deficit exceeded 6 percent of GDP. But Reagan was untroubled by federal budget deficits for at least two reasons, and in both cases he has been vindicated by history.

Reagan’s priorities were to unleash the American economy, which he accomplished through deregulation, and to invest in American military supremacy. As the federal budget surpluses of the 1990s and the collapse of the Soviet Union can attest, Reagan had his priorities straight, and got the results he sought.

When it comes to deficit spending and the military challenges facing an American president, Reagan and Trump have a lot in common. Mostly through executive orders, and to some extent through legislation, Trump has deregulated the American economy. He has also successfully reinvested in America’s military.

To put this in perspective, Trump’s projected 2019 federal budget deficit of $960 billion is 4.5 percent the 2019 GDP projection of $21.2 trillion. And Trump’s projected 2019 defense budget of $716 billion is 3.3 percent of GDP. Military spending during most of the Reagan years was around 6 percent of GDP, and during his presidency the federal budget deficits averaged 4.3 percent.

Like Reagan, Trump took office having to clean up after a predecessor whose foreign policy […] Read More