Real Rates of Return

It would be easy to condemn as irresponsible the City Council of Vacaville, California, for their vote last week, granting “3% at 50” benefits to their firefighters. At this point, don’t we all know these are financially unsustainable promises? But on the other hand – isn’t “3% at 50” the standard for municipal firefighter contracts? Shouldn’t these firefighters earn pensions at the same level as their counterparts in other cities? Indeed they should. The real question is this – can Vacaville invest 23% of their firefighter’s salaries into a pension fund each year – Vacaville’s current commitment – and expect it to earn a sufficient amount to fund these upgraded retirement benefits? The answer hinges on what real rate of return their pension funds can expect to earn over the next few decades, and what variables will influence these returns upwards or downwards.

In this analysis, we assume a firefighter retires after 25 years work at age 50, which at 3% per year, would mean this firefighter would collect 75% of their final salary throughout their retirement. At various real rates of return on investment, for how many retirement years would this firefighter have a solvent pension fund? In the tables following this post are three cases which I believe use real rates of return – i.e., adjusted for inflation – that might be reasonably projected over the next few decades, 3%, 4% and 5% per year. Depending on which of these returns you choose, surprisingly different funding scenarios ensue, with dramatically different implications for policy.

At a long-term real rate of 3% annual return on investment, with a 23% of salary fund input per year, and salary of $90K per year reached in year 19 of a 25 year service (3% inflation-adjusted salary increase per year), retiring at age 50, this retiree’s fund will be out of money by the time they reach 70 years of age.

At a real rate of 4% return on investment, under the same assumptions, the retiree’s fund will run out of money by the time they reach 77 years of age. But the pleasant surprise is what happens to these funds if they can yield just one more point per year.

At a real rate of 5% return on investment, under these assumptions, the retiree’s fund will not be out of money until they are 102 years of age. If a 5% return is all it takes, why can’t we provide everyone this level of security? Is it realistic to expect to invest 23% of everyone’s salary each year into their retirement fund? And how much of this 23% (or more) should be deducted from paychecks, instead of kicked in by the employer?

Returning to the question of what annual rate of return should be considered realistic for a pension fund in the long term, a fund as large as the collective public pension funds of state, city and county employees across the USA, cannot be expected to grow at a real rate of return that exceeds that of the economy in which this fund is invested. This is why returns of 8% per year or more, earned when these funds were smaller, and earned during a time of unsustainable broader economic growth, cannot be expected in the future. In order to determine whether or not even a 5% real rate of return is realistic, one must consider the historic rate of growth of the global economy, which was about 2% per year through the eve of the industrial revolution, growing to about 3% per year by the dawn of the 20th century, reaching 3.5% during the first half of the 20th century, and 4.0% during the second half of the 20th century. What is a sustainable rate of future global economic growth?

On one hand, the 4.0% real economic growth of the global economy during the 2nd half of the 20th century was perhaps inflated by the internet bubble and rising levels of debt. But given the dramatic and ongoing leaps in technology we have seen in the past decades, it is nonetheless not unreasonable to assume that today’s long-term rate of real global economic growth is going up, not down. The question is what, other than unwinding excessive debt, will derail global economic growth?

The biggest challenge to global economic growth exceeding 5% per year are environmentalist restrictions on resource development. International lending should not exclude projects that lead to efficient, inexpensive production of energy and water, and this question – how much cost-effective genuine resource development can we fund – is what should inform national and international infrastructure planning. A gravity fed canal from the Volga to the Aral Basin, for example, or a rail link from Alaska to Siberia, or breeder reactors in Texas. National and international wealth are created when the precursers to a prosperous civilization, the public infrastructure necessary for inexpensive delivery of energy, water, transportation and shelter, are built and delivered cost effectively.

The constraints that limit global economic growth are not driven by scarce resources, or technological inadequacy, or due to a prohibitive expense for the requisite infrastructure to deliver an excellent quality of life to virtually anyone on earth. Instead the primary constraints on economic growth are the result of fanatical environmental activists – backed by powerful special interests – who have consistently blocked development projects, and they are more powerful now than ever.

Economic growth and wealth are gained by making public services less expensive, not more expensive. This means the policies governing investments in water, energy, transportation, and land use should emphasize clean burning, cradle-to-cradle cleanliness, but should not go beyond these reasonable safeguards to artificially create prohibitive costs. Environmentalist restrictions on resource development have combined to cripple the USA’s economy, along with much of the rest of the world, and this is the real challenge – overcoming this injustice and tragic folly. Moreover, it is false to believe economic growth causes inevitable environmental harm, because along with refining and upgrading our physical infrastructure, technology-driven future economic growth can continuously and indefinitely be directed into very low-impact, high-value new economic sectors to service a stable, aging, prosperous global population of humans – android caregivers for the elderly, neurologically activated exoskeletons for personal mobility enhancement, space industrialization, life-extension, and planetary remediations of extraordinary scope, to name a few.

In order to achieve real rates of economic growth of 5% or more, year after year, which is necessary before upgraded retirement benefits can be sustainably extended to everyone, political leaders must recognize the importance of encouraging resource development, instead of emphasizing self-serving and punitive surveilance and rationing tactics, higher taxes, fees, carbon “trading” proceeds, and other green extremist policies that require minimal investment but curtail future growth.

Freedom from green extremism is the only way the global economic pie can grow at up to 5% per year, and provide us the wealth to adapt to whatever natural phenomena may come, clean our many footprints, and all know the benefits of global abundance. Reforming environmentalism is crucial to raising real rates of economic growth, and consequently, to raising real rates of return on retirement funds, so we might all live as well in our retirements as the firefighters of Vacaville.

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The Footprints of Rail Transit

If you properly assess the financial and ecological sustainability of train travel vs. auto travel, you will find the present conventional wisdom that almost exclusively prefers train transportation is possibly misplaced. The idea that bullet trains are more efficient conveyers across long distances than airplanes, for example, is rarely accurate. Similarly, developing light rail transportation, other than in very large urban areas, instead of widening existing freeways, is usually a more wasteful option. Here are examples of “footprints” towards a more comprehensive set of criteria with which to examine rail transportation vs. road vehicle transportation.

THE FOOTPRINTS OF RAIL TRANSPORTATION

(1) Greater Risk of Mass Casualties: With systems as big as passenger trains, an operator failure or systems failure leading to a catastrophic accident will necessarily result in more casualties than with individual cars or even busses. Moreover, with road vehicles, with ever advancing new designs, it is possible to eventually nearly eliminate the probability of fatal accidents, whereas with the size of trains and the necessity to maintain the rails, train transportation will always be like air travel – impossible to operate without risks of accidents with mass casualties. 

(2) Greater Risk of Disease Transmission: Compared to the cocoon of one’s own car, there is a greater risk of spreading communicable disease when humans are packed together in trains. Will trains even operate during severe epidemics or pandemics? 

(3) Greater Risk to Personal Security: Again, compared to one’s own car, there is far greater personal insecurity a rail passenger must endure while waiting on the train platform, or riding on the train, or walking home through the “pedestrian paseo” late at night.

(3) Less Financial Sustainability: The financial folly of using railroads for passenger transit is exemplified by the reality of freight rail. For the most part, freight transit of goods is only cost effective on intercontinental hauls, where huge trains with 100+ cars hurtle from coast to coast from one intermodal yard to another. The primary hauling mode in the U.S. are trucks on roads, which can go from door to door and are therefore more financially efficient than trains. With people as with freight, decisive efficiencies are gained via the door to door capacity of vehicles on roads. To marginalize cars in favor of trains clearly ignores the inherently better financial sustainability of cars.

(4) Opportunity Cost of Neglected Roads: Advocates of rail transport ignore the congestion of our roads caused by failure to widen roads as population increases, or the costs of this congestion in wasted time and energy and additional pollution.

(5) The Environmental Impact of New Rail Corridors: The literally Biblical scale of the additional rail corridors that must be blasted through cities and across vast open areas in order to build rail transportation is conveniently ignored by rail advocates, as is the far less impactful option of upgrading roads, that for the most part, can use existing throughways. And from the standpoint of environmental impact and costs, instead of bullet trains that require completely new throughways to go 250 MPH, why not just upgrade existing rail, at far less cost, to permit speeds of 125 MPH?

(6) Greater Costs to Providing Security: There are far greater costs of ongoing rail operations and providing security for rail compared to roads. Train stations, passenger compartments, and the rails themselves all represent new venues where security is required, venues that have no corrolary in automotive transportation options.

(7) Personal Inconvenience: No matter how comprehensive passenger rail services become, there will always be a limited set of preconditions where rail transit is preferable to the commuter: ultra high density, very large urban centers, and select fast intercity trains on existing track. In general, using mass transit takes much longer than driving a car and is almost always a last resort for ordinary people. Once cars have autopilot, many additional reasons to prefer mass-transit will become obsolete.

(8) The Evolution of Vehicles: The car of the future will have auto-pilot, supersafety features, and total resource sustainability. These will be standard features. And no matter how future technology improves, roads and cars will always be more flexible modes of transportation than rail. 

(9) Onerous Zoning Laws to Create Preconditions for Viable Rail: There is plenty of land in California, so to mandate that every bit of land within legally prescribed “urban service boundaries” must become ultra high density, and ultra congested, while leaving peripheral areas unavailable to development, fails to recognize the increasing sustainablility of cars. Similarly, using “Urban Service Boundaries” as a way to concentrate populations in order to make rail transit viable makes a travesty of property rights and property values, and ignores the natural propensity of unplanned, market-driven land development to create ultra-high density all by itself.

(10) The CO2 Footprint: First of all, it isn’t clear a cradle-to-cradle analysis of future road vs. future rail would indicate rail has a lower CO2 footprint. The opposite could well be the case. And so what? The U.S. only produces about 20% of the anthropogenic CO2 currently emitted worldwide, and anthropogenic CO2 emissions only represent about 2-3% of total global CO2 emissions, the rest are natural. And it isn’t even clear that CO2 emissions are having a negative impact on global climate. Using CO2 as the primary criteria for sustainability is problematic.

Rail transit is clearly not a solution that should be ignored altogether. But there should be vigorous debate, mindful of all criteria, i.e., all footprints, before rail transit is ever preferred over roads. Sustainable and versatile, providing security against communicable diseases or pedestrian violence, capable of independently transporting anyone (with their cargo) efficiently to within a few steps of their final destinations, cars are simply too desirable an option for humanity to be “reeducated” away.

Resource Development vs. Rationing

California’s decision to “decouple” the amount of revenue their regulated public energy utilities receive from the amount of energy they deliver is hailed by environmentalists as a breakthrough. But the consequences of this decision to enforce artificial scarcity are not fully appreciated. It might be argued that this policy of “decoupling” the amount of money you collect from the amount of value you produce is a dangerous tampering with the natural laws of supply and demand, and is orchestrated by special interests who benefit while the consumer is victimized. Now the NRDC, in a report released last month entitled “Making Every Drop Work: Increasing Water Efficiency in California’s Commercial, Industrial, and Institutional (CII) Sector,” wants to do the same thing to California’s water supply.

Here are two of the recommendations the NRDC makes that make chills run down my spine:

(1) Prioritize water conservation above increasing supply. The State of California should codify the requirement that efficiency improvements precede supply side resources—as it did in the energy sector—to motivate investment in water efficiency and recycling by agencies who might otherwise be awaiting development of traditional water supplies.

(2) Decouple water agencies’ sales from revenue. Water agencies should not need to rely on water sales to assure their fiscal stability. Water agencies should instead adopt a structure that allows them to recover additional money from customers if sales are significantly below projections. This revenue adjustment mechanism will enable water agencies to aggressively promote efficiency and maximize the conservation price signal for customers.

There is nothing wrong with encouraging conservation. But “maximizing the conservation price signal for customers” is akin to a cell phone company charging you less than 1.0 cents per minute for the first 500 minutes per month per your plan, then charging you 50 cents per minute for every minute you talk over your agreed 500 minutes per month. This unpopular practice amounts to rationing, and bears no relationship to the underlying costs to the provider. The 501st minute cost no more than the 500th, but the consumer paid 50 times as much to use that 501st minute. Now they want to do this with our water.

An alternative that would fulfull goals of water conservation would be to have progressive pricing based on water use, but based on reasonable tiers instead of these cliffs. This alternative to rationing could be calibrated to yield the same results, but wouldn’t punish people who simply place a higher value on using lots of water than others. People with gardens, or who like long showers, or otherwise have a legitimate personal preference for high per capita water use might simply pay 20% more for units of water use that go over their “limit,” and maybe an additional 20% if their usage goes beyond, say, twice their “limit.” Gradually escalating pricing tiers instead of imposing punitive tiers is a more humane way to encourage reductions in water use.

Returning to the NRDC’s other recommendation, prioritizing water conservation over increasing water supply is a recipe for disaster. There are significant ways to increase supplies of water – rebuild and upgrade interbasin aqueducts, build additional collection basins to harvest and store storm runoff, develop aquifer storage to harvest and store storm runoff, build more and better water treatment facilities to recycle waste water and send it back upstream, develop large-scale desalination plants, encourage “smart irrigation” in the agricultural sector which consumes 80% (or more) of California’s water supply, and even, gasp, build a few more dams. Just allowing more farmers to sell their water to urban consumers would easily alleviate water shortages. The idea that a prosperous, technologically advanced region like California faces an inevitable water crisis is ridiculous, and the only way a genuine water crisis may occur is if development of water supplies is not given equal or greater priority to water conservation.

The reason these supply-side alternatives aren’t explored is because they require investment, and these kinds of infrastructure investments are prohibitive in California thanks to the power of trial lawyers who work for environmentalist nonprofits. More than anything else, rippling across the entire supply chain, the inability to cost-effectively develop infrastructure is because environmental lawsuits have tied virtually everything up in knots. And, of course, if these supply-side infrastructure development solutions were implemented, there wouldn’t be a “crisis” anymore.

Other than trial lawyers and environmentalist nonprofits, who benefits from all this? Not the consumer, who pays more for water and energy than water and energy should cost. Not necessarily even the environment, since desalination plants on the Southern California coast could give back millions of acre feet of water each year to the delta. Nor, speaking of the delta, would a peripheral canal, which would be able to inject water into the delta wherever needed, need harm the environment, especially if it were built in conjunction with massive development of desalination capacity on the Southern California coast.

The powerful additional beneficiaries of resource strangulation, artificial scarcity, and environmental alarm are California’s public sector agencies, who can take the artificially inflated prices, “decoupled” from any supposed obligation to develop infrastructure sufficent to actually deliver water and energy to the public at a reasonable price, and use it instead to inflate their salaries and benefits. The collusion between public sector special interests and environmentalist nonprofits is not being explored by journalists nearly as much as it deserves. In general, there is to-date a shameful failure of mainstream journalists, who presumably share a concern for the aspirations of the economically less fortunate, to expose these hidden agendas behind many “green” recommendations.

Trillions and Trillions

If the old saying were coined today, it would be “a few trillion here, and a few trillion there, and pretty soon we are talking about serious money.” Who knows what trillions mean anymore – is the U.S. a $15 trillion economy, or are dollars fluid, and benchmarks meaningless?

Deficits are now counted in trillions of dollars, joining quantities previously ascribed only to global reserves of major commodities, or the annual output of large nations. One trillion. A thousand billion. A million million. Debts and deficits are now routinely counted in trillions with a T. Will requiring counting and auditing CO2 emissions, then taxing and assessing fees on CO2 emissions – and auctioning permits to emit CO2 – become the mechanism for governments to address their exploding debts and deficits, now denominated in trillians, and will such policies best advance the interests of humanity and the earth?

Commodities, along with the value of economic output, or economic capacity, wax and wane in the flux of the global market. If you try to completely regulate all this capitalism, if you try to eliminate all the waxing and waning, you are very likely to create a political economy resembling either fascism or communism. Enforcing a regulatory scheme so comprehensive as to encompass literally all combustion, concerned not merely about clean burning but burning itself, cannot help but require such tyranny.

“A trillion here, and a trillion there, and pretty soon we are talking about serious money.” Is the output of the entire global economy still estimated at approximately $50 trillion dollars per year, even in this slow-down, and if the dollar devalues, what does that mean in any case? And who is to say what the equilibrium price of commodities is or should be, when each of them is subject to the disruptions of entrepreunership and innovation at any time?

Transcending any quantity of currency is the innate endowment of national wealth. And wealth, in the case of nations, is valued in the extent and quality of their institutions and their assets. The wealth of nations, for example, is their ability to educate their population and provide them ample incentives to excel. The wealth of nations is also in their endowment of natural resources as well as the net worth of their already-built infrastructure.

For these reasons, despite the volatility of dollars and derivatives and related intangibles, despite its infinite diversity and that it can only be described theoretically, nonetheless wealth and wealth creation is real and absolute. Genuine wealth cannot therefore be contained or consigned or configured, much less created, via new fiat currencies and asset inventions pegged to transfers of carbon or climate models. And this is why, despite the desparate pleas of precautionary principle zealots wearing CO2 blinders, all strategies to adapt to climate change must be subjected to honest cost-benefit analysis. It is clear we are experiencing climate change, because to be experincing anything else on this water planet, blessed with a greenhouse atmosphere and teeming life, would be terribly alarming. Mars, for example, experiences minimal climate change.

Trying to mitigate the allegedly negative effects of CO2 emissions through heavily regulating and taxing all CO2 emissions is simply not effective compared to many alternative wealth-creating uses of public funds. And please note, the costs to trade the rights to emit CO2 emissions is equivalent to taxes, fees and regulations, in terms of costs to innovators, entrepreneurs, and emerging nations. Expanding the government regulatory sector, and using it to pay subsidies to fossil fuel companies to sequester CO2, or put another way, using CO2 emissions as the primary criteria for any and all environmental project merit, can completely displace basic cost-benefit analysis.

When these macroeconomic cost-benefit analyses are done, many policies that rely on CO2 emissions as a key criteria become questionable. In order to hopefully reduce CO2 emissions, should we really imprison our small property owners behind “urban service boundaries”? To allegedly lower our “carbon footprint,” should we continue to contemplate digging new scars in the earth that rival the Great Wall of China ala bullet train corridors, when instead the future may likely find bigger freeways and auto-piloting busses that navigate far more versatile upgraded roads?

If you abandon the notion that CO2, an enabler of teeming life, is actually a deadly pollutant that poses an existential threat to the planet and especially to human civilization, or that every square inch of undeveloped land is sacred and any land development must be subjected to trillions in analysis and fees and settlements and taxes, than you might support useful scars in the earth: Aqueducts, massive runoff collection basins, large scale aquifer injection and storage infrastructure, desalination plants, nuclear power plants, and an offshore liquid natural gas terminal, to name a few. Projects that create lasting regional wealth, along with jobs, which increases options.

There are many wonderful ways to adapt to fluctuations of climate while investing in genuine economic advancement that encourages individualism and pluralistic property ownership, rather than yielding to the hubristic notion that regulating and taxing CO2 emissions is our best chance to survive and thrive as a species. Specifically, developing aqueducts, aquifers, desalination plants, and diverse energy production capacity – and encouraging new private land developments connected with smart, safe, sustainable upgraded public roads and 21st century roadworthy vehicles – is the way we create genuine wealth at the same time as we best manage climate change, natural or anthropogenic, hot or cold.

Prosecuting “Future Crimes”

The “World Future Council” has recently issued a press release stating “Crimes against Future Generations need to become taboo” (pdf), with a lead sentence that states the following: “How can we prevent and prosecute activites today that severely threaten the living conditions and health of those living in the future?”

Does this sound sinister to you? If you don’t buy into some of the dominant concepts of mainstream environmentalism today, if you appreciate the potential for unintended consequences, and if you are paying attention to the ongoing momentum of mainstream environmentalism, you will find this pronouncement sinister indeed. Here’s more:

“The fundamental rights of future generations need to be recognized in international justice. Investigating the concept of Crimes against Future Generations is a very important initiative to support this,” according to Prof. Marie-Claire Cordonier Segger, a World Future Council “Councillor.”

Like most utopian concepts, this all sounds great except for one glaring, fatal flaw: We can’t predict the future, or the judgement of history. For example, in their press release, WFC notes the problem of rainforest destruction due to oil drilling – ignoring the fact that most rainforest destruction in the past decade or more has been financed by proceeds from European emissions allowance auctions, because “carbon neutral” biofuel plantations were considered until fairly recently to be eligible carbon offset projects. Deforestation on the scale of hundreds of thousands of square miles was enabled by social engineers of WFC’s ilk, their misguided utopian idealism only matched by their political savvy. In this case, the judgement of the future is already here – and the guilty parties are the same people who are proposing we create a new area of international law to prosecute who, themselves? Clearly, in the case of rainforests, futurists didn’t see the future very well at all, nor are they being honest today about what really happened.

Another obvious example of the simplistic arrogance of the WFC’s press release is their distaste for nuclear power, despite the potential of nuclear power to make significant contributions to global energy supply. Nuclear power is cleaner and safer than ever, but to read this press report you would think Chernobyl was yesterday. The irony is fascinating – these people presume to be so certain of the judgement of history some time in the future that they wish to prosecute those of us today whose projects may not fit their world view, yet these futurists have no faith in the potential for technology to ever deliver safe nuclear power! What technologies do they like, and why, and will their assessments be any more accurate than the ones that lead to the incineration of Indonesian rainforests to plant oil palms?

If crimes against the future are going to be prosecuted, perhaps we should prosecute those who in the name of environmentalism, fought, often successfully, to eliminate nuclear power, eliminate coal power, banned DDT and genetically modified crops, and in general restricted resource development of all kinds. Because when the history of the 21st century is written, it may be this version of environmentalism will be to blame for condemning humanity to a dark age of scarcity that was completely, utterly avoidable. So where are the legal briefs for this case? In what international court shall we file this lawsuit against environmentalists for “crimes against the future?”

Environmentalism today has been hijacked by powerful vested interests, including public sector unions, corporate cartels, and the “international community,” whose shared concern is preserving their elite status and squelching competition. They are abetted by irresponsible journalists who have not taken it upon themselves to verify all of the doomsday predictions coming out of the PR mills such as that of the WFC, nor are willing to consider alternative world views that might embrace entrepreneurial activity and resource development. They are also abetted by ambitious consultants, service professionals and entrepreneurs of all stripes who see in the green mania a good way to grow their businesses – and if they don’t think too hard, they may even consciously think they are saving the planet. But when the judgement of history is upon us, one hundred years hence, maybe it will be those who wanted to reform environmentalism, right-size government, and roll back the power of big labor who will be seen to have fought the good fight. Green is a complex color – it reflects a great deal of genuine beauty and promise, but shades of darkness as well.

Prosecuting “crimes against the future” is a snake pit, writhing with opportunists and their useful zealots, and nothing more. It is dangerous, it discredits the genuine values and challenges of environmentalism that should be addressed, and threatens our freedom.

Exposing Public Sector Unions

Several years ago a consummate Sacramento insider told me “unions run this town,” and subsequent research and observations have confirmed the truth of this statement. Slowly, very slowly, this reality, and the disastrous fiscal consequences of this reality, are being recognized. Criticizing unions is still something responsible people do with some reservations, after all, in the 19th and through much of the 20th century, unions played a vital role in securing basic worker’s rights. These contributions should not be dismissed. But unions today, especially in the public sector, are a different beast entirely. In our current anti-capitalist political climate, unions are getting far less criticism than they deserve, particularly because in the case of state, city and county governments, the unchecked power of public sector unions are almost the sole reason we have a fiscal crisis. Here are some points to consider:

(1) Compensation to public sector employees is not limited to their wages, but must take into account the value of their increased number of paid days off (AND the “9/80” program which equals another 26 paid holidays per year), as well as the current year funding requirement (less whatever they contribute out of their paychecks which is usually only a fraction of the cost) for their retirement health and pension benefits. This “overhead” can easily double the annual cost for public sector employees, whereas in the private sector, overhead costs of this sort rarely exceed 25%. This overhead must be included when assessing how much public sector employees actually make each year.

(2) The state budget not only includes state employees but also payments to cities and counties. The overall personnel costs as a percentage of the state budget should include any payments that aren’t directly to state worker salaries but also payments to other entities (public sector contractors and other public agencies/governments) that in-turn are used to fund salaries.

(3) The state worker pension funds were NEVER as solvent as they were being represented by their managers. The internet bubble, then the housing bubble, were used as justification to beef up retirement benefits that were already unsustainable to still higher levels (in some cases retroactively!), at the same time as the required annual inflow of payments were actually reduced.

(4) State worker unions don’t have to strike – they control elections. To verify this, simply investigate the amount of money they are spending in statewide, city and county elections to finance campaigns of compliant candidates. California Assemblyman Niello recently told me he met with some fiscal conservatives to evaluate what it would take to successfully pass an initiative that would bring about genuine reform and the minimum campaign funding required was $100 million. As you know, the state worker unions spent a lot more than that in 2005 to crush Schwarzenegger’s initiatives. Why is this legal? Isn’t this the taxpayer’s money? Isn’t there a conflict of interests?

(5) Unions at the state, city and county level don’t just bankrupt public entities by virtue of the bloated salaries and benefits they coerce out of politicians whose survival depends on their campaign funds, they also do so by requiring public sector jobs to be far less efficient than they could be. When negotiating their contracts these unions are able to require higher staffing than necessary and narrowly defined job descriptions in order to create more jobs. Equally significant to these crippling work rules, union contracts also take away the meritocracy – they undermine the incentives for any public employee to take individual initiative. There is staggering additional cost for all this.

(6) One reason most voters are still unaware of the role of unions in bankrupting our government entities is because of the lack of balanced media reporting and commentary on the benefits of capitalism as well as the mounting quantity of credible arguments against global warming alarm. The welfare state creates jobs for government workers by breeding dependence. Global warming fees are the only way to inject significant new taxpayer dollars into government coffers. Media influencers need to take a 2nd look at the virtues of the private sector as well as the fallacies of mainstream environmentalism through the perspective of how government unions benefit financially from liberal politics and environmental alarmism.

(7) Unions were a necessity 100 years ago. But it is obvious that they have created legacy obligations that are totally unsustainable and completely unjustified. It is common for journalists to point the finger of blame at Wall Street, with good reason. It is also easy – and accurate – to blame the politicians who failed to regulate the mortgage lending industry. But why aren’t journalists looking at the collusion between public sector unions, politicians, and Wall Street? Over the past 25 years, one of the reasons the financial sector evolved and attracted the best and brightest entrepreneurs is because the manufacturing sector was taken over by unions. Who wants to work or invest in such an anti-entrepreneurial environment? And then the public sector unions demonized “corporate profits” at the same time as their pension funds took major stakes in these corporations. There is a lot of connectivity here, and very few reporters are trying to expose it. Does anyone really think public sector union bosses don’t get the fact that artificially scarce land, “urban service boundaries” and inflated home prices means more property tax revenue?

(8) Public sector unions provide the farm team for political office. The depth of the field of political candidates coming from the public sector simply dwarfs anything possible from the private sector. In the private sector we have to work all the time. In the public sector they get 2-5x more days off each year with pay, then retire early. And they have more incentive to get involved, because the politicians directly control the salaries they receive. If you look at the candidates for the entry level political offices; school board, water board, firefighters commission, whatever, the candidates and officeholders are nearly all current or retired public sector employees. When I visited the California State Republican convention last February, my unscientific survey indicated nearly ALL of the party activists are government workers. Three public sector unions were the primary sponsors of the event! There wasn’t a corporation in sight. What does that tell you?

Because of the failure of politicians and voters to adequately confront the crucial differences between unions in the public sector vs. unions in the private sector, government workers have taken over our government. The result is a far less efficient government, a government with a self-serving political agenda that skews towards more self-defeating entitlement spending and more environmental alarmism, and a government that has poured all their financial resources into paying themselves far more than the rest of us earn with comparable skills. Crucial investments in infrastructure are deferred under the pretext of environmental concerns, when in reality, that investment money is being diverted to pay grossly overmarket salaries and pensions for unionized public sector workers.

What needs to happen in Sacramento and at every city hall and county seat in California is the salaries and pensions of government workers need to be cut at least 20% (or more) across the board; in the case of pensions these cuts should be as much as 50%. That is the solution, NOT cutting jobs or services. And it would be nice to see a major newspaper support this editorially, and lay the blame where it belongs – on the decades-long failure of voters, journalists, and politicians to recognize and restrict the political power of public sector unions.

The Climate Alarm Industry

On May 22nd, 2009, in the Wall Street Journal there is a commentary by Danish economist Bjorn Lomborg entitled “The Climate-Industrial Complex,” and that description says it all. One would think Lomborg is pointing out the obvious – that climate alarm is the pretext to orchestrate a massive transfer of wealth from the poor to the rich – but sadly, this observation is still obscured by overwhelming and terrifying visions of planetary meltdown.

Lomborg has never said global warming isn’t a reality. Like most skeptics, he acknowledges there has been about a 1.0 degree (centigrade) increase in the average temperature of the planet in the past 150 years. Lomborg doesn’t even question the latest and greatest climate models, which, despite the disastrous worst case scenarios that are constantly emphasized, only predict minor sea level rise and moderate temperature increases over the next century. Lomborg’s primary mission has been to simply perform basic cost-benefit analysis on the measures being proposed to allegedly reverse global warming, such as it is. When you do these cost-benefit exercises (read “How Much for a Degree“), the rhetoric of those who think we can actually control climate quickly is seen for what it is – misguided and often misanthropic.

In his May 22nd commentary, however, for the first time, Lomborg went a step further, and exposed the agenda of the “climate-industrial complex.” He quoted U.S. President Eisenhower, who coined the phrase “military-industrial complex,” and said of it ”the potential for the disastrous rise of misplaced power exists and will persist,” and, ”there is a recurring temptation to feel that some spectacular and costly action could become the miraculous solution to all current difficulties.”

In his commentary Lomborg cites several examples of the power of the rising climate-industrial complex – in short, the collusion of big business and politicians, with the enthusiastic support of journalists, to undertake the most “spectacular and costly action” in history. Rather than rewrite Lomborg’s article – I highly recommend you read the original – here are bullet points from an EcoWorld post of December 2007, “Global Warming Questions,” where I have listed the powerful special interests who benefit from global warming alarm:

– 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

One can add to that list the incentive of massive subsidies that will flow into the coffers of major polluters to “sequester” their CO2 emissions. And the saddest example of a special interest who will benefit are the high tech entrepreneurs of Silicon Valley and elsewhere, who used to altruistically identify unmet needs, create products to fill those needs, and experience massive success in the competitive free market. These entrepreneurs created the information technology industry from scratch – and they could have done it without a dime of government subsidies or one shred of government regulation. Now this inspiring tradition is being tragically undermined, as “green” entrepreneurs turn to the government to coerce people into buying their products, to the taxpayers to fund their innovations, and to complicit journalists to foment diluvian panic that dovetails with their marketing strategy.

Every time I reveal to someone my belief there is not evidence of imminent and catastrophic climate change, nor that anthropogenic CO2 is the primary culprit, I am again struck by how incredulous they are. This point of view has successfully been cast as a grotesquely self-interested if not evil or psychotic perspective. And what happened to journalistic and scientific skepticism? It is amazing that for the first time in history, the people running around with signs saying “the world is coming to an end” are considered the sane ones, and those of us who are saying it is not are considered the lunatics.

As Lomborg pointed out, however, the reason for this inversion of logic is clear. Climate alarm is an industry, impelled by a critical mass of special interests that together quite accurately may be called the climate-industrial complex. Environmental challenges are real and require ongoing efforts to mitigate them. But to mingle special interests with environmental imperatives is to invite a public backlash. Environmentalists and entrepreneurs alike would do well to reflect on this possibility, particularly now that the global economic temperature has cooled considerably more than 1.0 degree centigrade.

Californian Exceptionalism

The golden state is aptly named. The state of riches and opportunity. California is High Sierra and endless ocean shores, redwoods, saguaro, rice, cotton, alfalfa, snow melt and seasonal squalls, rolling hills of oak and granite cliffs, breathtaking vistas and vast, varied terrain. California is rich in beauty, rich in natural wonders, rich in resources.

California’s people are a reflection and embodiment of the golden state, they are as varied as the landscape, and drawn from around the world, Californians have both created and sought this destination of dreamers. From Silicon Valley to Hollywood, from those who rushed to find the Mother Lode or worked to harvest the timber, the oil, the fruit of the land, the bounty of the sea, California’s people do its natural riches justice.

California is indeed unique, a teeming nation unto its own, drawing peoples from all the nations of the world. California is a geographically isolated region over a quarter-million square kilometers in area, located on the temperate western shore of North America, separated from the world by the Pacific Ocean to the west, the Rocky Mountains to the east, high desert to the south and dense forests to the north. And California’s people are equally exceptional.

From making movies to inventing megabits or engineering life, California’s contribution to global culture and economic development is impossible to overstate. California is Athens, California is Leonardo da Vinci, William Shakespeare, Friedrich Krupp. California’s culture and California’s technology are the vanguard of the world. This is California’s opportunity, this is California’s exceptionalism.

In this new century, among many other things, California now leads the world in green technology and green political savvy. This is ironic, of course, since California in 2009 is mostly perceived as mired in a political and fiscal crisis. But how this fiscal crisis is resolved – along with how California evolves in its environmental leadership – is California’s opportunity and challenge.

California’s finances are now in crisis because they, perhaps more than any other state in the U.S., have allowed their political class to become an elite, overpaid, anti-growth ruling class, completely alienated from their intrinsically entrepreneurial people. When California’s people reassert themselves, California will again surprise the world. Because the fiscal collapse happened first and was the worst in California, so too the cascading rebounds will also occur first in California. Few regions anywhere possess California’s literally incalculable innate wealth. If Californians can shrink government and roll back extreme environmentalism, the immense and diverse economic might that defines California will leap forward again.

Reforming government is relatively simple. Spend less. Stop borrowing.

Reforming environmentalism is harder, but here are a few suggestions:

(1)  Develop additional nuclear power, it is safer than ever. Reprocess and reuse nuclear fuel.

(2)  Build a liquid natural gas terminal off the California coast. Diversify and build overcapacity of electricity generation to become an electricity exporter.

(3)  Use high voltage underground direct current technology to upgrade California’s electrical grid.

(4)  With respect to air quality regulations, resume the emphasis on transitioning to clean burning fuel, instead of the inordinate, futile and flawed current emphasis on regulating CO2 emissions.

(5)  Develop massive desalination plants on or around Camp Pendleton and elsewhere on the Southern California coast.

(6)  Build a new statewide water conveyance system and upgrade existing facilities.

(7)  Build more and better roads and freeways, abandon the bullet train project, and develop intercity rail on existing tracks.

(8)  Let up a bit on the anti-growth, anti-sprawl fanaticism. Allow small homes on large lots in leafy suburbs to be affordable again.

California can still be green, but not at any cost, for virtually zero if not actual negative environmental benefit. If the metaphor for American exceptionalism is the city on the hill, then for California it is the green planet in the universe. That is our opportunity.