How to Spend Six Trillion Dollars of Magically Materialized Money

If you’re going to spend money you don’t have, you’d better spend it to create things with genuine value. This is the choice facing Americans today. Estimates of how much the federal deficit will grow in response to the pandemic shutdown range as high as six trillion. So how should we spend such a stupendous sum of money?

The last time a huge sum of stimulus money was pumped into the U.S. economy, back in 2009, skeptics were told the money was going to fund “shovel ready” infrastructure projects. President Trump has repeatedly criticized the 2009 stimulus, stating it wasn’t used for infrastructure.

A “Fact Check” written in 2017 by NPR reporter Danielle Kurtzleben made a feeble attempt to debunk Trump’s claim, saying Trump was “mostly wrong” about this. Funny though, the facts cited in Kurtzleben’s own article demonstrate that Trump was “mostly right.” Of the $800 billion stimulus spending, only $81 billion, barely 10 percent, was used for infrastructure.

One may argue that any money going into the economy, for anything, has at least a short-term value, and is necessary in a crisis. That’s obviously true, and this time around, a lot of stimulus money is going to go to be used to provide short term but very necessary relief to households and businesses that would otherwise go under. But what about long-term value?

Usually lost in the debate over just how long the United States can continue to materialize dollars out of thin air is that […] Read More

Rates of Pay and Pension Debt in California’s Distressed Cities

Nobody needs reminding that California’s cities, like every other going concern in America, are heading for tough economic times. As recently as two months ago, robust collections of sales taxes, utility taxes, transient occupancy taxes, property taxes and other sources of taxes and fees were pouring money into municipal coffers. Now, with the economy abruptly ground to a near standstill, these revenues are all but dried up. But municipal expenses haven’t dropped proportionately, if at all.

What bears reminding is the fact that even before the sudden pandemic shutdown, California’s cities were in financial trouble. Just six months ago – and it seems like a century has passed – the California state auditor released a fiscal health analysis of California’s cities. Measuring factors including cash liquidity, debt burden, financial reserves, revenue trends, and retirement obligations, the report ranked the cities from the healthiest to the most afflicted.

During the economic downturns already endured by California cities in this century, public sector pay and benefits continued to increase even as the private sector workforce experienced layoffs and pay cuts. In the aftermath of the tech bubble bursting, pension benefit enhancements continued to gain approval by cities, one by one, justified by the reasoning that if a neighboring city had done so, then every city must follow suit. In the aftermath of the real estate bubble bursting, city workers took furloughs, where they worked one day less per week and received 20 percent lower pay – but their rate of pay […] Read More

How the Homeless Industrial Complex Plans to Destroy Venice Beach

“I intend on putting in another proposal in the next week or two that asks the city to look at the federal bailout or stimulus funds we’ll be getting as a result of this crisis…and using some of that to either buy hotels that go belly up or to buy the distressed properties that are absolutely going to be on the market at cheaper prices after this crisis is over. And use that as homeless and affordable housing. It’s going to be a hell of a lot cheaper to purchase stuff that is already there and move people in there than if we start from scratch. A lot of good stuff is being done.” – Mike Bonin, LA City Councilmember, 11th District, remarks at 4/18 virtual town hall

It isn’t often you’ll find a politician revealing so explicitly what they’re intending to do, especially when it involves the displacement of an entire well-established community. Nor is it often, if ever, that something so tragic and disruptive as a disease pandemic comes along to hasten the accomplishment of such a nefarious objective.

The policies being enacted in California, and in Los Angeles in particular, to help the “unhoused” find shelter, have little to do with helping the “unhoused.” If they did, the problem would have been solved years ago. Venice Beach provides an excellent case study in how everything being done to help the “unhoused” has a hidden agenda.

The key to understanding this hidden agenda is to recognize that […] Read More

Huntington Beach Denies Pandemic Reality, Dispenses Pay Raises

On April 6 the Huntington Beach City Council agreed to pay raises for police officers and city employees. The cost for these raises over the next three years is estimated at $5 million.

In a city that reported general revenues of $188 million in the fiscal year ended June 2019, this raise can accurately be described as small potatoes. Furthermore, in that year the city reported total revenues exceeding total expenses by $25 million. So what’s the big deal?

There are two big problems with this decision by the Huntington Beach City Council. First, and glaringly obvious, is the fact that the revenue incoming to the city has imploded, and there is no end in sight. As Mayor Pro Tem Jill Hardy – a Democrat – said in the council meeting, “how do we ensure we are still a functioning city later if we pay more now.” Hardy went on to remind her peers on the council of past “deals we wished we could take back when the economy got bad.”

This problem, maintaining or even increasing pay and benefits in spite of a bad economy, is a well established pattern in California’s union controlled cities. Just twenty years ago, in the aftermath of the internet bubble popping, city after city went ahead anyway and implemented pension benefit enhancements. Following the precedent set by SB 400 in 1999 – when the internet bubble was still fully inflated – city after city yielded to pressure […] Read More

Post-Coronapocalypse Pension Reform Checklist for California

In a perfect world, California’s state and local public employees would receive exactly the same retirement benefits as federal employees. They would receive a modest defined benefit, a contributory 401K, and they would participate in Social Security.

Unfortunately, in California, while some state and local public employees are offered 401Ks, and many participate in Social Security, all of them rely inordinately on a defined benefit pension. Far from being modest, even the most minimal examples of defined benefit plans for California’s state and local government workers provide roughly twice the value of the typical defined benefit offered federal workers. And where there’s twice the value, there’s twice the cost.

In reality, however, twice the cost would be a bargain. It’s much worse than that, and very little has been done. In 2013, the PEPRA (Public Employee Pension Reform Act) legislation lowered pension benefit formulas in an attempt to restore financial sustainability to California’s public employee pensions. But these revisions, which resulted in defined benefit formulas only about twice as generous as the federal formulas, only applied to new employees.

California’s Pension Systems Were Crashing Before the Coronapocalypse

Two years ago, and after more than eight years of a bull market in the stock market indexes, CalPERS, which is by far the largest pension system in California, had already announced that contributions from participating agencies were going to roughly double. They posted “Public Agency Actuarial Valuation Reports” that disclosed the details per agency.

At the time, in partnership […] Read More

Plastic Bags and the Recycling and Reuse Scam

Back in 2014, the California Legislature passed Senate Bill 207, which banned grocery stores from offering customers “single use” carryout bags. Permanent implementation was delayed by a November 2016 voter referendum, Prop. 67, that unsuccessfully attempted to repeal the measure. Today it is well established law.

The only way SB 207 was sold to the grocery industry was through an incentive that permitted them to keep the ten cents per “reusable” bag that they would be required to charge customers.

California’s pioneering ban is touted by environmentalists as an example for the nation, and progressive cities and states have enacted similar laws. But in reality, it is misguided policy that does more harm than good.

Today, instead reusing the free single-use bags to line their trash cans and dispose of their cat litter, Californians now pay ten cents every time they exercise that privilege. And how does this help the environment, when reusable plastic bags have 11 to 14 times the mass of disposable plastic bags, and hardly anyone reuses them that many times?

Further evidence of the absurdity of laws banning single-use plastic bags is found in a study commissioned by the United Kingdom’s Environmental Agency, which estimated reusable grocery bags made of cotton fabric to have 131 times greater “global warming potential” than conventional disposable plastic bags.

And now consumers have less reason than ever to reuse their reusable bags, because they’re germ carriers.

This isn’t new information. Common sense would dictate […] Read More

Black Swans and Super Bubbles

Black Swan: an unpredictable event that is beyond what is normally expected of a situation and has potentially severe consequences.” – Investopedia

For decades there have been so-called “permabears” claiming that investment returns in the stock market were unsustainable. When the internet bubble popped in 1999, the permabears felt vindicated. But then, starting around 2003, the bulls came back. In 2009, the housing bubble popped and the permabears were vindicated once again. But then the bulls came back with a vengeance, going on an 11-year rampage during which the value of the Dow Jones Industrial Average rose from a low of 6,627 on March 2, 2009 to a dizzying height of 29,398 on February 10.

In 10 years, 11 months, and nine days, the Dow more than quadrupled.

If an investor put their savings into the stock market back in early March, 2009, and sold it in early February 2020, he would have realized an annual return of over 14 percent. The chart below shows the value of the Dow since 1970. It is not a logarithmic scale, so the grade of the slope indicates absolute changes. So why is it that the value of the Dow displayed almost no growth between 1970 and 1985, then embarked on a roller coaster ride heading mostly up?

Whenever delving into the dismal science of economics, it’s important to acknowledge that nobody, regardless of their credentials, has a crystal ball. And when it comes to discussing the big variables, […] Read More

How Much Water Went Into Growing the Food We Eat?

The rains bypassed sunny California in January and February 2020, encouraging talk of another drought. California’s last drought was only declared over a year ago, after two wet winters in a row filled the states reservoirs. To cope with the last drought, instead of building more reservoirs and taking other measures to increase the supply of water, California’s policymakers imposed permanent rationing.

This predictable response ignores obvious solutions. Millions of acre feet of storm runoff can not only be stored in new reservoirs, but in underground aquifers with massive unused capacity. Additional millions of acre feet can be recovered by treating and reusing wastewater, and by joining the rest of the developed nations living in arid climates who have turned to large scale desalination.

All of this, however, would require a change in philosophy from one of micromanagement of demand to one that emphasizes increasing supply. To understand why a focus on increasing supply is vastly preferable to reducing demand, it helps to know just how much water California’s urban residents consume compared to other users.

As a matter of fact, the average California household purchases a relatively trivial amount of water from their utility, when compared to how much water they purchase in the form of the food they eat. For this reason, reducing residential water consumption will not make much of a difference when it comes to mitigating the effects of a prolonged drought.

To illustrate this point, it is necessary to determine just how much water […] Read More

California Cities in Critical Condition

The specter of California’s cities and counties becoming insolvent is nothing new. Three major California cities have already declared bankruptcy, Vallejo in 2008, Stockton and San Bernardino in 2012. In October 2019, the California State Auditor’s Office reported on the fiscal health of 471 California cities.

On what the California State Auditor’s office describes as a “Local Government High Risk Dashboard,” they identified 18 high risk communities: Compton, Atwater, Blythe, Lindsay, Calexico, San Fernando, El Cerrito, San Gabriel, Maywood, Monrovia, Vernon, Richmond, Oakland, Ione, Del Rey Oaks, Marysville, West Covina, and La Habra.

This so-called “dashboard” includes data for all the 471 cities on financial variables such as liquidity, debt, reserves, pensions and other retirement benefits. It also provides an excellent map. On this zoomed in segment, the financially troubled cities of (from north to south) Richmond and El Cerrito (contiguous), and Oakland can be seen highlighted in red.

Southern California also has its share of financially troubled cities, as shown on the next map segment taken from the California State Auditor’s dashboard. Clockwise, starting from the top, the most financially endangered cities are Monrovia, West Covina, La Habra, Compton, Vernon and Commerce (contiguous), and San Gabriel.

Back in October 2019 when the California State Auditor warned Californians about 18 cities in immediate financial peril, the overall economic situation looked very different than it does today. And at that time, articles that reported on the auditor’s warning published by Reason, Governing, […] Read More

Sustainable Megacities

Modern urban centers around the world now have neighborhoods that house well over 100,000 people per square mile. The Choa Chu Kang district in Singapore, defined by boulevards lined with 10 to 12 story mid-rise residential buildings, has a population density of more than 125,000 people per square mile. The entire borough of Manhattan has an average population density of more than 70,000 people per square mile, with far higher densities in areas of midtown and lower Manhattan.

According to a 2018 report released by the United Nations, today 55 percent of the world’s population lives in urban areas, a proportion that is estimated to increase to 68 percent by 2050. At the same time, the United Nations projects the global population to increase from 7.8 billion today to 9.7 billion by 2050. These projections lead to a surprising calculation: the absolute number of people living in rural areas is expected to decline, from 3.5 billion today to only 3.1 billion in 2050.

What should not be surprising by now is that people around the world, voluntarily and inexorably, are migrating from rural areas to cities. But the corollary effect is relatively unheralded; that around the world, open land is slowly depopulating. For the most part, this is happening absent government coercion. It flies in the face of the conventional wisdom—heard endlessly in the United States—that we are running out of open space. We aren’t.

If we have a sustainability challenge, it is not […] Read More