The Abundance Choice

The prevailing challenge facing humanity when confronted with resource constraints is not that we are running out of resources, but how we will adapt and create new and better solutions to meet the needs that currently are being met by what are arguably scarce or finite resources. If one accepts this premise, that we are not threatened by diminishing resources, but rather by the possibility that we won’t successfully adapt and innovate to create new resources, a completely different perspective on resource scarcity and resource policies may emerge.

Across every fundamental area of human needs, history demonstrates that as technology and freedom is advanced, new solutions evolve to meet them. Despite tragic setbacks of war or famine that provide examples to contradict this optimistic claim, overall the lifestyle of the average human being has inexorably improved across the centuries. While it is easy to examine specific consumption patterns today and suggest we now face a tipping point wherein shortages of key resources will overwhelm us, if one examines key resources one at a time, there is a strong argument that such a catastrophe, if it does occur, will be the result of war, corruption, or misguided adherence to counterproductive ideologies, and not because there were not solutions readily available through human creativity and advancing technology.

Energy, water and land are, broadly speaking, the three resources one certainly might argue are finite and must be scrupulously managed. But in each case, a careful examination provides ample evidence to contradict this claim. Known reserves of fossil fuel could provide enough energy to serve 100% of the energy requirements of civilization at a total annual rate of consumption twice what is currently consumed worldwide; there is enough fossil fuel on the planet to provide 1.0 quintillion BTUs of energy per year for the next 300 years. In addition to fossil fuel there are proven sources of energy such as nuclear power, and new sources of energy such as solar, geothermal, and biomass, that have the potential to scale up to provide comparable levels of power production. With these many energy alternatives, combined with relentless improvements in energy efficiency, it is difficult to imagine human civilization ever running out of energy.

Water is a resource that appears finite, and indeed in many regions of the world the challenge of meeting projected water needs appears more daunting than the challenge of producing adequate energy. But water is not necessarily finite. There are countless areas throughout the world where desalination technology can provide water in large quantities – already nearly 2% of the world’s fresh water is obtained through desalination, and for large urban users, desalination is affordable and requires a surprisingly small energy input. Another way to provide abundant water is to redirect large quantities of river water via inter-basin transfers from water rich areas to water poor areas. Finally, water is never truly used up, it is continuously recycled, and by treating and reusing water, particularly in urban areas, there should never be water scarcity.

The question of finding adequate land for humans is clearly different from that of finding energy or water, since unlike energy or water, land is truly finite. But even here, key trends indicate land is now becoming more abundant, not less abundant. In 2007 the population of humans became more than 50% concentrated in cities, and within the next 25 years this concentration is expected to grow to 75%. Humans, in general, prefer living in urban environments, and this massive voluntary migration to cities from rural areas is depopulating landscapes faster than what remains of human population growth will fill them. This seismic shift in population patterns, combined with high yield crops, aquaculture, and urban high-rise agriculture, promises a decisive and very positive shift from land scarcity to land abundance in the next 25-50 years.

Human population growth, along with increasing per capita standards of living, taken at face value, obviously could suggest we are racing towards disaster. But as noted, resources to accommodate greater rates of overall human consumption are more resilient than is commonly accepted. And, crucially, most of human population growth has already occurred. The welcome reality of female emancipation, female literacy, and increasing general prosperity is causing human cultures all over the world, one by one, to shift from rapid population growth to negative population growth. The demographic challenge we must prepare for is not too many people, but too many old people. Our long-term challenge is not resource scarcity, but how to nurture sustainable and robust economic growth on a planet where humans have an ever-increasing average age, and a population in slow numeric decline.

If one accepts the possibility that humanity is not on a collision course with resource scarcity, entirely new ways of looking at policy options are revealed. Rather than attempting to manage demand, based on the premise that supplies are finite, we might also manage supply by increasing production. While, for example, utility pricing might still be somewhat progressive, if we assume resources will not run out, it doesn’t have to be punitive. If someone wishes to use more energy or water than their neighbor, if their pricing isn’t so punitive as to effectively ration their consumption, but instead is only moderately progressive, then over consumption leads to higher profit margins at the utility, which in-turn finances more investment in supplies.

Another consequence of rejecting the Malthusian conventional wisdom is a new understanding of what may truly motivate many powerful backers of the doomsday lobby. By limiting consumption through claiming resources are perilously scarce and by extracting them we may destroy the earth, the vested interests who control the means of production will tighten their grip on those means. Instead of pluralistically investing in this last great leap forward to build mega cities and infrastructure for the future – in the process extracting raw materials that can be either recycled or are renewable – the public entities and powerful corporations who benefit from scarcity will raise prices and defer investment. It is the interests of the emergent classes, whether they are entrepreneurs in prosperous, advanced economies, or the aspiring masses in developing nations, who are harmed the most by the Malthusian notion of inevitable scarcity.

Abundance is a choice, and it is a choice the privileged elite must make – in order for humanity to achieve abundance, the elites must accept the competition of disruptive technologies, the competition of emerging nations, and a vision of environmentalism that embraces resource development and rejects self-serving anti-growth alarmist extremism. The irony of our time is that the policies of socialism and extreme environmentalism do more harm than good to both ordinary people and the environment, while enabling wealthy elites to perpetuate their position of privilege at the same time as they embrace the comforting but false ideology of scarcity.

 *   *   *

This article originally appeared on EcoWorld.com in 2008.

An Economic Win-Win For California – Lower the Cost of Living

A frequent and entirely valid point made by representatives of public sector unions is that their membership, government workers, need to be able to afford to live in the cities and communities they serve. The problem with that argument, however, is thatnobody can afford to live in these cities and communities, especially in California.

There are a lot of reasons for California’s high cost of living, but the most crippling by far is the price of housing. Historically, and still today in markets where land development is relatively unconstrained, the median home price is about four times the median household income. In Northern California’s Santa Clara County, the median home price in October 2014 was $699,750, eight times the median household income of $88,215. Even people earning twice the median household income in Santa Clara County will have a very hard time ever paying off a home that costs this much. And if they lose their job, they lose their home. But is land scarce in California?

The answer to this question, despite rhetoric to the contrary, is almost indisputably no. As documented in an earlier post, “California’s Green Bantustans,” “According to the American Farmland Trust, of California’s 163,000 square miles, there are 25,000 square miles of grazing land and 42,000 square miles of agricultural land; of that, 14,000 square miles are prime agricultural land. Think about this. You could put 10 million new residents into homes, four per household, on half-acre lots, and you would only consume 1,953 square miles. If you built those homes on the best prime agricultural land California’s got, you would only use up 14% of it. If you scattered those homes among all of California’s farmland and grazing land – which is far more likely – you would only use up 3% of it. Three percent loss of agricultural land, to allow ten million people to live on half-acre lots.”

So why is it nearly impossible to develop land in California? The answer to this is found in the nexus between financial special interests, who benefit from asset bubbles, and powerful environmentalist organizations who apparently view human settlements as undesirable blights that should be minimized. In the San Francisco Bay Area, to offer a particularly vivid example, the Santa Cruz mountains are being targeted to be cleansed of human habitation. Instead of creating wildlife corridors, they are eliminating human corridors. Is this really necessary?

Human Cleansing – The Evacuation Plan for the Santa Cruz Mountains

Do you want to live in the mountains?
Forget it. Only billionaires and non-humans allowed.

If you are familiar with the San Francisco peninsula, you will see that the area proposed for the “Great Park of the Santa Cruz Mountains” encompasses nearly the entire mountain range. A coalition of environmentalist organizations and government agencies are proposing to create a park of 138,000 acres, that’s 215 square miles, in an area that ought to make room for weekend cabins, mountain dwellers, and vacation communities. Why, in a region where homes cost so much, is so much land being barred to human settlement? The pristine stands of redwoods in Big Basin and Henry Cowell State Park were preserved a century ago. There is nothing wrong with preserving more land around these parks. But do they have to take it all?

This is far from an isolated example. Urban areas in California, primarily Los Angeles and the San Francisco Bay Area, have been surrounded by “open space preserves” where future development is prohibited and current residents are harassed. Ask the embattled residents of Stevens Canyon in the hills west of the Silicon Valley, if there are any of them left. Once you’re in a “planning area,” watch out. Backed by bonds sold to naive voters, endowments bestowed by billionaires, and the power of state and federal laws that make living on any property at all increasingly difficult, the relentless land acquisition machine continues to gather momentum. Anyone who thinks there isn’t a connection between setting aside thousands of square miles in California for “habitat” and the price of a home on a lot big enough to accommodate a swing set for the kids needs to have their head examined.

It doesn’t end with open space that is actually purchased, cleansed of humanity, and turned into government ran preserves for plants and wildlife, however. Acquiring permits to build on any land is nearly impossible in California. Land developers who fight year round to try to build housing for people shake their heads in disbelief at the myriad requirements from countless state, federal and local agencies that make the permit process take not months or years, but decades. And it isn’t just farmland, or wetland, or special riparian habitats where development is blocked. It’s everywhere. Even semi-arid rangeland is off limits for housing unless you are prepared to spend millions, fight for decades, and have the staying power to pursue multiple expensive projects simultaneously since many will never, ever get approved.

What is the result? Here is an aerial photo of a subdivision in the Sacramento area, one that every hedge fund billionaire turned environmentalist in California – especially one who runs cattle on his own special 1,800 acre fiefdom in the Santa Cruz mountains on a property that just happens to be in a “non-targeted area” – might consider living in for the rest of his life in order to understand the human consequences of his ideals – cramped homes on 40’x80′ lots, at a going price in October 2014 of $250,000. Notwithstanding being condemned to a claustrophobic existence at a level of congestion that would drive rats in a cage to madness, $250,000 is a pittance for a billionaire. But for an ordinary worker, $250,000 is a life sentence of mortgage servitude. And even this, the single family dwelling, is under attack by “smart growth” environmentalists and public bureaucrats who prefer density to having to divert payroll and benefits to finance infrastructure. The excess! The waste! Stack them and pack them and let them ride trains!

Priced to Sell at $250,000 – Housing for Humans on 40’x80′ Lots

No mountain air, ocean breezes, or open space for the little people.
Buy a permit, get in line, visit for a day, but then come home to this.

When public employee union leadership talk about the importance of paying their members a “middle class” package of pay and benefits, they’re right. Government workers should enjoy a middle class lifestyle. But they need to understand that the asset bubbles caused by high prices for housing are not only making it necessary to pay them more, but are also creating the inflated property tax revenue that they rely on for much of their compensation. They need to understand that the phony economic growth caused by everyone borrowing against their inflated home equity is what creates the stock market appreciation that their pension funds rely on to remain solvent. And they need to understand that all of this is a bubble, kept intact by crippling, misanthropic land use restrictions that hurt all working people.

There is another path. That is for public employee union leadership to recognize that everyone deserves a chance at a middle class lifestyle. And the way to do that is not to advocate higher pay and benefits to public employees, but to advocate a lower cost of living, starting with housing. One may argue endlessly about how to regulate or deregulate water and energy production, essentials of life that also have artificially inflated costs. But as long as suburban homes consume less water than Walnut orchards – and they do, much less – build more homes to drive their prices way, way down. There’s plenty of land.

 *   *   *

This article originally appeared on the website of the California Policy Center.

Reinventing America’s Unions for the 21st Century

Critics have suggested that leaders of the labor movement suffer from economic illiteracy that has made them the architects of their own demise. The unwillingness of unions to make concessions in the face of global competition starting in the 1960’s was a major factor in Americans losing millions of union jobs. In the present day, unions push for minimum wage hikes well beyond what inflation might justify (about $9.00 to $10.00 per hour), with “fight for fifteen” campaigns which, if successful, will carry the unintended consequences of higher unemployment and accelerated small-business failures. Today only about 7% of America’s private sector workers belong to unions.

One can also make the case that unions are becoming irrelevant because much of what they fought for is now enshrined in law. Labor laws protect workers from wrongful termination. OSHA standards ensure workplace safety. Social Security, Medicare, Medicaid, and a host of other social welfare programs all provide a safety net for the aged, disabled and unemployed. The Affordable Care Act, fraught with flaws that will hopefully either get repealed or replaced, at least guarantees anyone can purchase health insurance. Has the justification for unions in America largely withered away because of their successes?

What role, if any, should unions play in 21st century America?

The most difficult challenge to finding a consensus model for unions in 21st century America is the polarizing rhetoric that passes for discourse. Among pundits who are rewarded by the size of the audiences they can attract, or analysts and academics – of all persuasions – whose funding may hinge on how scrupulously they adhere to an ideological agenda, there are few incentives to search for common ground. But common ground exists.

The so-called left, embracing unions unconditionally, resisting nearly any sort of reform, needs to understand unions can exist, and even thrive, even if most of the proposed reforms were adopted. Right-to-work laws, for example, have actually resulted in rates of union membership increasing in some states. Right-to-work and non-exclusive representation are ways to both make unions more accountable and hence more relevant, at the same time as they fulfill some of the most cherished objectives of reformers.

Recent efforts by labor organizers to embrace new types of labor organizations, such as worker centers and partnerships with like-minded activist organizations, indicate growing recognition of the need for labor to evolve. The worker councils adopted in Germany – and rejected in America because of outdated NLRB restrictions – offer interesting elements of how unions may evolve. For labor leaders to pursue some of these new approaches at the same time as they accept right-to-work laws, and other reforms, might provide a common path forward.

On the other hand, the so-called right wing needs to better understand that the need for a labor movement of some sort remains urgent. The debate is just beginning over what may constitute an optimal political economy for Americans in an era of globalization, an aging population, unprecedented gains in productivity, and a scandalously overbuilt financial sector. Productive and competitive capitalism is good. Casino and crony capitalism is bad. Some level of government sponsored health and retirement security is good – incentive killing, bureaucracy enabling, efficiency destroying, financially bankrupting excessive entitlements are bad. Black and white world views may be comforting to those who hold them, and policies without underlying principals risk becoming rudderless monstrosities, but nonetheless, reality is nuanced.

Both left and right, but especially those on the left, need to recognize the clear distinction between a labor movement as exemplified by private sector unions – or whatever they may evolve into – and public sector unions. The unique problems of government unions are well documented; they elect their own bosses, they negotiate with an entity that is not required to earn a profit but instead compels taxpayers to give them money, they control the government which gives them the ability to intimidate their critics, and their agenda is inherently oriented towards bigger government regardless of whether or not bigger is better for the public at large.

A less understood but even more menacing aspect of public sector unions is their corrupting influence and symbiosis with the most powerful and monopolistic elements of the private sector. Large corporations benefit by working with government unions – their ability to comply with burdensome regulations allows them to eliminate smaller competitors. The financial sector makes hundreds of billions each year investing government union controlled pension fund assets, and by collecting fees to finance government deficits. Government unions and corporate monopolies alike benefit from social upheaval, because the adversity washes away critics and competitors. They are both threatened by disruptive innovation and limited government. To equate the labor movement of private individuals with the alleged labor movement of government employees is a misconception that, if not overcome, gravely threatens America’s prosperity and freedom.

A reformed, evolved labor movement, accountable to its membership, limited to the private sector, would have the ability to help reconstruct a centrist consensus in America – rejecting cronyism and embracing capitalist competition.

 *   *   *

This article originally appeared on the website of the California Policy Center.

Two Tales of a City – How Detroit Transcended Ideology to Reform Pensions

“I see a beautiful city and a brilliant people rising from this abyss.”
–  Charles Dickens, Tale of Two Cities

Traveling through suburban Detroit, a sprawling city of 143 square miles whose population has dropped from nearly two million to less than 700,000, you can often imagine you are in rural Tennessee. Rutted narrow roads bend past groves of cottonwood, oak and silver maple. Deer and jack rabbits forage in tall grass. Until you pass a burned out ruin of a home, not yet removed, obscured by greenery, it is difficult to imagine that these neighborhoods once were filled with homes, set 35 feet apart and carpeting the land for mile after mile.

According to the so-called “right wing propaganda machine,” the tale of Detroit’s demise is attributed to the unchecked power of labor unions. Private sector unions were inflexible in the face of foreign competition, driving Detroit’s auto industry into irreversible decline. Public sector unions gobbled up every dime of taxpayer revenue they could bully and intimidate politicians into granting, further straining the finances of an already imploding city. Financially unsustainable pension benefits, ultimately, drove the city of Detroit into bankruptcy. A different tale emerges from the left side of the ideological spectrum. Taken from a guest column written for MSNBC.com, here’s a quote from Jordan Marks, executive director of the National Public Pension Coalition, a group largely funded by public sector unions:

“While public coffers were running dry, Wall Street banks were out to make millions. Mayor Kwame Kilpatrick, who now sits in jail, worked with Wall Street banks that designed an illegal borrowing scheme that evaded state debt limits and piled on unwise interest rate swaps. When interest rates plummeted, Wall Street demanded more than $300 million from Detroit to terminate these swap deals – making a bad situation even worse. These same Wall Street firms stand to make millions if other cities move to privatize their pension plans.”

These two tales of Detroit’s struggles both have elements of truth. With respect to Detroit’s municipal bankruptcy, it is unfair to blame public sector unions as the primary cause. While the city’s unions were unwilling to adjust their pensions and benefits until it was too late, even if they had, the city’s finances would have failed anyway because it lost nearly two thirds of its tax base. And while the automotive industry’s unions were unwilling to adjust their pensions and benefits until it was too late, that industry would have shrunk anyway, because very capable foreign competitors gained strength starting back in the 1960’s. It is unrealistic to expect, under any circumstances, that Detroit’s auto industry could have maintained the overwhelming global market share it had up to and through the 1950’s. Without economic diversification, Detroit was destined to fall hard.

The tale that comes from the left, however, strains credulity even further. First of all, public sector unions don’t represent the “left.” They represent the state. When Jordan Marks writes about banks colluding with corrupt politicians, he is referring to politicians elected and controlled by public sector unions. His assertion that “Wall Street banks” exploited Detroit does not reflect reality. Bankers issue bonds – debt – to cities who willingly borrow the funds because their union agenda forces them to spend more than they collect in taxes and fees. Government pension fund managers pour billions of dollars into Wall Street investment firms every year. Bankers and city governments – controlled by government unions – work together to exploit taxpayers and private businesses. They use the state power of imprisonment to enforce punitive levels of taxation, to pay down debt and unfunded liabilities incurred so they could live beyond their means. Wall Street bankers and municipal government unions work together to build a financial house of cards, and when it collapses they deserve equal blame.

How Detroit has solved its pension crisis will not please the ideologues. For the libertarian right, the failure to throw everyone into 401K plans must rankle. For the left, the new plan’s built in “triggers” that adjust benefits when necessary to compensate for possible future shortfalls in investment returns violates their goal of an immutable defined benefit. But it works. And the libertarian’s ideological enthusiasm for individual 401Ks contradicts their entirely valid criticism of overly optimistic investment return projections on the part of pension funds (Detroit’s was 7.9% a year). When the market tanks, and periodically it does, only a pooled plan with multi-generational, active payees plus retired participants, with adjustable benefits, can maintain solvency through a balance of contributions from active workers and returns from invested assets. A pooled 401K plan is nothing more than an ideologically impure version of individual 401K plans. An adjustable defined benefit plan is nothing more than an ideologically impure version of a fixed defined benefit plan. They can be functionally identical, two tales of the same thing, and they are both practical compromises.

Detroit’s failures, and Detroit’s probable ascendancy from now on, is easy to describe using hyperbole and polemics. But ultimately there is one destiny, one tale in reality, that will define Detroit’s future. Cutting through the rhetoric, cities around the nation may look to Detroit for answers, especially regarding their new pension plan, because Detroit has passed through a clarifying crucible of pain and self-evaluation that cities with better weather and more diversified economies have deferred. One big market correction will erase those advantages. The tale of Detroit makes for compelling analysis, from New York to LA.

Edward Ring is the executive director of the California Policy Center.

*   *   *

How to Create Affordable Abundance in California

California has one of the highest costs of living in the United States. California also is one of the most inhospitable places to run a business in the United States. And despite being blessed with abundant energy and an innovative tradition that ought to render the supply of all basic resources abundant and cheap, California has artificially created shortages of energy, land and water, and a crumbling, inadequate transportation and public utility infrastructure.

The reason for these policy failures is because the people who run California are the public sector unions who control the machinery of government, the career aspirations of government bureaucrats, the electoral fate of politicians, and the regulatory environment of the business community. To make it work, these unions have exempted government workers, along with compliant corporations and those who are wealthy enough to be indifferent, from the hardships their policies have created for everyone else.

Here’s just a taste of what California’s middle class, too rich to qualify for government handouts and too poor to be indifferent, has to endure compared to the rest of the United States:

CALIFORNIA’S PREMIUM, 2014  –  HIGH PRICES FOR THE BASICS

It’s not hard to estimate how these premiums, 13% for gasoline, 42% for electricity, and 72% for homes, translate into the necessity to work and earn tens of thousands of dollars more each year in order to live in California instead of almost anywhere else in America. As for the tax and regulatory environment, respected tax fighter Richard Rider maintains a well-researched list of tax and business statistics entitled “Unaffordable California,” updated here quarterly. The substance of that report is this: Californians pay higher taxes and endure more restrictions on business than anywhere else in America. Read the details. It is as mesmerizing as it is disgraceful.

There is a simple and effective solution to ending California’s war on the private sector middle class by public sector unions and their corporate cronies. But first it is important to point out another depredation, one that rivals the unaffordable cost-of-living, wreaked onto California’s beleaguered private sector middle class by public sector unions and their financial cronies.

The following graph, courtesy of Charles Hugh Smith (ref. “The Generational Short, part 2“) shows everything you need to know about saving and investing in the 21st century:

 VOLATILITY FOR CIVILIANS, 7.5%  GUARANTEED FOR PUBLIC SERVANTS
 

 Careful review of the above graph will indicate that the top of the vertical green line to the far right represents today’s market attainment. A market that, in the case of the DJIA, has whipsawed between 6,000 and 16,000 in less than ten years. You don’t have to be a Ph.D economist to recognize we’re contending with rather unsettling volatility these days. If you were to posit that right now we’re seeing another run up of bubble assets – both for equities and real estate – you’d be in good company. And it doesn’t take much more than horse sense to know that going out and earning a “risk-free” 7.5% per year (more significantly, 4.5% after inflation), average, for the next 30 years, is a fool’s errand.

Yet that is precisely what unionized public employees get “guaranteed” by their pension funds, give or take a half-point. And the fools who guarantee this 7.5% are the taxpayers who themselves are forced to risk their own retirement savings in a market that is at a historic high, in an era of unprecedented levels of debt as a percentage of GDP, that displays volatility sufficient – at any moment – to wipe out an individual’s savings at the same time as professional traders profit on the swings.

And herein lies the solution. Because the seismic outrage that any financially literate taxpayer may feel at being so dispossessed, so insecure despite making utterly responsible financial decisions, is not shared by the 25% or more of the population who live in a government worker’s household. It is not cruel or spiteful, but rather to salvage our social contract, to require government workers live by the same rules as the citizens they serve.

When the people who operate the machinery of government earn comparable compensation, endure the same risks, face the same hard decisions, and live with the same levels of financial insecurity as the rest of the population, they will adopt entirely new attitudes towards legislation affecting the cost of living, the business climate, the tax burden, and the profound public policy challenges of retirement security. Unlike today, their political incentives will be to make common cause with the people they serve.

Instead, their unions broker deals with politicians they elect. They use environmental laws to fight infrastructure investment in order to pay themselves instead. They pour money into pension funds and bond underwriting firms, making government the biggest partner of Wall Street – their proverbial demon. They block development of land, energy, water and transportation assets in order to assist their corporate cronies who control existing supplies to profit from the resulting scarcity and lack of competition. This contrived scarcity also creates the asset bubbles that inflate the tax base and nominally preserve pension fund solvency.

If public sector unions were outlawed, public sector workers would join with private citizens to forge a new political identity freed from vested interests and privilege. They would support policies designed to break up monopolistic entities, creating competition and lowering the cost of living. Public sector workers would make less, but they would also pay less to live, and the savings could be invested in infrastructure upgrades especially for water and transportation. These investments, along with revitalized land and energy development, would render the basic necessities of living abundant and cheap, instead of scarce and expensive. This California renaissance requires only one thing – the abolition of public sector unions.

 *   *   *

This article originally appeared on the website of the California Policy Center.

California’s Green Bantustans

One of the core barriers to economic prosperity in California is the price of housing. But it doesn’t have to be this way. Policies designed to stifle the ability to develop land are based on flawed premises. These policies prevail because they are backed by environmentalists, and, most importantly, because they have played into the agenda of crony capitalists, Wall Street financiers, and public sector unions. But while the elites have benefit, ordinary working families have been condemned to pay extreme prices in mortgages, property taxes, or rents, to live in confined, unhealthy, ultra high-density neighborhoods. It is reminiscent of apartheid South Africa, but instead of racial superiority as the supposed moral justification, environmentalism is the religion of the day. The result is identical.

Earlier this month an economist writing for the American Enterprise Institute, Mark J. Perry, published a chart proving that over the past four years, more new homes were built in one city, Houston Texas, than in the entire state of California. We republished Perry’s article earlier this week, “California vs. Texas in one chart.” The population of greater Houston is 6.3 million people. The population of California is 38.4 million people. California, with six times as many people as Houston, built fewer homes.

And when there’s a shortage, prices rise. The median home price in Houston is $184,000. The median price of a home in Los Angeles is $530,000, nearly three times as much as a home in Houston. The median price of a home in San Francisco is $843,000, nearly five times as much as home in Houston. What is the reason for this? There may be a shortage of homes, but there is no shortage of land in California, a state of 163,000 square miles containing vast expanses of open space. What happened?

You can argue that San Francisco and Los Angeles are hemmed in by ocean and mountains, respectively, but that really doesn’t answer the question. In most cases, these cities can expand along endless freeway corridors to the north, south, and east, if not west, and new urban centers can arise along these corridors to attract jobs. But they don’t, and the reason for this are the so-called “smart growth” policies. In an interesting report entitled “America’s Emerging Housing Crisis,” Joel Kotkin calls this policy “urban containment.” And along with urban containment, comes downsizing. From another critic of smart growth/urban containment, economist Thomas Sowell, here’s a description of what downsizing means in the San Francisco Bay Area suburb Palo Alto:

“The house is for sale at $1,498,000. It is a 1,010 square foot bungalow with two bedrooms, one bath and a garage. Although the announcement does not mention it, this bungalow is located near a commuter railroad line, with trains passing regularly throughout the day. The second house has 1,200 square feet and was listed for $1.3 million. Intense competition for the house drove the sale price to $1.7 million. The third, with 1,292 square feet (120 square meters) and built in 1895 is on the market for $2.3 million.”

And as Sowell points out, there are vast rolling foothills immediately west of Palo Alto that are completely empty – the beneficiaries of urban containment.

The reason for all of this ostensibly is to preserve open space. This is a worthy goal when kept in perspective. But in California, NO open space is considered immediately acceptable for development. There are hundreds of square miles of rolling foothills on the east slopes of the Mt. Hamilton range that are virtually empty. With reasonable freeway improvements, residents there could commute to points throughout the Silicon Valley in 30-60 minutes. But entrepreneurs have spent millions of dollars and decades of efforts to develop this land, and there is always a reason their projects are held up.

The misanthropic cruelty of these polices can be illustrated by the following two photographs. The first one is from Soweto, a notorious shantytown that was once one of the most chilling warehouses for human beings in the world, during the era of apartheid in South Africa. The second one is from a suburb in North Sacramento. The scale is identical. Needless to say, the quality of the homes in Sacramento is better, but isn’t it telling that the environmentally enlightened planners in this California city didn’t think a homeowner needed any more dirt to call their own than the Afrikaners deigned to allocate to the oppressed blacks of South Africa?

The Racist Bantustan

Soweto, South Africa  –  40′ x 80′ lots, single family dwellings

When you view these two studies in urban containment, consider what a person who wants to install a toilet, or add a window, or remodel their kitchen may have to go through, today in South Africa, vs. today in Sacramento. Rest assured the ability to improve one’s circumstances in Soweto would be a lot easier than in Sacramento. In Sacramento, just acquiring the permits would probably cost more time and money than doing the entire job in Soweto. And the price of these lovely, environmentally correct, smart-growth havens in Sacramento? According to Zillow, they are currently selling for right around $250,000, more than five times the median household income in that city.

The Environmentalist Bantustan

Sacramento, California  –  40′ x 80′ lots, single family dwellings

When you increase supply you lower prices, and homes are no exception. The idea that there isn’t enough land in California to develop abundant and competitively priced housing is preposterous. According to the American Farmland Trust, of California’s 163,000 square miles, there are 25,000 square miles of grazing land and 42,000 square miles of agricultural land; of that, 14,000 square miles are prime agricultural land. Think about this. You could put 10 million new residents into homes, four per household, on half-acre lots, and you would only consume 1,953 square miles. If you built those homes on the best prime agricultural land California’s got, you would only use up 14% of it. If you scattered those homes among all of California’s farmland and grazing land – which is far more likely – you would only use up 3% of it. Three percent loss of agricultural land, to allow ten million people to live on half-acre lots!

And what of these lots in North Sacramento? What of these homes that cost a quarter-million each, five times the median household income? They sit thirteen per acre. Not even enough room in the yard for a trampoline.

There is a reason to belabor these points, this simple algebra. Because the notion that we have to engage in urban containment is a cruel, entirely unfounded, self-serving lie. You may examine this question of development in any context you wish, and the lie remains intact. If there is an energy shortage, then develop California’s shale reserves. If fracking shale is unacceptable, then drill for natural gas in the Santa Barbara channel. If all fossil fuel is unacceptable, then build nuclear power stations in the geologically stable areas in California’s interior. If there is a water shortage, than build high dams. If high dams are forbidden, then develop aquifer storage to collect runoff. Or desalinate seawater off the Southern California coast. Or recycle sewage. Or let rice farmers sell their allotments. There are answers to every question.

Environmentalists generate an avalanche of studies, however, that in effect demonize all development, everywhere. The values of environmentalism are important, but if it weren’t for the trillions to be made by trial lawyers, academic careerists, government bureaucrats and their union patrons, crony green capitalist oligarchs, and government pension fund managers and their partners in the hedge funds whose portfolio asset appreciation depends on artificially elevated prices, environmentalism would be reined in. If it weren’t for opportunists following this trillion dollar opportunity, environmentalist values would be kept in their proper perspective.

The Californians who are hurt by urban containment are not the wealthy elites who find it comforting to believe and lucrative to propagate the enabling big lie. The victims are the underprivileged, the immigrants, the minority communities, retirees who collect Social Security, low wage earners and the disappearing middle class. Anyone who aspires to improve their circumstances can move to Houston and buy a home with relative ease, but in California, they have to struggle for shelter, endlessly, needlessly – contained and allegedly environmentally correct.

 *   *   *

This article originally appeared on the website of the California Policy Center.

The Unholy Trinity of Public Sector Unions, Environmentalists, and Wall Street

Taken at surface value, there ought to be minimal identity of interests between these three special interests. But if you follow the money and power instead of the rhetoric and stereotypes, you will find this unhealthy alliance is alive and thriving. For example, unions use “greenmail,” the threat of a lawsuit on environmentalist grounds, to block developments until the businesses involved concede to union demands. Once they back down, the environmental problem magically disappears.

California’s much vaunted high-speed rail and delta tunnel proposals are also examples of the unhealthy rapprochement between unions (public and private) and environmentalists. Because the construction unions, God bless ’em, want thousands of good new construction jobs, and the only big projects that are environmentally correct are these monstrosities. The unions have a choice – fight the environmentalists in order to lobby for public works that actually yield economic benefits to society, or enjoy their considerable support for a couple of misguided mega-projects.

Beyond obvious examples, how unions, environmentalists, and America’s overbuilt financial sector collude – often unwittingly, does not lend itself to emotionally resonant, simple narrative. It can’t be expressed in a few declarative sentences. But because this web of collusion is stunting the economic growth of America and systematically destroying its middle class, it is a story that must be told. Here are some points that all exemplify the chain of cause and effect, linking the interests of public sector unions, environmentalists, and Wall Street.

  • Public sector unions demand, and get, over-market compensation and benefit packages. This causes budget deficits which, in turn (1) enables environmentalists to more easily fight and defeat infrastructure investments, and (2) creates hundreds of billions in business for Wall Street bond underwriters who finance budget deficits.
  • Politicians controlled by public sector unions declare new infrastructure – freeways, utility upgrades, improved water infrastructure, upgraded grid, investment in airports and seaports, etc., to be environmentally unsound. The real reason, however, is they want the tax revenue to go to increasing pay and benefits for public employees.
  • Wall Street investment firms work with pension funds to convince public sector unions that it is financially feasible and reasonable to enhance pension benefits – or not reduce them, as is more recently the case. As hundreds of billions each year of taxpayers money pours into these funds, investment firms make huge profits. If they don’t earn enough, they raise taxes.
  • Environmentalists come up with a “market-based” way to curb dangerous greenhouse gasses, an “emissions auction” plan, which in turn (1) enables Wall Street trading firms to collect a fee on literally every BTU of fossil fuel consumed in America, and (2) empowers public sector agencies to redefine their jobs (mass transit workers, firefighters, code inspectors, teachers – even police since crime increases during hot weather) as coping with, educating about, or mitigating the effects of global warming, allowing these government agencies to collect the proceeds of the emissions auctions.
  • Without an endlessly appreciating asset bubble, every public employee pension fund in the United States would go broke. To pump up this asset bubble, environmentalist restrictions artificially accelerate price appreciation for land, housing, gasoline, electricity, and other basic needs. And of course, financial institutions reap spectacular profits during periods of rapid asset appreciation.

It is reasonable at this point to wonder – what about business? What is their role in this? That is simple – big business benefits, by being able to afford to comply with excessive regulations and by being able to afford a unionized workforce. In general, smaller companies, innovators, emerging competitors, are crushed by the power of unions and environmentalists, just like the middle class.

There are consequences of an unexamined, unchallenged yet powerful de-facto alliance between public sector unions, environmentalists, and the financial sector that ought to animate anyone claiming to care about America’s working middle class – whether they adhere to the ideology of the Occupy movement, or the Tea Party movement. Because the consequences are a higher cost of living with minimal economic growth and new opportunities. The consequences are an increasingly monopolized, anti-competitive private sector, a perennially swollen financial sector, and an increasingly authoritarian, self-interested government. Public sector unions and Wall Street use the environmental movement for cover. This factor should temper any assessment of environmentally inspired policies.

Unions in the private sector, were they to adhere to their ideals and even their most cherished pragmatic goals, would use their considerable influence to rein in the unchecked power of environmentalists. Only then will their desire for more and better jobs, building tangible assets that are actually beneficial to society, be best realized. Public sector unions, on the other hand, whose entire reason for existence is inherently in conflict with society at large, should be illegal.

 *   *   *

This article originally appeared on the website of the California Policy Center.

Public Pension Solvency Requires Asset Bubbles

The title of this post expresses what is probably the greatest example of a monstrous hypocrisy – that public employee unions, and the pension funds they control, are supposedly helping the American economy, and protecting the American people from “the bankers.” Overpriced “bubble” assets caused by banks offering low interest rates hurt ordinary working people in two ways – they cannot afford to buy homes, and they are denied any sort of viable low risk investment opportunity. But without an endlessly appreciating asset bubble, every public employee pension fund in the United States would go broke.

The inspiration for this post is a guest column published on April 27th in the Huffington Post entitled “The Real Retirement Crisis,” authored by Randi Weingarten, the president of the American Federation of Teachers. The totality of Weingarten’s column, a depressing plethora of misleading statistics and questionable assertions, compels a response:

Weingarten writes: “America has a retirement crisis, but it’s not what some people want you to believe it is. It’s not the defined benefit pension plans that public employees pay into over a lifetime of work, which provide retirees an average of $23,400 annually…”

Here we go again. This claim is one of the biggest distortions coming out of the public sector union PR machine, and despite repeated clarification even in the mainstream press, they keep using it, faithfully counting on low-information voters to believe them. “An average of $23,400 annually.” Not in California. In the golden state, public employee pensions average well over $60,000 annually (ref. “How Much Do CalSTRS Retirees Really Make?“), if you adjust for a 30 year career working in public service. And in most cases public employees also receive supplemental retirement health benefits worth additional thousands each year.

With respect to the causes of the 2007-2008 financial crisis, Weingarten continues: “It’s not the cost of such [defined benefit] plans, which may ultimately cost taxpayers far less than risky, inadequate and increasingly prevalent 401(k) plans.”

What! Exactly how can 401K plans ever cost taxpayers more than defined benefit plans? This is absurd. Public sector defined benefit plans represent fixed payment obligations regardless of levels of funding. When they’re underfunded, the taxpayer makes up the difference. A 401K plan that is underfunded creates no lingering obligation to the taxpayer. If someone from the public sector has an underfunded 401K plan, then they will get whatever government assistance or lack of assistance that someone from the private sector might get. That’s tough, but fair. It is hypocritical to pretend to care about workers, but put the welfare of public sector workers above the welfare of private sector workers. If we are to spend taxes on government administered retirement programs, then everyone should earn benefits according to the same formulas and incentives – whatever they are.

Weingarten then suggests we expand Social Security:  “Social Security, which is the healthiest part of our retirement system, keeps tens of millions of seniors out of poverty and could help even more if it were expanded.”

This is a great idea. Why not give every public employee Social Security? Why not insist on this? Social Security is progressive, meaning that high income people get far less back than low income people. Since the public sector workers make far more, on average, than private sector workers, their participation in Social Security will have a significant positive impact on the solvency of Social Security (ref. “Add ALL Public Workers to Social Security“). Why aren’t public sector unions insisting they participate? Don’t they value the progressive benefit formulas? Don’t they want to expand the system? Could it be they are hypocrites?

Here’s a macroeconomic “big picture” quote from Weingarten:  “And while the stock market and many pension investments have rebounded, for numerous Americans the lingering economic downturn, soaring student debt, diminished home values, the responsibility of caring for aging parents and other financial demands have made it hard, if not impossible, to save for retirement.”

What Weingarten doesn’t acknowledge is the shared agenda that public sector unions and union controlled pension funds have to perpetuate the asset bubble that’s killing middle class families (ref. “Pension Funds and the “Asset” Economy“). California’s artificially inflated home prices are driving young families out of the state where they were born, preventing them from living near their aging parents, depriving their children of a relationship with their grandparents. But pension fund solvency requires ongoing appreciation of real estate and publicly traded stock even if they are already overpriced. As for student debt – if middle class families didn’t have built into their tuition payments the costs for overpaid, over-pensioned, and under-worked unionized faculty, a bloated workforce of unionized college administrators, and subsidies that make college virtually free for low income students, their “student debt” would be manageable because their rates of tuition would be far lower. Does Weingarten care about the “middle class,” or might hypocrisy be at work here?

Here’s another Weingarten quote that invites a rebuttal:  “Defined benefit plans not only help keep retirees out of poverty, every $1 in pension benefits generates $2.37 in economic activity in communities.”

The problem here is that ALL investments generate economic activity. You don’t have to run it through a pension fund. If taxpayers get to keep the money they would have paid to fund a public employee’s pension, they’ll invest it or spend it too. In California’s case, as is proudly proclaimed in, for example, CalPERS press releases, “9.5% of CalPERS investment portfolio is reinvested in California.” Nine-point-five percent. The other more than ninety percent goes to other states and countries, presumably places with business climates that aren’t poisoned by the policy agenda of public sector unions. How does that help California’s economy?

Finally, Weingarten alludes to a new initiative being advocated by public sector unions to provide enhanced retirement security to private sector workers. She writes:  “The AFT is engaged in a broad-based effort with a bipartisan group of state treasurers, other unions, asset managers and even some large Wall Street firms to vastly expand retirement security through pooled, professional asset management.”

Here is shameful hypocrisy disguised, once again, as altruism. Because these private sector defined benefit plans will not guarantee participants a 7.5% return on investment. They will have to conform to ERISA, meaning the future retirement liabilities that will be offset by invested assets will have their present value calculated at conservative rates. This double standard guarantees the “normal contribution” for public employees in order to generate a given defined benefit will be remain far less than that required of private citizens. Some observers have even suggested these private defined benefit plans, where the assets will be co-mingled with public sector defined benefit plans, will be used as piggy banks to shore up the public sector plans. After all, if the assets are co-invested and earn a rate of return that exceeds the discount rate used to value the future liabilities for the private retirees, but falls short of the discount rate used to value the future liabilities for the public sector retirees, then the surplus from the private sector’s fund will be applied to the deficit in the public sector fund. Why not? It is easy to be diabolical, and hypocritical, when your critics have to dive so far into the weeds to challenge your logic or your morality.

Weingarten doesn’t have to deal with weeds, however, or wonks, or the tough realizations that are the reward of complex analyses. She just has to say things that are emotionally resonant, then let her multi-million dollar PR machine feed it to the masses.

When interest rates were lowered in the 1990’s, stock prices soared, forming what was later called the internet bubble. When that bubble popped in 2000, interest rates – and credit criteria – were lowered even further, forming the real estate bubble. Through it all, pension funds banked profits on artificially inflated asset values, ordinary citizens went into debt to their eyeballs to buy homes and pay tuition for their children, and the unions that controlled the pension funds negotiated massive increases to pay and pension benefits as if these bubbles could last forever. When reality finally returned in 2008, the government unions and their banker allies handed struggling taxpayers the bill, holding onto their excessive pay, benefits, bonuses and pensions, and engaged in quantitative easing and other fiscal shenanigans calculated to perennially inflate new asset bubbles, and the pensions that depend on them.

That is the real story, Ms. Weingarten.

 *   *   *

This article originally appeared on the website of the California Policy Center.

Construction Unions Should Fight for Infrastructure that Helps the Economy

One primary reason California has the highest cost-of-living (and cost of doing business) in America, combined with a crumbling infrastructure, is because California’s construction unions have allied themselves with environmental extremists and crony “green” capitalists, instead of fighting for what might actually help their state.

California’s construction unions ought to take a look around the rest of the country, where thousands of jobs are being created in the energy industries – really good jobs – doing something that actually helps ordinary people. Because the natural gas revolution unleashed in North Dakota, Texas, Wyoming, Colorado, Utah, New Mexico, Pennsylvania, West Virginia, and Ohio is creating thousands of jobs in those states at the same time as it lowers the cost of energy for consumers who struggle to make ends meet.

More generally, construction unions should remember that it is not only how much their own members earn that matters, but how much things cost everyone. If things cost less, you can make less yet enjoy the same standard of living. When unions fight for high paying jobs on projects that are useless, they only help themselves. When they fight for projects – such as natural gas development – that lower the cost of energy, they are helping everyone.

The California Public Policy Center released a new study this week entitled “The Benefits and Costs of Oil and Gas Development in California,” written by Dr. Tim Considine, an energy economist with the University of Wyoming. In the study, Considine estimates the recoverable reserves of shale oil in the South San Joaquin Valley to total 15 billion barrels, with another 10 billion barrels offshore in the Santa Barbara Channel, accessible now from land-based wells using slant drilling. At $100 a barrel, this is $2.5 trillion worth of oil. And where there’s oil, there’s gas – over 12 trillion cubic feet just offshore in the Santa Barbara channel. What are we waiting for?

Developing these sources of energy over the next 25 years in California, according to Considine, could create up to 500,000 high paying jobs in the energy industry and inject hundreds of billions of tax revenue into the state’s government. When are California’s construction unions going to fight for something that actually helps all Californians?

Instead, apparently, they are lobbying hand in hand with environmental extremists for a “Bullet Train” that almost nobody will ever ride – costing taxpayers over $100 billion so it can operate at a loss – and “Delta Tunnels” that will cost tens of billions and not increase the supply of fresh water in California by so much as one drop.

Can unions themselves be guilty of “labor malpractice”? Because unions are supposed to fight for the interests of ordinary people. They are not supposed to join hands with rich, elitist, misanthropic environmentalist fanatics who live in wealthy coastal enclaves, who would be thrilled if gasoline cost over $10.00 a gallon, and electricity rates were over $1.00 per kilowatt-hour. That’s where we’re headed in California if construction labor doesn’t wake up and fight for ordinary people.

Here are two visions of California’s infrastructure priorities:

(1) Spend $150 billion on a bullet train that almost nobody rides and operates at a loss, and build two “delta tunnels” that do not result in one drop of additional water storage or supply. Prohibit development of any fossil fuel reserves in California. Finance this prodigious waste of money through increasing taxes along with proceeds from “carbon emissions auctions” that enrich Wall Street billionaires and crony “green” capitalists. Continue to neglect California’s infrastructure.

(2) Develop California’s energy resources using private financing, creating hundreds of thousands of high-paying jobs, generating hundreds of billions in tax revenue, and lowering the cost of energy to consumers. Use proceeds to help finance infrastructure investments that benefit all Californians:
–  New aquifer and surface water storage.
–  Desalination plants on the Southern California coast.
–  New power stations – natural gas and nuclear.
–  New natural gas pipelines connecting California to the rest of North America.
–  A liquid natural gas terminal off the Central California coast.
–  Upgraded freeways, bridges, and existing rail corridors.

Which of these visions delivers prosperity to the most people? Which creates more jobs for members of construction unions? Which reflects truly beneficial infrastructure priorities for California?

California’s construction unions have thousands of members who want to build and produce real assets. This distinguishes them from public sector unions, who have an incentive to deny infrastructure spending because it takes tax revenue out of their own pockets. Public sector unions use environmentalist extremists for cover – it justifies them keeping public funds for their pay and benefits instead of investing in infrastructure. There is NO identity of interests between public sector unions and construction unions, other than a residual ideological affinity that falls apart under logical examination.

Perhaps it is time for California’s construction unions, joined by people of conscience from all unions, to care more about all of California’s workers. Perhaps it is possible for construction union leadership to agree to disagree with union reformers on the issue of open shops vs closed shops, or project labor agreements vs. free and open competition, and at least recognize together that environmentalist extremists have too much power in California. They should be challenged, before more money we don’t have is spent on projects we don’t need, simply because it was politically feasible and created a handful of jobs.

 *   *   *

This article originally appeared on the website of the California Policy Center.

Pension Funds and the “Asset” Economy

“You can’t build a society on artificially inflated asset values, because that accelerates the class division. Immigrants know that even if they work in a low-paying job in a hotel in Houston the chances they can save and buy a house are infinitely better than in California. If you want to have an asset based economy then accept we’re going to have feudalism because the price of entry is just too high.”
– Joel Kotkin, CPC Interview, January 4, 2014

What Kotkin is referring to is the result of decades of increasing legislative restrictions on cost-effective land and energy development, combined with Federal Reserve policies designed to minimize the cost of borrowing. In the first case, prices for land and energy, the building blocks of a healthy economy, are artificially inflated through constraints on supply. In the second, the supply of borrowed money is artificially increased via ultra-low interest rates.

This so-called “asset economy” might also be called a “bubble economy,” because it cannot be sustained indefinitely. For a while, inflated values of real estate, privately owned natural resources and business inventories provide collateral for additional borrowing at low interest rates, which puts even more money into circulation, bidding the price of assets up even further. Meanwhile, environmentalist legislation of increasing severity continues to restrict supplies of land and energy, driving prices of marketable land and energy higher still. And the bubble grows.

This is the real reason California is unaffordable for working families. Anywhere within 100 miles of the California coast, homes “priced to sell” at $400,000, cost more than six timesCalifornia’s median household income of $61,400. Thanks to their inflated price, these homes will come with a hefty property tax bill – including local assessments – of over $5,000 per year, and if they were built anytime in the last 20 years or so, there’s a good chance you can tack another several thousand per year of “Mello Roos” assessments – property taxes by any other name.

Who benefits from the asset economy? The answer may surprise you.

The obvious beneficiary of inflated asset values is the proverbial Wall Street crowd. Every time the closing bell rings on an uptick, the trading minions in lower Manhattan clink their martini glasses and bellow with predatory glee. We get that.

Who else benefits from the asset economy? Consider this statement, courtesy of the SEIU, found on their “Fact Check on Public Employees’ Pensions” website page:

“Are taxpayers the ones who foot the bill for public workers’ pensions?

In a word, no. The modest amount the average public worker takes home is covered largely through investment returns–not the emptying of taxpayers’ pockets.”

This quote, “investment returns,” lies at the crux of the disagreement over both the financial sustainability of public sector pensions, and whether or not they constitute an unfair burden on taxpayers. Because in this low-interest rate economy, where the prime lending rate is 3.25% and the 30 year fixed rate mortgage is 4.25%, public employee pension funds are investing all over the world, essentially loaning money at 7.5% interest.

You heard that right. They are loaning money at 7.25% interest. Because the only real difference between an investment and a loan is when investments don’t return the expected rate to the investor, the “borrower” doesn’t have to pay the money back.

One primary reason pension funds have the expectation they can earn 7.5% interest per year is because they are placing more and more of their investments with private equity firms and hedge funds, whose charter is to beat the market – at great risk. Most of the rest of their funds are invested in publicly traded equities or real estate assets – i.e., profitable corporations and corporate holdings whose values currently appreciate at unsustainable rates, thanks to ultra-low interest rates and artificial constraints on supplies in markets where they have monopolistic power.

And in one very important sense, pension funds may be explicitly considered lenders, not investors, because if they fail to earn 7.5% per year on their investments, they have the power to increase the required contributions from the government employers of their beneficiaries. The taxpayers, you see, guarantee those 7.5% annual returns.

It would be hilarious if it weren’t so dangerously prolonging an honest reckoning – the ability of public sector union spokespersons to demonize pension reformers as “tools of Wall Street.” Because it is their pension funds who pour more money into Wall Street than any other financial special interest, and who carry the unique power to cover their losses on the backs of taxpayers. Equally significant, but far more subtle, is that pension funds depend on artificially high costs of living, through artificially appreciating asset values, to ensure their high returns and continued precarious solvency, also on the backs of working people.

 *   *   *

This article originally appeared on the website of the California Policy Center.