California’s Socialist Oligarchy, Part One: Making the State Unaffordable
Touted as the “fifth-largest economy on Earth,” and recently heralded as delivering the “greatest increase in average income,” these statistics obscure an alarming reality. California has become a feudal state, where the benefits of prosperity are unequally distributed, rewarding corrupt plutocrats and punishing ordinary working families. Joel Kotkin, a fellow in urban studies at Chapman University in Orange, California, characterized California’s current political economy as “Oligarchical Socialism.” This is a perfect description of a system that destroys the middle class at the same time it protects the ultra rich.
California’s leftist oligarchy benefits financially from precisely the depredations they accuse conservatives of committing. They have enacted policies that are designed to make California unaffordable to all but the wealthiest residents, and hostile to emerging small businesses, at the same time as their preexisting wealth and politically connected corporations reap enhanced returns and profits.
Plenty of Land, Impossible to Build
Nowhere are the consequences of California’s oligarchical socialism more evident than in the cost of housing. State legislation has made it nearly impossible for developers to construct new housing outside the so-called “urban growth boundary.” Instead, development is redirected into the footprint of existing urban areas.
While there is a natural tendency as population increases to see higher density redevelopment in urban cores, by restricting outward expansion of urban areas, the value of the limited remaining eligible land becomes artificially inflated. But established landowners and large development firms benefit from these restrictions. They are able to withstand years, if not decades, of expensive permitting delays and endless litigation. They are able to afford millions in permit fees because these costs are offset by their ability to sell residence units—from high-rise condos to detached single family dwellings—at prices far beyond what they would cost in a normal market.
These billionaire business interests get richer, while ordinary Californians who want to own or develop land cannot afford to go through the permit process. Meanwhile, the median cost of a home in California is $539,400—nearly 2.5 times the national average of $216,700. And that’s not even in the tougher markets.
With all land development, environmentalist laws such as California’s Environmental Quality Act (CEQA) create additional barriers. California’s legislature has now made it necessary for new home construction to be 100 percent “energy neutral” by 2020. Not only does this require installation of photovoltaic roof panels, but also more expensive insulation, as well as more expensive appliances that use less energy (and also happen to be less durable and don’t work as well). These mandates make homes less livable, for example, requiring smaller windows in order to make the homes easier to heat and cool.
The amazing fact that California’s legislators willfully ignore is the incredibly abundance of expanses of land that remain virtually empty in this vast state. California is only 5 percent urbanized. 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. In other words, 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 percent 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 percent of it. Three percent loss of agricultural land, to allow 10 million people to live on half-acre lots!
Instead of allowing land owners to build millions of inexpensive homes on, say, just a small fraction of California’s 25,000 square miles of grazing land, California’s lawmakers want to have “smart growth.” And as prices rise, the solution? On the ballot this November, propositions to enforce statewide rent control, borrow $4 billion to build “affordable housing,” and use state tax revenues to build more government-run homeless shelters. After all, expanding the private sector threatens the oligarchy. Best to expand the public sector.
Plenty of Energy Resources, Unaffordable Energy
While the cost of housing is an obvious example of how California has been turned into an enclave for the super rich and an expensive ordeal for ordinary Americans trying to live there, it is not the only example. California’s legislature has curtailed, if not completely shut down, development of oil, natural gas, hydroelectric and nuclear power.
In the summer of 2000, during California’s energy crisis, as brown-outs were rolling up and down the state, total disaster was averted because two nuclear reactor complexes, San Onofre and Diablo Canyon, were continuously pumping 4.2 gigawatts of electricity—more than 10 percent of California’s peak demand at the time—into the power grid. But instead of retrofitting, San Onofre was shuttered in 2013 and Diablo Canyon is set to shut down by 2025.
And what’s replacing these power plants? Wind and solar farms, with their intermittent output backed up by natural gas power stations.
If the massive amounts of surplus electricity produced when the sun is shining and the wind is blowing could be stored, it might make sense to decommission clean nuclear power plants and ban development of fossil fuel. But despite decades of research, and dozens of promising but failed attempts, grid-scale electricity storage remains prohibitively expensive. But that’s OK. According to the state legislature, Californians can just pay more. And of course, when consumers pay more, utilities—whose percentage profit is limited by regulation—make far more in absolute profits, since they get to charge so much more per kilowatt-hour. The average cost for electricity is 19.7 cents per kilowatt-hour in California, compared to 13.1 cents per kilowatt-hour nationally.
And there’s no end in sight. True to form, California’s state legislature just passed a law that calls for 60 percent renewable energy by 2030 and 100 percent carbon-free energy by 2045. With hydroelectric and nuclear power off the table, that’s going to be a neat trick.
With oil, it gets worse. We’re not talking about California’s aggressive formulation requirements that make tailpipe emissions cleaner. Perhaps California’s geography justifies this, as offshore winds blow the entirety of coastal city smog into the inland valleys where it is trapped and accumulates. But the reason gas is so expensive in California has little to do with that. It is nearly impossible to maintain refinery output in California, and California’s state gas taxes are among the highest in the nation. Gasoline in California costs around $3.87 per gallon, compared to $2.87 nationally.
While ordinary Californians suffer, left-wing oligarchs prosper.
Green technology entrepreneurs flourish, selling products that consumers are required by law to purchase. Not just solar panels and the related “balance of plant” systems. There are also “negawatts,” a good concept that is being taken to extremes. Sensors and chips designed to make appliances more “energy efficient” are designed by Silicon Valley companies whose prosperity depends on legislative mandates that compel Californians to purchase their products. Promoting the “internet of things” is purportedly justified on environmentalist grounds, while in reality it is a lucrative source of income for high-tech manufacturers, as well as a lucrative means of surveillance and data mining. These new appliances save some electricity. But are they durable? Easy to operate? Do they work as well as conventional appliances? Are they easy to use? Are they inexpensive? No to all.
Plenty of Water, Yet Water Is Rationed
Water is another area where ordinary Californians needlessly suffer inconveniences and pay more.
California receives between 150 and 300 million acre feet of rainfall per year, depending on whether it’s a drought year or a wet year. Regardless of the year, most of that water either evaporates, percolates, or runs off into the Pacific Ocean. And of the roughly 65 million acre feet that are diverted, fully half of it is saved for re-release into the environment, to maintain river flow and to prevent saltwater intrusion into the Sacramento Delta. Of what remains, almost all of it is used for agriculture. Less than 4 million acre feet of water each year are used by California’s households, and less than half that much is for indoor use.
You wouldn’t think that were the case if you reviewed California’s new laws regarding water, and the ways they’re going to be implemented. This year California’s state legislature passed a law requiring average daily indoor water use by California residents to not exceed 55 gallons per day, an amount that lowers to 50 gallons per day by 2030. Maybe you’ve encountered the “solutions” that will effect this reduction: Water faucets that spray eight tiny concentrated, 1.0 mm thick jets of water onto your hands, making it difficult to get them wet and nearly impossible to rinse off soap. Or “low-flow” shower heads with the same problem, magnified for anyone who wants to rinse shampoo out of long hair. What about “smart” laundry machinesthat start and stop randomly, ostensibly to save energy and water, that do a poor job of cleaning your clothes. Or supplemental “tankless” water heaters positioned close to your kitchen sink, that cost thousands of dollars and don’t work all that well, in order for residents to avoid running unnecessary gallons down the drain as they wait for the hot water to flow through their pipes.
All this expense and bother, to save what, at a statewide level, amounts to a trivial amount of water. California’s total residential indoor water use represents less than three percent of California’s total water diversions.
And California’s bureaucrats still aren’t done. In a hearing postponed till just after November 6—no coincidence there—California’s State Water Resources Board is expected to mandate increased “natural flows” in California’s rivers, which will create additional water scarcity, especially for farmers.
It doesn’t have to be this way.
Californians could easily escape water scarcity by investing in additional reservoirs, desalination plants, and wastewater recycling. But environmentalists torpedo all of these projects, successfully lobbying for laws that tie every project up in permitting delays that cost millions, if not tens of millions, and take years, if not decades, to overcome. When permits are finally granted, along come the lawsuits.
A good example of a project that makes compelling economic sense, but is bitterly opposed by environmentalists, is raising the height of the Shasta Dam. In exchange for construction costs under $2 billion, an annual yield of a half-million acre feet would be added to California’s water resources. Not only does this amount of water exceed how much water could be saved by additional household rationing, there’s even an environmental benefit, because summer releases of this water from Shasta’s deep, cool reservoir would improve fish habitat on the Sacramento River.
Roads Are Congested, And the State Builds a Bullet Train
There is nothing more versatile than the common road. On a road, anything on wheels, from bicycles to 80-ton trucks, can get from their point of origin to their destination. The simple flat surface delivers transportation options that nothing requiring rails or runways can hope to match. Moreover, cars and trucks are becoming cleaner and greener every year. One may argue vehemently over how exactly clean energy abundance will be achieved, but only the most pessimistic Luddite might cling to the notion that it will never happen.
Meanwhile, Californians urgently need new roads, wider roads, and upgraded roads. Californians may supplement these new roads with hyperloop technologies, or flying cars and other next generation vehicles, but what California does not need is the much criticized but seemingly unstoppable “bullet train,” a project that fails any rational cost-benefit analysis.
Using the California High Speed Rail Authority’s own projections, the system will not be profitable for 10 years. And what projections! The CHSRA assumes an average ticket price of $60, and average daily ridership of 120,000 people. Will 120,000 individuals actually be willing to spend $600 per month (and that’s only $30 per round trip, half what the High Speed Rail Commission is projecting) to commute from California’s less expensive Central Valley, into their jobs in coastal Silicon Valley and Los Angeles? And so what if they did? California has a workforce of more than 19 million people. How does spending around $100 billion on high speed rail help these other 18.9 million commuters?
To build a road in California takes years of permitting and litigating, then costs far more than it would in other parts of America. Environmentalist restrictions, project labor agreements, and a bloated, inefficient State Department of Transportation are all contributing factors. Meanwhile, in comparison to other states, California consistently ranks at or near the bottom in terms of pavement conditions and traffic congestion. There is no end in sight.
Housing. Energy. Water. Transportation. These are the basic necessities of civilized life. And for power and profit, California’s socialist oligarchs have made them all prohibitively expensive. The social agenda of California’s Left is well understood. But the punishing economic agenda, engineered by California’s socialist oligarchy, is equally disturbing. It represents a devastating threat to the American way of life.
The second part of this report will identify the special interests that constitute this coalition of scarcity profiteers, and how they might be stopped.
Edward Ring is a contributing editor and senior fellow with the California Policy Center, which he co-founded in 2013 and served as its first president. He is also a senior fellow with the Center for American Greatness, and a regular contributor to the California Globe. His work has appeared in the Los Angeles Times, the Wall Street Journal, the Economist, Forbes, and other media outlets.
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