What Democratic Party Rule Will Do to America

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Recent and ongoing events, historic by any standard, have emphatically refuted anyone who thought a black swan event could not possibly disrupt America’s 2020 election. Recent events might also suffice to remind us that yet another Black Swan event could transpire before the November election, creating additional political disruption.

Regardless of how America’s public health and economic fortunes withstand this current ordeal, most establishment media along with the social media monopolies are firmly in the camp of the Democrats. They will present everything that happens between now and November in a manner to favor Democratic candidates and harm Republicans.

It’s hard to win when nearly every special interest group in the nation is getting its pockets greased by policies supported by Democrats, and every one of them is using every financial resource they’ve got to elect more Democrats.

What’s astonishing isn’t that Republicans still cling to a razor-thin majority in the U.S. Senate, it’s that there are any Republicans left, anywhere.

With billions of dollars pouring in from leftist billionaires, multinational corporations, and public-sector unions, the Democrats have set ambitious goals. The liberal website Vox identifies no fewer than 11 U.S. Senate races they claim Democrats could take and unseat incumbent Republicans. The politically neutral Cook Political Report ranks four races for the U.S. Senate, in Arizona, Colorado, Maine, and North Carolina, as “toss-ups.” As reported in The Hill, “changing demographics” (along with a stupefying amount of out-of-state money) have put North Carolina in play.

And what about Montana, one of four additional states ranked by Cook as “lean Republican”? To the delight of the Washington Post and the New York Times, popular Democrat governor Steve Bullock recently decided to run against Montana’s incumbent freshman Republican Steve Daines. Can he win? With or without additional black swan events, he’s got the entire weight of America’s Democratic establishment behind him. But Montana voters need to think carefully about the choice they make in November.

California Illustrates the Consequences of Democratic Party Rule

Montana may have harsh winters, but these residents of the frozen north are spared the inclement consequences of Democratic rule. They are, along with residents of states like Oregon (except in Portland) and Vermont, living in societies that don’t have to shoulder the economic deadweight and social disruption created by Democratic Party policies.

They need to come to California, where Democrats wield absolute political power. Then they need to visualize these conditions in every city and town and county and school district in their own beautiful state.

The first thing to understand about California is that it is run by leftist billionaires in partnership with government unions. In exchange for pension benefits that were breaking the budgets of California’s state and local governments prior to the COVID-19 sparked economic crash, public-sector employees have become a Praetorian Guard for the super-rich in California. Their tactics are brilliantly deceptive.

The premise of California’s Democrats is that they are saving the planet from wealthy corporations and saving the people from racists and sexists. Both of these premises are wielded like bludgeons to silence anyone who tries to question their policies. But the policies they’ve enacted have ruined everything. The poor are trapped in poverty, the rich get richer, and the middle class is leaving.

A quick look at various aspects of life in California ought to make obvious the failure of Democratic rule. The teachers’ unions in California have negotiated work rules that make it nearly impossible to fire incompetent instructors. They’ve made it necessary during layoffs to retain teachers based on seniority instead of based on teaching performance. They’ve set it up so a public school teacher has a job for life after less than two years of classroom observation. Their war on charter schools has denied the vast majority of students access to innovative and promising educational alternatives.

Even worse, instead of focusing on fundamentals such as math and reading, California’s legislature, controlled by the teachers’ unions, now requires high school and college students to complete an “ethnic studies” course as a graduation requirement. Review the syllabus for these courses to get an idea of the world view of Democrats. California’s ethnic studies courses indoctrinate California’s straight white male students, who now constitute barely 10 percent of Californians under the age of 18, that they are privileged scions of the most hideous oppressors in the history of the world. At the same time, these courses indoctrinate the rest of California’s youth to believe they are disadvantaged victims, who deserve special treatment for the rest of their lives.

And to mitigate this historical injustice, every major institution in California enforces race and gender hiring quotas. College professors have to sign pledges to document their commitment to diversity. SAT scores are ignored in college admissions and are on the verge of being dispensed with entirely.

The destructive impact of divisive indoctrination and racial and gender quotas are impossible to overstate. At what point does a commitment to proportional representation in all institutions become intolerably destructive, when this commitment is heedless of massive and verifiable disparities in aptitude? At what point does it render these institutions irreparably compromised?

Fighting Racism, Protecting the Planet

If California’s institutionalized racist anti-racism and sexist anti-sexism weren’t bad enough, equally unsustainable is its commitment to “sustainability.” California’s environmentalist overregulation is the reason housing is unaffordable. State officials have declared vast swaths of land off-limits to development, supposedly because suburban sprawl causes excessive “greenhouse gas” emissions, with the consequence being skyrocketing prices for what remains of available land that isn’t restricted. They have enacted escalating mandates for energy efficiency now culminating in a requirement for homes to be “energy neutral,” producing as much energy as they consume; all of this greatly increases costs at the same time as it makes these homes uncomfortable to live in.

And hiding behind the pretext of environmentalism, cities and counties that are financial slaves to the insatiable, ever-increasing demands of the pension systems, no longer have budgets to pay for infrastructure.

It used to be that cities built the roads, developers built the homes, and homebuyers became a new source of tax revenue. No more. Now developers in California pay for everything, passing all the costs into the price of new homes. Making it much worse, where it takes weeks to get permits in places like Montana, it takes years to get construction permits in California; dozens if not hundreds of different permits, and just one denial will stop everything in its tracks.

And then there’s litigation by California’s robust ecosystem of environmentalist plaintiff attorneys, using the California Environmental Quality Act to tie development proposals up in court for years.

This is the way of life that Democrats are going to bring to the entire nation if they ever get control of the White House and the U.S. Congress. Buckle up.

Lockdown the Law-Abiding, No Laws for Homeless

The COVID-19 pandemic that has already killed thousands and crippled the economy shines further light onto California’s dysfunction.

Governor Newsom refuses to suspend AB 5, a hideous new law that prohibits independent contractors from working unless their employers formally hire them. This despicable power grab by unions had already put hundreds of thousands either out of work or into legal uncertainty regarding their future. Now it’s preventing hospitals from hiring part-time freelance nurses, among other things.

And in Los Angeles, where Democratic Mayor Eric Garcetti has just advised residents to wear masks when leaving their homes to perform “essential activities,” the homeless population, numbering in the tens of thousands, has been subject to almost no restrictions.

The irony is spectacular. This health emergency has enabled a suspension of individual rights amounting to de-facto martial law, and yet Garcetti is still unwilling to remove the homeless encampments.

The entire homeless epidemic in California is a result of Democratic policies. It was Democrats who pushed for policies to empty the jails and prisons of “nonviolent” offenders, and then it was Democrats who successfully pushed for laws that downgraded property and drug crimes. It was Democrats who successfully pushed for laws that made housing prohibitively expensive to those who were marginally employed. It was Democrats who built “shelters” at a staggering cost in the middle of stable neighborhoods, putting zero behavioral requirements on those being sheltered (no sobriety requirement, no curfew, no background checks).

What did they think was going to happen?

And if California’s remaining voices of common sense suggested that instead of building “supportive housing” at an average cost to taxpayers of $500,000 per unit, that maybe there was some more cost-effective, feasible way to get the homeless into tent cities on less expensive land, they were branded as lacking “compassion.” Meanwhile, the stakeholders in the Homeless Industrial Complex—“nonprofit” developers with for-profit vendors, public bureaucrats and their expanding bureaucracies, attorneys, and consultants—all got to wet their beaks, while only a small fraction of homeless got a roof over their heads.

What COVID-19 and the economic misery that follows will enable is further industry consolidation. For the wealthiest Americans and for multinational corporations, this is a rare opportunity to expand and consolidate their positions.

California, with regulations atop regulations—ostensibly implemented to curb the power of big business—is the epicenter of big business. The big lie—alongside the lie that Democrats are the party of ordinary workers—is that regulations curb big business. The truth is regulations empower big business because small businesses don’t have the financial resilience to comply.

Come this November, in states like California, legalized election rigging such as ballot harvesting, absentee ballots, vote by mail, early voting, and same-day voter registration will all be enforced, with billionaire-funded operations to exploit them to the fullest. Expect a push to lower the voting age to 16, and continued efforts to expand the rights of noncitizens to vote. Let nothing surprise you.

And just like COVID-19, this is rolling out of the coastal Democratic strongholds to infect the entire nation. And just like COVID-19, if and when it does, nothing will ever be the same again.

This is life in California. One could go on, and on, and on, and on. It’s true, the Republicans aren’t perfect. Indeed, they are far from it. But Republicans are not Democrats, and that makes all the difference in the world. Wake up.

This article originally appeared on the website American Greatness.

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Suggested Executive Orders for Gavin Newsom

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Without criticizing the tremendous efforts that are already being made, here are some additional steps that California Governor Gavin Newsom could take to combat the spread of the COVID-19 virus. Some of these recommendations may run counter to the political momentum of California’s one-party state, but perhaps in these extraordinary times, they should be considered based solely on their efficacy.

(1) Suspend AB-5, the new law that prevents millions of Californians from working as independent contractors. This law, which has attracted fierce opposition from people of diverse ideologies, is particularly harmful during this crisis. AB-5 has already put hundreds of thousands either out of work or into legal uncertainty regarding their future, and now it’s preventing hospitals from hiring part-time freelance nurses, support staff, translators, phone counselors, and others.

(2) California’s regulatory burden placed on individuals who want to operate as independent service providers was oppressive before AB 5. Now is a good time for Governor Newsom to issue an executive order to revise occupational licensing requirements. In particular, permit nursing school graduates to fulfill their clinical rotation requirements using simulations instead of in-hospital rounds which have been discontinued during this pandemic.

(3) Immediately free California’s nursing schools to graduate as many nurses as qualify for certification. This would end the state Board of Registered Nursing’s attempt to use its authority unconstitutionally to limit new nurses and to control the schools that train them. The governor can immediately rein in this out-of-control agency, and allow 10,000 new nurses into frontline emergency medical positions.

(4) As the economy stalls, with sales tax and state income tax revenues set to take a nose dive, to forestall a complete financial meltdown of state and local government finances, implement a non-refundable 20 percent cut to compensation for all public servants, to take effect immediately and last until all sheltering restrictions are permanently removed. Apply the reduction to all forms of compensation including hourly pay, overtime, specialty pay, all forms of “other” pay, and salaries. Unlike during the budget crises of 2009 and 2010, most public sector workers are needed to continue to perform their jobs, so this time there will be no “furloughs” to accompany these pay cuts.

(5) In order to improve the ability of small businesses to survive, for all California businesses with fewer than 50 employees, suspend all state and local minimum wage rules that raise the minimum wage beyond the federal minimum wage.

(6) Require all school districts to implement online learning to the best of their capacities, and ban school districts from not offering online learning simply because not all students have access to the internet. Require all school districts to do the best they can.

(7) Suspend Prop. 47 which downgraded property and drug crimes, and resume enforcement of the laws that were superseded by Prop. 47. Employ the National Guard to construct tent compounds on publicly owned land in rural areas to incarcerate offenders.

(8) Use the National Guard to clear the streets of homeless people. Relocate them to established shelters and improvised new shelters. Require all public and private homeless shelters, including the new ones being improvised in recreation centers, hotels, and other public and private venues, to enforce sobriety and shelter-in-place mandates. Use the National Guard to relocate uncooperative offenders to supervised tent compounds on publicly owned land.

If one might search for a common theme to the policies of the one-party state that defines Gavin Newsom’s California, it would be that whatever big business and big labor want, big business and big labor get. Small businesses often fail because they cannot to adhere to the overdone laws and regulations that apply in California. When it comes to housing, apart from very high end luxury condos and mansions, California’s home builders can no longer profitably build housing without subsidies. The high cost of living and the decimated middle class are consequences of giving big business and big labor everything they want.

Another common theme embodied in California’s political culture is “protecting” the rights of every “marginalized” individual and every “marginalized” group no matter what the cost. This is seen everywhere, from keeping disruptive students in K-12 classrooms to permitting intravenous drug addicts to pursue their “lifestyle” unencumbered and in full public view. It is seen in rules, formal and defacto, that require “proportional” representation for every ethnic and gender identity, across every student body, corporate workforce, government bureaucracy, or government contractor.

All of this benefits big business, big labor, and big government (which in California is now merely a subsidiary of big labor). California’s one-party elites rely on leftist billionaires and public sector unions to fund a relentless public relations campaign assuring Californians that the one-party regime is fighting for them. But it isn’t. Rather the result of the one-party regime in California is high taxes, ruined schools, lawless streets, a crippling cost-of-living, and punitive regulatory obstacles to small businesses and independent contractors.

One of the great ironies of California’s political economy today is that California’s public servants could afford to earn less, if they earned less. Paying excessive pensions means fewer employees can be hired which means paying more overtime. Meeting these ever escalating personnel costs means there isn’t public money left anymore to fund infrastructure, which means home builders now have to pay infrastructure fees that add hundreds of thousands to the cost of homes. It also means fewer homes get built, reducing supply, which adds additional hundreds of thousands to the cost of homes. It is time to reverse this entire costly cycle, and public sector unions might cooperate in the process, if they truly care about all of California’s workers.

Governor Newsom, his ultra-rich compatriots, and California’s big labor bosses have done very well for themselves. And with every law they pass that only the wealthy and financially resilient can weather, their power and their profits grow. It is time for them to abandon their hypocrisy. It is time for them to either stand up for all of California’s workers, or admit the truth at last, that they are the party of privilege and wealth.

At a time like this, California’s one-party regime – along with fate itself – remind us how little power we often have over our own lives. But unlike the cruel fate of this pandemic, Governor Newsom can choose the course he sets for the rest of us. Perhaps he might consider this list, and extend some practical steps of mercy to millions of ordinary Californians.

This article originally appeared on the website California Globe.

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Never Mind the Virus, Here’s the Venice Beach Homeless Party!

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AUDIO – In-depth conversation with National Review podcast host Will Swaim covering an assortment of topics relevant to California: the Venice Beach homeless during the COVID-19 lockdown, plastic bags and the recycling and re-use scam, and the perennial topic of pension reform.

https://www.nationalreview.com/podcasts/national-reviews-radio-free-california-podcast/episode-113-never-mind-the-virus-heres-the-venice-beach-homeless-party/

The Flawed Premises of Recycling

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AUDIO: A review of the plastic bag ban, the suspension of the plastic bag ban, and the underlying flawed premises of recycling – 9 minutes on KNRS Salt Lake City – Edward Ring on the Rod Arquette Show.

Post-Coronapocalypse Pension Reform Checklist for California

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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 with researchers at the Reason Foundation, the California Policy Center used these reports from CalPERS to summarize the impact on 427 cities and 36 counties (download full spreadsheet). As shown on the table below, two sets of numbers are presented – payments to CalPERS for the 2017-2018 fiscal year, and officially estimated payments to CalPERS in the 2024-25 fiscal year.

The most important distinction one should make when reviewing the above data is the difference between the “normal” and the “catch-up” payments. The so-called “normal contribution” is the amount the employer has to contribute each year to maintain an already fully funded pension system. The “catch-up” or “unfunded contribution” is the additional amount necessary to pay down the unfunded liability of an underfunded pension system.

As can be seen in the example of Millbrae (top row, right), by 2024, the “catch-up” contribution will be nearly six times the amount of the normal contribution. But in the PEPRA reforms, new employees are only required to contribute via payroll withholding to 50 percent of the “normal” contribution.

A separate California Policy Center analysis, also published two years ago, attempted to estimate how much total payments statewide would increase if all of the major pension systems serving California’s state and local public employees were to require similar levels of payment increases. The analysis extrapolated from the consolidated CalPERS projections for their participating cities and counties and estimated that in sum, California’s state and local government employers would have paid $31 billion into the 87 various pension systems in 2018, and by 2024 this payment would rise to $59.1 billion.

As noted at the time, and now more than ever, this was a best case scenario.

A Financial Snapshot of CalPERS Today

The next chart, below, depicts financial highlights for CalPERS – either officially reported or projected – in a format which ought to be publicly disclosed, every quarter, in this format, from every state and local public pension system in California. The first two columns depict data as reported by CalPERS for their most recent two fiscal years, ended 6/30/2018 and 6/30/2019. The final column, which consists of CPC estimates (not provided by CalPERS), shows how their financial condition could appear three months from now.The first thing to note from the above chart is the fact that CalPERS was only 70 percent funded (“funded ratio,” bottom line) in June of 2019. The next thing to note, and this is crucial, is that the actuarial estimates of the total pension liability lags behind one year. That is, the $504.9 billion reported “actuarial accrued liability” is reported as of 6/30/2018, even though that figure is used to report the funded ratio as of 6/30/2019.

Take a deep breath, because the significance of this delay requires further discussion. From page 122 of CalPERS most recent CAFR, here are the trends for the actuarial accrued liability: 6/30/2009 = $294B, 2010 = $308B, 2011 = $328B, 2012 = $340B, 2013 = $375B, 2014 = $394B, 2015 = 413B, 2016 = 436B, 2017 = $465B, and 6/30/2018 = $504B. Based purely on the trend, is there any reason to believe this liability will not exceed $550 billion by June 30, 2020, two years later? Why isn’t that estimate being made?

There’s more. Why are actuaries permitted to have an entire extra year to complete their estimate of the total pension system liability, when changing single variables will cause the estimate to massively fluctuate? Sure, it is a complex exercise, and at some point an official calculation, based on all known data, should be reported that amends a preliminary estimate. But if, for example, you vary the earnings projection downwards from 7.0 percent to 6.0 percent – which needs to be done sooner not later – using calculations provided by Moody’s Investor Services, the amount of the CalPERS liability soars from $550 billion to $621 billion. You don’t split hairs when you’re being scalped.

And what about the employer contribution (second row of data)? Why did it go down from $20 billion in 2018 to $15 billion in 2019? From the “Basic Financial Statements” in the CalPERS CAFRs for the last few years, here are the totals for payments by employers: 2015 = $10.2B, 2016 (page 38-39) = $11.0B, 2017 = $12.4B, 2018 (page 40-41) = $20.0B. With the payment for FYE 6/30/2019 back down to $15.7B, the trends suggest that the large payment of $20.0 billion in 2018 was an anomaly. But assume that much money will come again from employers in 2020. But based on historical trends, probably not more than that. Yet.

Where does this put CalPERS?

All of this discussion is to explain the reasoning behind the figures in column three on the above chart. What might be materially different? What estimate isn’t best case? Does anyone believe CalPERS will actually break even in the return on their invested assets between 6/30/2019 and 6/30/2020? Does anyone believe the most accurate estimate of the total liability belongs anywhere south of $550 billion, particularly when they’re still using a discount rate that’s too high? And yet this puts CalPERS in what is arguably the worst shape it’s ever been, at 64 percent funded as of this June.

This paints a very grim big picture. CalPERS is on track to collect over $20 billion from taxpayers in the current fiscal year, and CalPERS, while the biggest pension system, only manages just over 40 percent of the state and local government pension assets in California. This suggests that the total taxpayer contribution to California’s state and local government pension systems in 2020 is already up to around $50 billion. And it isn’t nearly enough.

Steps to Reform CalPERS and all of California’s pension systems

1 – Admit the long-term rate of return projection is too high for calculating the value of pension liabilities. Move it down to 6 percent. Increase the required “normal contribution” accordingly, and, in turn, increase the share required from active employees via withholding.

2 – Once a more reasonable long term rate of return projection is adopted by the pensions systems, the goal of pension reform should be to stabilize pension system payments at some maximum percent of total personnel costs. With cooperation from union leadership, agree on what that maximum percent should be, then determine how to spread benefit reductions in an equitable manner between new hires, current employees, and retirees.

3 – For all state and local government employee pension plans in California, start providing consolidated quarterly financial summaries (without gimmicks), using the above chart as an example. Include a footnote indicating how much of the total employer contribution is for the unfunded liability vs the normal contribution.

4 – If a pension system falls below 80 percent funded, agree on an escalating series of remedies to be implemented to bring the funded ratio back up. They would include suspension of COLA, prospective further lowering of the annual multiplier for active workers, retroactive lowering of the annual multiplier for active workers, reduction of the retiree pension payment, and increasing the required payment to the pension plan by active workers via withholding.

5 – Pressure the California State Supreme Court to swiftly hear and rule on the cases Alameda County Deputy Sheriff’s Ass’n. v. Alameda County Employees Retirement Ass’n (filed 1/8/2018), and Marin Ass’n of Pub. Employees v. Marin Cnty. Employees Retirement Ass’n (filed 8/17/2016). These cases may provide clarity on the “California Rule,” which currently is interpreted as prohibiting lower pension benefit accruals, even for future work.

6 – With or without a decisive ruling (or any ruling) on the California Rule, work with government union leadership to revise pension benefits. If union leadership is uncooperative and the courts fail to offer an enabling ruling, than as a last resort, to bring the unions back to the negotiating table, lower salaries, current benefits, and OPEB benefits.

7 – In the long run, move towards a system modeled after the federal system. This would be a logical next step, following in the footsteps of PEPRA. It would create three basic tiers of public sector workers in California, the pre-PEPRA workers (who may submit to lower benefit accruals for future work), the post-2013 hires who are subject to the PEPRA reforms, and new hires starting in, for example, 2021, who would enjoy retirement benefits similar to what Federal employees receive.

The Ripple Effect of Unreformed Pensions

There are two problems with a bullish outlook today. First of all, the great returns of the past few years may have been unsustainable, a super bubble. And then that super bubble was not popped by a pin, but rather by a wreaking ball, the Coronapocalypse. There are tough economic times ahead.

In a severe downturn it is conceivable that annual taxpayer contributions to California’s public employee pensions systems will not merely soar from around $50 billion in 2020 to $60 or $70 billion within a few years. They could go even higher. For example, over the total three year period through June 2020, it is quite possible that CalPERS will collect more from taxpayers – $65 billion – than it will have earned in investment returns – $52 billion.

This is the new reality of public sector pensions in California. And because taxpayers have been increasingly on the hook to bailout these pensions, taxes have increased, services have been cut, and there has been a gradual wearing away of trust by citizens in their local governments. This is why, for the first time in decades, more local taxes and bonds were rejected by voters in March 2020 than were approved. Absent pension reform, this backlash has just begun.

So-called “crowding out” of other public services in order to pay for pensions doesn’t just impel an insatiable drive for higher taxes. It also works its way into higher fees, building fees in particular. Infrastructure investments such as connector roads and parks for new housing subdivisions used to come largely out of municipal operating budgets. It was a fair trade – the city builds the roads, the builders sell the homes, and the new residents pay taxes. But now, all of those costs are paid for by the builders and passed on to the home buyers. The rising cost of pensions can be directly tied to the unaffordable cost of homes.

Pensions for state and local government employees in California are literally three to five times as costly as Social Security, and at least twice as costly as the Federal Retirement System. Ultimately, this disparity divides Americans and undermines what it means to be an American citizen. Why should public employees care if Social Security is inadequate, if they don’t depend on it? Why should they care if all public benefits offered private taxpayers is diluted, or if citizenship itself becomes less meaningful, if their membership within the public sector is the primary source of their security?

America is entering difficult economic times. Maybe one good thing to come out of this will be a willingness on the part of public sector union leadership to make common cause with all of California’s workers, and agree to reasonable concessions on pensions that will help everyone living in this great state.

This article originally appeared on the website California Globe.

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Plastic Bags and the Recycling and Reuse Scam

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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 that when consumers purchase grocery items, and allow them to knock around inside a plastic bag, pathogens will be transferred from the surfaces of the grocery items onto the surface of the bag.

Similarly, when consumers set those bags down, such as on the seat or floor of a bus or subway car, or in a shopping cart that someone else is about to use, any pathogens on that surface or on that bag will transfer back and forth – presumably over and over. And even among those who reuse these bags more than 11 times, or 14 times, or 131 times, how many people disinfect them, every single time?

A recent article entitled “Greening Our Way to Infection” appearing in City Journal, provides an excellent summary of the disease risks attendant to reusable grocery bags. Author John Tierney exposes the absurd denial of public health authorities, both before and since the Covid-19 outbreak, to the risks of using reusable grocery bags. He writes:

“A headline on the website of the New York Department of Health calls reusable grocery bags a “Smart Choice”—bizarre advice, considering all the elaborate cautions underneath that headline. The department advises grocery shoppers to segregate different foods in different bags; to package meat and fish and poultry in small disposable plastic bags inside their tote bags; to wash and dry their tote bags carefully; to store the tote bags in a cool, dry place; and never to reuse the grocery tote bags for anything but food.”

This is the world the green extremists want us to live in. Not only shall we reuse our reusable plastic bags more than eleven times, just to break even on the “carbon footprint” vs. a disposable plastic bag, but we shall “segregate different foods in different bags; to package meat and fish and poultry in small disposable plastic bags inside the tote bags; to wash and dry tote bags carefully; to store tote bags in a cool, dry place; and never to reuse tote bags for anything but food.” And cat litter.

The Irrational Extremes of Recycling and Reuse

While recycling is both profitable and green in certain cases such as with newsprint and aluminum, for most garbage it is neither. Plastics, bags and all, are a compelling example of this. For starters, there is no factual basis for the argument that plastic must be recycled because we may eventually run out of petroleum. This is easily documented.

According to the energy news site OilPrice.com, in 2012 “plastics production accounted for about 4 percent of global oil production.” Four percent. According to the BP Statistical Review of Global Energy, over the past twenty years, proven oil reserves increased faster than consumption. In 2018 there were 1.7 trillion barrels of proven oil reserves worldwide, up from 1.1 trillion barrels in 1998. Plastic, which can also be made out of natural gas or coal, will never run out of the raw materials required for its manufacture.

As for plastics accumulating in the environment, the ocean in particular, much of it comes from fishing nets. One of the largest accumulations of ocean plastic is the Great Pacific Garbage Patch, a collection of concentrations of marine debris in the North Pacific Ocean created by ocean currents. According to Sea Shepherd Global, nearly half of the plastic in these areas come from discarded fishing nets, and “more than 70% of marine animal entanglements involve abandoned plastic fishing nets.”

As for the source of ocean plastic coming from sources on land, a report in USA Today cites a study published in the journal Science that estimates 242 million pounds of plastic waste are discharged by Americans into the oceans each year, and that the total discharge of plastic waste into the oceans, worldwide, is between 8 to 12 million tons. A quick, somewhat innumerate read of those numbers might incline one to believe that America is the prime offender, but that would be wrong. Once pounds are converted into tons, it turns out that plastic waste from America, at most, constitutes only 1.5 percent of the plastic trash currently going into the world’s oceans.

This is where it becomes problematic to focus on recycling and reuse, rather than containment in landfills. Because even in America, it is a costly indulgence to recycle most of the waste stream. To emphasize recycling in developing nations, it is futility. The scarce economic resources of developing nations in Africa and Asia would instead be much better used to develop landfills.

There is No Shortage of Landfill Capacity, and There Never Will Be

One of the earliest serious intellectual revolts against the modern recycling industry came in an in-depth 1996 essay in the New York Times Magazine entitled “Recycling is Garbage.” Authored by the same John Tierney who recently joined City Journal after more than two decades as a reporter and columnist with the New York Times, it exposes how misguided environmentalism and government subsidies corrupted the waste management industry.

In his 1996 essay, Tierney described how environmentalist journalists and activists convinced the nation that if something wasn’t done, and soon, Americans were destined to be “buried alive” under the mountain of trash they were creating. He explained that most materials in garbage are not worth recycling, but that politicians are now afraid to oppose recycling. He explained that modern landfills are now required by federal law to be “lined with clay and plastic, equipped with drainage and gas-collection systems, covered daily with soil and monitored regularly for underground leaks,” but the perception remains that opening new landfills will poison the local populace.

Nearly 25 years later, for most Americans, all of these misconceptions still constitute conventional wisdom. The biggest misconception of all is the claim that there is no room left in America’s landfills. Today more than ever, there are plenty of alarmist reports making that claim.

From Waste Business Journal: “Time is Running Out: The U.S. Landfill Capacity Crisis.” From Global Citizen: “Where Will The Trash Go When All the US Landfills Are Full?” Perhaps the biggest scare story of all appears on the website “How Stuff Works,” where they visualize what America’s roughly 258 million tons of municipal solid waste each year would look like, if it was dumped onto one pile, year after year for 100 years. The estimate takes into account a doubling of the U.S. population over this hypothetical century, apparently assuming the annual waste flow would also double during that period as well.

“If you keep filling up this landfill for 100 years, and if you assume that during this time the populations of the United States doubles, then the landfill will cover about 160,000 acres, or 250 or so square miles, with trash 400 feet deep. Here’s another way to think about it. The Great Pyramid in Egypt is 756 feet by 756 feet at the base and is 481 feet tall, and anyone who has seen it in real life knows that it’s a huge thing — one of the biggest things ever built by man. If you took all the trash that the United States would generate in 100 years and piled it up in the shape of the Great Pyramid, it would be about 32 times bigger. So the base of this trash pyramid would be about 4.5 miles by 4.5 miles, and the pyramid would rise almost 3 miles high.”

That sounds like an awful lot of garbage, and an awful burden on the land and the people. But it isn’t. Compared to the size of the lower 48 states, compared to the size of America’s urban areas, compared to the area of America’s reservoirs, or mines, or the footprint of its freeways; compared to pretty much any other major category of American infrastructure, it is negligible. To counter the scope insensitivity of the average American journalist, here are some calculations:

A “trash pyramid” 4.5 miles by 4.5 miles, rising three miles high, if it were to be poured into America’s roughly 2,000 active landfills, would require each of those landfills to accommodate 100 vertical feet of garbage, over a surface area of 341 acres. Altogether, these 2,000 landfills would consume about 1,066 square miles of land. Notwithstanding the fact that some landfills are designed to accommodate up to 500 vertical feet of trash, or the fact that parks and other amenities are often built on the top of landfills once they reach capacity, 1,066 miles is a trivial amount of land compared to other impacts of human civilization.

For example, America’s lower 48 states occupy 3.1 million square miles. This means that if by 2120, 650 million Americans were still producing the same per-capita quantities of garbage that they produce in today’s throw-away society, those 3,200 square miles of landfills would only occupy one-tenth of one percent of the available land. America’s urban areas consume just over 100,000 square miles; these hypothetical landfills only increase that by 3 percent.

Just America’s ten largest reservoirs occupy 2,670 square miles; the entirety of America’s reservoir inventory would occupy a far larger area. America’s open pit and surface mines occupy thousands of square miles as well, and if America is to innovate its way into the electric age, rare earth mining will increase that footprint. As for America’s 46,000 miles of interstate highways, even at a conservative estimated average width of 300 feet, taking into account all interchanges and not counting all the other national and local roads, these interstates consume 2,600 square miles.

Civilization Requires Tough Choices

The evidence supporting containment in landfills vs recycling is unambiguous. Earlier this month, writing for National Review, Kyle Smith pointed out not only the excessive cost of recycling, but reminded us that it’s a good time for a fundamental reassessment of our waste management policies. He writes, “it costs $300 more to recycle a ton of trash than it would to put it in a landfill. When the next budget crunch hits New York – and that’s due approximately ten seconds after the next stock-market crash – recycling would be an excellent program to cut.”

That budget crunch has arrived. And even if the markets and the economy come roaring back, New York City taxpayers have better ways to spend their money than supporting a parasitic industry that does nothing, absolutely nothing, to help the environment.

But the moral argument doesn’t end there. Americans who support environmentalist policies need to think about the example they’re setting for the rest of the world. The message that needs to go out to developing nations – along with “develop clean fossil fuel and quit poisoning your air with genuinely harmful pollutants” – is build landfills and sequester your solid waste. Americans need to show by example how modern landfills are built, not how to painstakingly “recycle” everything regardless of its utility or affordability.

Eventually, just as eventually American innovators will commercialize fusion power, someday American innovators will commercialize plasma waste converters, turning solid waste into valuable feedstock to generate energy and building materials. When that day comes, not only will waste management no longer leave an expanding footprint, however trivial it may be, but we can mine the landfills if we wish.

Back in 1996, in his essay for the New York Times about recycling, Tierney arrived at the ultimate reason for its persistence as policy despite its negative economic impact and despite being of dubious environmental benefit. He writes:

“The leaders of the recycling movement derive psychic and financial rewards from recycling. Environmental groups raise money and attract new members through their campaigns to outlaw ‘waste’ and prevent landfills from opening. They get financing from public and private sources (including the recycling industry) to research and promote recycling. By turning garbage into a political issue, environmentalists have created jobs for themselves as lawyers, lobbyists, researchers, educators and moral guardians.”

Doesn’t that sound familiar? It’s as true today as it was in 1996, and it applies to so many issues of public policy where environmentalists have formed an alliance with powerful financial special interests. It is wonderful when one may reward their psyche and their pocketbook at the same time, but when delusion and corruption is the prerequisite for such rewards, society loses.

Americans are correct to recognize the perils of reusable grocery “tote bags” during this time of heightened disease risk. May they also realize the entire concept of reusable grocery bags is flawed, along with most recycling programs, and adapt accordingly.

This article originally appeared on the website American Greatness.

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Black Swans and Super Bubbles

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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, primary causes, and optimal solutions, there is no consensus.

But with stock values correcting yet again, the permabears need to be heard. It isn’t just stock values that are at risk. The bubble this time has been dubbed the “super bubble,” incorporating not only stocks, but bonds and real estate as well. To understand why permabears make this argument, the historical interest rate trends since 1970 are illuminating.

The next chart shows the 10-year U.S. Treasury note rate over the past 50 years. The first thing to notice is the inverse relationship between the T-note rate and the growth trends in the DJIA. As the rate for T-notes fell, the value of the Dow rose. The relationship between index rates and the value of stock equities makes intuitive sense. When fixed-income T-notes and bonds are paying high rates of return, there is less demand for stocks. Also supporting this inverse relationship between interest rates and the value of stocks is the fact that when interest rates are low, more borrowing occurs, which stimulates consumer spending and corporate profits, raising the value of their stock.

Theories aside, whenever the stock market was falling, interest rates were lowered in order to stimulate growth and restore the bull market in stocks, and whenever the stock market was getting overheated (“irrational exuberance”), interest rates were raised which would slow the growth in stock values.

When the internet bubble driven stock market peaked, helping drive the Dow up to 11,723 by January 2000, 10-year T-notes were paying 6.7 percent. But as the stocks fell, so did interest rates. The Dow bottomed out at 7,740 in September 2002, with the trough for the 10-year T-note shortly thereafter in January 2003 at 3.3 percent. Then as stock values rose, Treasury rates rose as well. When the real estate bubble popped in October 2007, the 10 year T-note was back up to 5.2 percent. But the Great Recession decimated the stock market, and threatened to crash the entire economy.

In moves to stimulate the economy during this extraordinary time, the 10-year T-note hit a low of 2.1 percent by December 2008. But then something strange happened. The interest rate of the T-note never fully bounced back. The highest it ever got, during this most recent 11-year bull market in stocks was 3.2 percent in October 2018. And when the DJIA hit its all time high this past February, the 10-year T-note was already down—way down—at 1.5 percent.

This fact, that interest rates were at an all time low when the stock indexes were at all time highs, makes this correction in stock values different from the two most recent previous corrections. It means that interest rates were still being lowered in order to stimulate economic growth even when the stock indexes were increasing. It means that this time, the most easily applied and reliable tool to stimulate economic growth, lowering interest rates, is not an option. It is the reason the permabears have referred to this most recent investment bubble as the “super bubble.”

“Super bubble” refers to the belief that not just stocks are overvalued, but also bonds and real estate. The reason bonds are considered overvalued is related directly to interest rates, as set by the Federal Reserve and the U.S. Treasury. When current debt is issued at a lower fixed rate of interest, then debt that was issued in the past at higher rates increases in value. This is because on the open market for bonds, any bond paying a higher rate will fetch a higher price, until whatever fixed amount the bond pays in interest matches the current interest rate.

For example, a 10-year T-note purchased for $10,000 in October 2018 was paying 3.2 percent, or $320 per year. But once interest rates fell to 1.5 percent in February, the October 2018 T-note only had to pay $150 per year to trade at a competitive rate. Since the rate is fixed, however, the price rises instead. All of a sudden this $10,000 T-note paying $320 per year is theoretically worth $21,000, because 320 divided by 21,000 equals 1.5 percent. While this explanation is a gross oversimplification, the causal relationship between interest rates and bond prices is indisputable. When interest rates fall, there is a rally in bond prices. Bonds, along with stocks, have been great investments over the past few years, but how can they possibly continue to appreciate?

The 10-year Treasury note is currently paying 0.5 percent interest, and the previously referenced pricing equations are now yielding absurd results. The market for bonds is freezing up, with pricing models entering uncharted territory. One thing is certain, the bond bubble, along with the stock bubble, has popped.

Which brings us to real estate, the third major asset class that the permabears allege has entered bubble territory. Unlike stocks and bonds, real estate is a tangible asset. While real estate isn’t finite, since the square-foot inventory of real estate perpetually increases, there are practical, physical limits on the growth or shrinkage of real estate inventory that, at least compared to stocks and bonds, puts a floor on how far its value can crash. But real estate still obeys the same law of leverage; when falling interest rates lower the cost of money, more borrowers increase the demand and prices rise.

As can be seen on the next chart, however, when it comes to the 30-year fixed mortgage rate, we’re back to those “lifetime lows” that preceded the last crash in real estate values in 2008. As an investment, it is likely that real estate values will continue to hold in the U.S. markets where there is global demand from foreign investors—the California coast, New York City, Miami. U.S. real estate in general will benefit from foreign investment—assuming it is not restricted—as foreign capital seeks the relative stability of owning property in the United States. But broad American consumer demand for real estate requires Americans to retain a capacity for borrowing, a capacity which can no longer be expanded by lowering mortgage lending rates. They are about as low as they can go.

 

What does it mean when asset portfolios can no longer offer returns that interest investors? What happens when the value of stocks and bonds fall by trillions of dollars overnight? These questions, urgent enough on their own, are compounded by the fact that while the super bubble only required a pin-prick to pop, the COVID-19 recession is more analogous to a wrecking ball than a pin. What’s going to happen?

For about 40 years, America’s economic growth has been stimulated by gradually lowering interest rates and increasing debt. How much debt can a nation handle? How does the burden of interest payments impact the ability of businesses to pay their operating costs and the ability of consumers to engage in ongoing borrowing and spending?

A good way to measure the ability of a national economy to handle their debt burden is to look at all debt—public and private—and compare that to GDP. The next table shows that relationship.

It’s difficult to overstate the importance of this relationship, because the ability of a nation to borrow depends on its income, just as an individual consumer’s ability to borrow depends on their income. As GDP grows, borrowing capacity grows. As shown above, while U.S. GDP has surely grown over the past 50 years, the amount borrowed has grown faster. Back in 1980, total borrowing in the United State was only 1.5 times GDP. This would be comparable to a person back then earning $50,000 per year, and owing a total of $75,000 for their home mortgage, automobiles, and whatever else they’d bought on credit. That’s not an alarming ratio.

The trillion-dollar question today is what is an alarming ratio?

What’s interesting is that the most recent ratio reported by the Federal Reserve, with total debt about 3.5 times GDP, is actually down from a high of nearly four times GDP in 2009. With the value of all debt in the United States currently at $75.5 trillion, over a reported 2019 GDP of 21.4 trillion, this suggests it would be possible to issue up to $10 trillion of new debt merely to reach the 4.0 ratio of debt-to-GDP we nearly reached a decade ago.

Once you accept the heretical notion that all debt is equal, that it doesn’t matter which balance sheet holds the debt, then you might consider the vitality of the U.S. economy as if it were a household. Can a household with an income of $50,000 manage a debt of $200,000? Yes. Easily. But there’s much more to this story.

The Primacy of Collateral

As in 2008, the Federal Reserve right now is preparing to purchase debt by issuing credits to banks and other creditors. This time, however, the Federal Reserve intends not only to purchase U.S. Treasuries and government-backed mortgages but also private debt. The goal is to stabilize the bond market and other financial markets, fund government payments to citizens and businesses that have been sidelined indefinitely by the COVID-19 pandemic. This explains where the federal government is getting $2 trillion to spread immediately into the economy.

The ability of the Federal Reserve to print money, along with fractional reserve lending and federal budget deficits, are all practices that invite condemnation from fiscal conservatives. Debating whether enhanced liquidity, investment, and economic growth is worth enduring the inherent risk of these financial innovations is a fascinating exercise. It’s also futile, because they’re here to stay. And what fuels financial innovation, the engine of liquidity, is collateral.

The collateral of the United States is incalculable, but there are abundant clues. According to the Federal Reserve’s most recent Financial Accounts Report, the total value of all financial assets in the United States in 2018 was $244 trillion. This certainly doesn’t include everything of value in the nation, and with that, it’s useful to consider the collateral of the United States as compared to that of any other nation.

Step way back for a moment and imagine if a fleet of extraterrestrial investors swept into earth orbit and decided to buy the planet. Imagine they negotiated with each national government, paying them all in some intergalactic currency. How would the inherent value of everything in the United States—land, natural resources, universities and hospitals, intellectual property and infrastructure, everything—compare to similar assessments made in other nations? It’s a safe bet that America’s collateral would fare quite favorably in such an appraisal.

There is a sound argument that balance sheets for the various sectors of the U.S. economy can be linked. Shifting debt from consumers and banks to the government, and from the government to the Federal Reserve, doesn’t change the overall national economic health. One cannot reference the consolidated total debt awash in the U.S. economy, $75.5 trillion, in all sectors, without considering the total value of the U.S. economy, easily in excess of $244 trillion. That is not an unhealthy ratio.

The current decision by the Federal Reserve to create as much money as it wishes in order to protect the government, financial, commercial and consumer sectors of the U.S. economy from going into deflationary default is logical and necessary, even if it may be heretical to fiscal conservatives.

The U.S. economy right now, and the global economy, exists on a razor’s edge between inflation and deflation. Of the two, deflation would be far more catastrophic, because deflation would reduce income and inflate the real value of debt. Deflation would make it impossible for debtors to pay their interest, putting them in default, crushing demand, bankrupting creditors at the same time, and collapsing national collateral. It must be avoided at all costs.

If You’re to Spend Money You Don’t Have, At Least Spend Wisely

America’s ability to print money isn’t unique. Every currency union in the world relies on what the purists derisively refer to as “fiat money.” Nations concoct currency out of thin air, turning it into either printed notes, or electronic transfers. Currencies are no longer backed by precious metal or any other commodity. Their value is based on the willingness of buyers and sellers to trade those currencies for other currencies, and at what rate of exchange. This is how money moves in the world, and despite the enthusiasm for cryptocurrencies or the perennial warnings from the gold bugs, it isn’t going to change anytime soon.

For this reason, America’s currency remains likely to stay strong despite the decision of the Federal Reserve to inject $10 trillion, or even $20 trillion, into the U.S. economy. The Federal Reserve has even offered to inject U.S. dollar liquidity into foreign central banks, in a move that will help their liquidity at the same time as it further solidifies the position of the U.S. dollar as the global transaction and reserve currency.

Skeptics should ask themselves how exactly will the U.S. currency devalue versus other currencies, and if so, how would that harm the U.S. economy? The debt-to-GDP ratio of China, America’s emerging competitor, is now 300 percent of their GDP, comparable to that of the United States. It is unlikely, however, that China’s debt-to-collateral ratio is as healthy as ours.

China, for all its dynamism, is a thin pan on a hot fire. In the long run they face demographic collapse, political instability, and dependence on imported fuel. Their cultural soft power is poor and getting worse. Nobody wants to live in a world dominated by the Chinese regime—not even the Chinese! As for the European Union, much like the Chinese the Europeans face demographic stagnation, political instability, and require imported fuel. There are no other economies big enough to muster a currency even remotely competitive with the dollar.

National collateral is not just physical and financial assets—it is the cultural vitality and political coherence and demographic resilience of a population. This intangible collateral influences the value of a currency as much as the physical collateral, and in this intangible category, America has collateral to burn. No other nation even comes close.

And if the dollar did devalue, so what? Americans would have to import less and export more. Jobs would be created. Investment would refocus within America’s borders. Wages would rise commensurate with prices. What exactly is the downside of a weaker dollar?

In the long run, though, critics have a point. What America’s Federal Reserve has been doing, and is now doing more than ever, is the most impudent application of Modern Monetary Theory in the history of the world. The only way it can be sustained is if genuine economic growth consistently exceeds the growth of debt. Forever. This is not a certainty, even in the short run.

How long the Black Swan in the form of COVID-19 remains perched on our economic doorstep is an open question. How soon it flies away will determine how soon economic growth can resume.

In the long run, what guarantees GDP growth is not financial engineering, but real growth in productivity and output. America’s GDP growth over the past 50 years was fueled not only by debt accumulation, but also by the inordinate expansion of America’s financial sector, and by the artificial expansion of borrowing collateral due to foreign investment and overregulation which creates artificial scarcity. The housing market in California is a perfect example of this.

The best path forward is managed, moderate inflation, a stable currency, and a refocusing on genuine economic growth instead of growth in the financial sector. For this to happen, some if not most of these magically materializing trillions of dollars need to be directed into public and private investments in enabling physical infrastructure, research and development, aerospace and military technologies, pure and applied physics, and medical breakthroughs.

The worst thing that could possibly happen is to see all that money squandered on stock buy-backs, pension fund bailouts, much less “green” schemes and new bureaucracies to enforce “diversity.”

America is at a crossroads economically. The immediate challenges are daunting. But the good news is America remains well positioned to lead and inspire the world in the 21st century. How that happens is up to us.

This article originally appeared on the website American Greatness.

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Venice Beach Locked Down Except for Homeless Encampments

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Apart from excursions to perform essential work or engage in essential activities, California’s 40 million residents have now been under house arrest for over a week. But in the homeless haven known as Venice Beach, the party hasn’t skipped a beat.

Law abiding residents have deserted the Los Angeles coast after a crackdown following a weekend of what mayor Eric Garcetti called people getting “too close together, too often,” Parking lots along the Los Angeles beaches are roped off. Along the boardwalk in Venice Beach, all the businesses are closed.

None of these new rules seem to apply to the homeless. Whatever minimal law enforcement still existed in Venice Beach prior to the COVID-19 outbreak has diminished further, and more tents than ever have appeared on the boardwalk and along the streets.

It’s important to recognize that some of California’s homeless are victims of circumstances beyond their control, who want to work, who have to care for young children, who stay sober, who obey the laws. But not sufficiently acknowledged by agenda driven politicians and compassionate care bureaucrats is the fact that most of these homeless find shelter.

The vast majority of homeless that remain unsheltered, especially in places like Venice Beach, are either drug addicts, alcoholics, mentally ill, or criminals. None of these people belong on the streets, not now, and not ever. There is not a homeless crisis or housing crisis in Venice Beach so much as a drug crisis, an alcoholism crisis, a mental health crisis, and a breakdown of law and order.

Stories about what has been happening in Venice Beach are endless and chilling. A man swinging an ax in the middle of an ally who cannot be arrested because he isn’t breaking any laws. A gang of youths disassembling literally stacks of high-end bicycles in front of their tents, but this isn’t a chop-shop because there is no proof. Other youths who’ve clambered onto the roof of a church to engage in loud drunken revelry all night long, later willing to vandalize the homes of residents they suspect of calling the police. Women followed and harassed, human and canine feces everywhere, bottles of urine sitting on street curbs, discarded syringes, rats multiplying like, rats, getting fat on garbage and food scraps piling up around tents, men stoned on methamphetamine and frenetically prowling the streets, schizophrenics howling at the voices in their heads.

And it still goes on and still goes on and still goes on. Virus? What virus?

Nothing that California’s state and local policymakers have done to-date have been effective in combating these crises, because their approach has been what they refer to as “housing first,” a policy that prioritizes providing housing prior to addressing behavioral issues. “Housing first” is a boondoggle, rewarding politically connected members of the Homeless Industrial Complex. It will never solve the problem, even if for no other reason, then because of the astronomical costs.

Venice Beach offers a perfect example of this failed approach, where a “temporary bridge housing” facility opened up in February.

Two blocks from the Pacific Ocean, this shelter, one of 26 either built or under construction in Los Angeles, holds 154 beds, supposedly to accommodate a homeless population in Venice Beach that exceeds 1,000. The shelter cost $8 million and has an estimated annual budget of about $8 million. This is a preposterous waste of money, especially when considering how it operates: The shelter, which officially opened on February 26, does not require its residents to submit to counseling for substance abuse, much less require sobriety. It is a “wet” shelter, meaning inebriated residents can enter the shelter with no restrictions. Even now, it has no curfew, meaning residents can roam the streets at any hour of the day or night and still return to the shelter. It carries out no background checks on any of the residents.

Worst of all, the shelter was marketed to residents as a way to compel homeless people to get off the streets and become “good neighbors.” Once “supportive housing” was available, the law would permit police to evict the homeless who have set up permanent encampments in front of residents and businesses. A deadline of March 7th to evict the homeless came and went, however, and more homeless than ever are living for free on some of the most expensive real estate on earth.

The uptick in crime since this shelter opened has neighbors feeling like prisoners in their own homes. How ironic. The COVID-19 pandemic merely made that status official.

Incredibly, the “permanent supportive housing” planned for Venice Beach includes destroying the last public beach parking so a monstrous apartment house can be built on the city owned property. Planned to have only 140 units, the construction costs and land values put the total project cost at over $200 million. By any sane definition, doing this is a crime against the hard working surrounding residents and against all taxpayers.

Meanwhile, today, the rent-paying, mortgage paying, business lease paying residences and business owners in Venice Beach are being quarantined into financial ruin. Small businesses that survive on small margins can’t stay open. Landlords who only own one or two properties can’t collect rent because their tenants are out of work. And nothing the city, state, or federal government has done is helping.

While politicians talk about interest free loans from the SBA, one has to wonder if any of these elected officials have ever tried to fast-track an SBA loan, or tried to get relief from a mortgage company. Retailers are small businesses, and these owners can’t just call the SBA and ask for a loan. There is the underwriting process, huge applications to fill out, a requirement for three years of financial statements. Getting credit approval for a loan is mind numbing. These are huge slow moving bureaucracies. Applicants have to go through all kinds of hoops to get funding and a 2-3 month turnaround is a very best case. Nothing is feasible within a month, so as small businesses fail up and down the state, where are the real time solutions?

In an open letter emailed to Mayor Garcetti on 3/26, with copies sent to the LA City Council and an assortment of media outlets, Venice Beach resident Soledad Ursua offered some practical suggestions to bring immediate relief to beleaguered small business owners and landlords. In particular:

“1) Suspend LA County Property Taxes due April 10th. The average homeowner and small business owner is facing a $2,000 to $10,000 property tax bill. Cash is king during an economic crisis. What we need now more than ever, is to hold the cash we would otherwise pay the County of LA, in order to navigate this economic storm. As our business partner, you must take a haircut in revenue, just as you expect all of us to do so. What is the point of the US Government sending out cash checks to individuals if we must only hand that over to LA City?

2) Suspend all Sales Taxes for the next 6 months- Why on earth are we paying 9.5% in LA City sales taxes on essential goods why we try to stay alive – groceries, prescriptions, toilet paper, gas, bottled water, etc. Perhaps you could lift sales taxes only on small businesses to incentivize Los Angeleños to shop local and keep our small businesses solvent during this crisis?”

These are reasonable suggestions. The chances they will be implemented are slim.

Anyone living in Venice Beach or communicating with Venice Beach residents has abundant video and photographic evidence that while residents hunker down inside their homes, right now, their streets remain occupied by a roving army of unaccountable homeless, and it’s getting worse.

For example, ever since COVID-19 came along, the weekly street cleaning has stopped. The consequences are predictable; what had been a string of tents is turning into semi-permanent structures. The shantytowns of Guatemala City have nothing on Rose Avenue in Venice Beach.

There is no doubt that the authorities at all levels of government are dead serious in their efforts to contain the spread of COVID-19. This national health emergency has preempted constitutional rights that allow ordinary Americans freedom of movement. It ought therefore to have enough teeth to preempt whatever misguided ordinances and court rulings have created the addiction, mental health, and crime crises we face, which masquerade as a homeless and housing crisis.

Mayor Garcetti: If and when COVID-19 spreads in a second wave, with unaccountable homeless populations as the vector, don’t blame the president. If a national health emergency doesn’t give you the legal tools and funds to clean up the streets of Los Angeles, nothing will.

California’s laws to-date have made it a rational choice for many individuals to live on the streets. They can live in one of the most beautiful places in the world – the California coast – with free food, free shelter, with almost no rules to regulate their conduct.

This article originally appeared on the website California Globe.

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Time for California’s Unions to Get Serious About Pension Reform

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There was a time, long long ago, when California’s pension systems were responsibly managed. They made conservative investments, they paid modest but fair benefits to retirees, and they didn’t place an unreasonable financial burden on taxpayers. But a series of decisions and circumstances over the past thirty years put these pension systems on a collision course with financial disaster. And like hybrid war, or creeping fascism, or a progressive, initially asymptomatic disease, it is impossible to say exactly when these pension systems crossed the line from health to sickness.

An excellent history of how California’s public employee pension systems moved inexorably towards the predicament they’re now in can be found in a City Journal article entitled “The Pension Fund That Ate California.” Written in 2013, when California’s pension systems were still coping with the impact of the Great Recession, author Steven Malanga identifies key milestones: The power of public sector unions that began to make itself felt starting in the late 1960s. The pension benefit enhancements that began in the 1970s. The growing power of the union representatives on the pension fund boards. Prop. 21, passed in 1984, which allowed the pension systems to invest in riskier asset classes.

The biggest milestone on the road to sickness, however, began in 1999, as Malanga writes, “when union-backed Gray Davis became governor and union-backed Phil Angelides became state treasurer, and the CalPERS board was wearing a union label.” The state legislation that followed, mimicked by local measures across California, dramatically increased pension benefit formulas. Not only were benefits increased, but they were increased retroactively, meaning that even state and local employees nearing retirement would receive the increased pension as if these higher benefit formulas had been in effect for their entire career. And as the internet bubble blew deliriously bigger, the experts said the cost for all these enhancements would be negligible.

In the aftermath of the internet bubble’s inevitable pop in 2000, pension systems engaged in accounting gimmicks and deceptive proposals to assist the unions to roll out these benefit increases to nearly every city and county in California.

This would be an early example of how government unions and financial special interests saw an alignment of their political agendas, but it wouldn’t be the last. As payments to the pension plans inexorably increased, year after year, unions found common cause with the financial sector to market tax increases and bond measures. Every election, in lockstep, they would fight to convince the taxpayer to pay more and borrow more – and it was always for the children, for the elderly, but in reality, it was usually for the pensions.

The Burden of Public Sector Pensions on California’s Taxpayers

The complexity of pension finance makes it relatively easy to obfuscate the problem with creative accounting and emotional arguments. But certain facts can help to put the issue in perspective. Before the current financial crisis began, California’s state and local public sector pensions were estimated to rise from approximately $30 billion per year to $60 billion per year by 2025. Currently, California’s total state and local government general revenues are around $500 billion per year, meaning that pension payments are already set to consume over 10 percent of ALL state and local government revenue.

This ten percent doesn’t include the cost of retirement health insurance benefits, nor the cost for Social Security which many of California’s public employees also enjoy. It also doesn’t include the tens of billions spent every year by taxpayers to pay overtime, based on the fact that paying overtime is actually less expensive than paying for another government employee who will require another pension benefit package.

The pension burden, however, is about to get much bigger.

With most pension reform stopped in its tracks by relentless litigation, perhaps the only way pensions can ever be reformed will be through economic necessity. If so, now would be a good time. A perfect storm has struck. Here are highlights:

1 – The stock market has crashed. Interest rates are at zero, meaning it is unlikely investments in bonds will see continued appreciation. Real estate may also be at a peak, and in any case, real estate investment appreciation cannot make up for losses in stocks and bonds.

2 – Government revenues are going down for various reasons. California’s state government relies heavily on receipts from high income individuals, and those individuals rely on stock appreciation. These revenues always fall in a downturn, and this effect will ripple into every California city and county. Also, sales tax revenues, which local governments rely on, will dramatically fall over the coming few months.

3 – Californians for the first time in several election cycles have rejected local measures to fund taxes and bonds. Normally, at least two out of three new local tax or bond are measures are approved by California voters. This time, in March 2020, those proportions were surprisingly reversed, with about two out of three failing to get voter approval. This means new revenues these localities were counting on will not materialize.

A closer look at CalPERS will reveal just how dramatic the problem has finally become:

In their 6/30/2019 financial statements, CalPERS, the largest pension system in the U.S., reported themselves to be only 70.2 percent funded. To cope, the system was requiring its participating agencies to nearly double their annual payments by 2025. Needless to say, these increases were going to create havoc on civic budgets that already can barely afford to pay for their pensions.

That was then.

As of March 20th, the market value of all investments managed by CalPERS had fallen to $333.8 billion, after topping a record $400 billion just one month earlier. The most recent officially reported estimate of the total liability carried by the CalPERS system is $505 billion as of 6/30/208 (ref. most recent CalPERS CAFr, page 122). If you review the trends over the past decade, this figure has never gone down. This means, best case, as of today, CalPERS is 66.9 percent funded. The real number is almost certainly lower.

As of March 20, for example, the Dow Jones Index closed at 19,161. At close on 3/23, the Dow is down to 18,591, down another 3.1 percent. At this time, the only thing that is certain is uncertainty.

Pension Solvency Will Require Union Cooperation

If there’s one thing that history has shown, it’s that nothing gets done in California without the blessing of the public sector unions. One may argue on principle that unionized government is an abomination, having little or nothing in common with private sector unions which – properly regulated – have a vital role to play in American life.

But so what? California’s state and local governments have been taken over by these unions, who operate as senior partners to leftist billionaires, trial lawyers, race-baiting rent seekers, and environmentalist fanatics. For the most part, financial and corporate special interests are complete sell-outs to these all powerful unions, or survive via precarious detente.

Fixing pensions in California, with union cooperation, would be relatively easy. With union cooperation, politicians would have a chance to enact reforms that would not get mired in endless litigation. With union cooperation, government workers – and the public – would be able to learn about the extent of the problem instead of getting dosed with emotional propaganda. Possible solutions could be far reaching and inspiring. Here are some ideas:

1 – Reduce all pension benefit accruals to pre-1999 levels for all future work. Leave intact benefits earned to-date.

2 – Lower the long-term rate of return projection for pension assets to 6 percent.

3 – Lower the inflation stop-loss for retirees from the current 70-80 percent to 50-60 percent – provide for COLA reductions if economy encounters deflation.

4 – Raise the age of eligibility to 62 for all employees, with full benefits only available to miscellaneous employees at age 67 (same as Social Security).

5 – Implement additional “triggers” that take effect if funding falls below 80 percent, including suspension of COLA, prospective further lowering of the annual multiplier for active workers, retroactive lowering of the annual multiplier for active workers, reduction of the retiree pension payment, increase the required payment to the pension plan by active workers via withholding.

The pension systems themselves could assist this process greatly if they simply provided analysis of what measures 1 and 2 would accomplish. Lowering the rate of pension benefit accruals for future work will permit lowering the long term rate of return projection without increasing the total liability. If the pension system analysts could provide a table expressing that curve, it would greatly assist policymakers and reformers, including the union leadership.

Unfortunately, pension actuaries and fund managers do not have an illustrious track record in these exercises, so, again, it would be useful if the union leadership itself would insist on a quick turnaround and an honest, depoliticized assessment.

And what if, from now on, public employees earned lower pension benefits? First of all, it would take an awful lot before those benefits descended to the level of what the rest of California’s workforce can expect from Social Security.

An independent contractor in California has 12.4 percent withheld by the Social Security Trust Fund, and for that, they may expect a maximum of $36,132 after over 40 years of work; the average is $18,036. In 2015, the average pension for a California public employee after only 30 years of work was $68,673, not including any benefits. It is surely higher now.

What public sector union leadership might contemplate is how can the prospects for all workers in California improve. Now, with the economy grinding nearly to a halt, it is an especially good time for this sort of contemplation. Why not require CalPERS to invest 50 percent of their assets in “California based companies and projects” instead of the current 9.1 percent (ref. CalPERS CAFR, intro page 4)?

The idea that CalPERS and other pension funds were ever helping California’s economy is a blatant falsehood. The numbers are irrefutable. In 2018 CalPERS collected $28.7 billion, but only paid out 26.9 billion (CalPERS CAFR, pages 42 and 43). Since $3.5 billion of those payments were made to retirees living out of state, only $23.4 billion stayed in California. This means that Californians gave CalPERS $5.3 billion more than retirees living in California received in pension benefits. Meanwhile, over 90 percent of CalPERS investments are made outside of California.

What if public sector union leadership decided to fight for all California workers, by supporting reform of the California Environmental Quality Act, which would permit cities and suburbs to expand their borders onto open land again, greatly lowering housing costs? What if these unions supported pension fund investments in revenue bonds and equity positions to build new freeways, water storage projects, and cheap energy infrastructure? Imagine how much could be built if literally hundreds of billions of pension fund assets were invested right here in California!

There is a new consensus that could form in California, excluding the libertarian fanatics who think the only criteria for a pension fund investment is the return, even if it requires investing in Chinese slave shops. This new consensus could also exclude the identity-politics demagogues whose only criteria for a proper investment is the “diversity” of the workforce, the directorships, and the communities affected.

Who knows, maybe a new consensus could even knock the environmentalist fanatics – along with their trial lawyer and crony “capitalist” allies – down to size, allowing “green” investment criteria to resume its appropriate place within a kaleidoscope of worthy considerations.

If all these things were done, California’s cost-of-living would go down, meaning public sector retirees could enjoy the same standard of living as before, even if they retired with somewhat lower pensions. Moreover, the economy would be sizzling again, pouring record tax revenues into a solvent public sector.

The win-win envisioned here is no more preposterous than the notion of 7.25 percent pension fund returns for the next thirty years, and far more beneficial for everyone living in California instead of just beneficial for public servants.

This could be a time for a consensus that wipes away extremes, which might make CalPERS and the other pension systems a benefit to California’s economy instead of a terrifying drain. Public sector unions; the ball is in your court.

This article originally appeared on the website California Globe.

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Grassroots Infrastructure for Initiatives and Recalls is Growing in California

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Earlier this month the effort to recall Gavin Newsom was officially ended. As reported in the Times of San Diego on March 17, “Last week, the California Secretary of State’s Office informed Erin Cruz of Palm Springs that her petition effort to oust the Democratic governor had failed.

A year earlier, an initiative to repeal California’s gas tax made it onto the ballot, only to be defeated in the general election of November 2018. These represent two significant failures on the part of populist conservative reformers in California. But the story of these two failed attempts at change should not dishearten activists.

The ability for underfunded, technologically savvy groups of activists to use the initiative and referendum process to attempt fundamental change in California is a mega-trend that has just begun. It represents an existential threat to California’s ruling establishment. Without major donors, without support from political parties or the media, a movement has formed that does not yet realize its power.

The Recall Gavin petition drive was launched by author and current congressional candidate Erin Cruz and a core group of committed activists. Within 150 days they had to attempt to gather a daunting 1,495,709 signatures. They ended up collecting a gross total of 352,271 signed petitions, of which 281,917 were verified and valid. This may not have been nearly enough to put a recall onto a statewide ballot, but it is nonetheless an astonishing and record-setting achievement, because they did this with nothing. No significant donations. No professional signature gatherers.

The Gas Tax Repeal in 2018, launched by Carl DeMaio, was a hybrid effort, enlisting the support of volunteers as well as hiring professional signature gatherers. But DeMaio’s pioneering tactics, which utilized volunteers not only to gather signatures but also to verify signed petitions, permitted his organization to negotiate nonexclusive arrangements with professional signature gathering firms, and ultimately brought the total cost to qualify the initiative down to a fraction of what a conventional effort would have cost.

Grassroots Initiatives Enabled by Technology Are the Future

Change in California is not coming from the state legislators, who are controlled by the overwhelming power of public sector unions in an alliance with left-leaning billionaires and compliant corporations. Apart from the unlikely entrance of a maverick billionaire into the fray, cases where California’s business sector fights this alliance are rare. While private sector interests do have some fight left in them – the upcoming campaign against the split-roll initiative and the effort to repeal portions of AB 5 are examples – for the most part the fights they choose are defensive, and the strategy they prefer is compromise and tactical retreat.

What California’s state legislators and elite power structure have not reckoned on, however, is the growing potential for activists, linked together and coordinated using online resources, to put transformative initiatives, referendums and recalls onto the state ballot. There are millions of Californians who feel completely disenfranchised by California’s political establishment who can now be mobilized using online assets. Compared to past election cycles, the cost today to do this is negligible.

Organizations that worked on the Newsom Recall and the Gas Tax Repeal remain active, and are launching new campaigns. Erin Cruz’s Restoring America Now Action Fund is actively moving towards circulating a petition to recall Xavier Becerra, and has announced plans to launch additional recalls of top state elected officials. Orrin Heatlie, a retired law enforcement officer who was involved with Cruz on the first Recall Gavin effort, has launched the California Patriot Coalition and is on the verge of circulating a 2nd petition attempting to recall Newsom. Carl DeMaio’s Reform California organization remains active and could become involved in new initiative efforts.

Overcoming Obstacles to Establishing Grassroots Power

The technology to allow registered voters to download, print, sign, circulate, and even verify signatures is already present. Even ten years ago, such a comprehensive set of online assets would not have been feasible, but a lot has changed in a decade. Today, virtually everyone, including senior citizens, are online and know how to navigate a browser to download and print a document. Today it is possible – at zero cost – to shoot an instructional video with a smart phone, then upload it so anyone can watch it. Today, social media platforms such as Facebook and Twitter are used by tens of millions of Californians, making it possible for powerful groups to form virtually overnight and, and at no cost, get directed to websites that will assist them to download, print and sign ballot petitions.

An example of the power of social media can be found in the latest recall Newsom effort led by Orrin Heatlie, who has created Facebook groups dedicated to the recall in every county in California. Anyone interested in trying again to recall the governor can go into Facebook, search on the term “Recall Gavin 2020,” and the main page will come up. Members can then be directed to the site for their particular county. Tens of thousands of Californians have already joined these Facebook groups.

It is easy to overstate the difficulties of doing something as radical as putting a half dozen or more initiatives onto California’s state ballot by November 2022. But while the professional consultants who advise activists to only try for one or two initiatives are not necessarily right, there is a limit. How many petitions shall a volunteer circulator be asked to carry? How many petitions shall a supporter be asked to download, print and sign? It is safe to say that fewer than three would be too few, but more than ten would almost certainly be too many. A consensus must form around roughly a half-dozen measures, and that won’t be easy.

One obstacle, if the goal is not only to make the ballot, but to win, is to avoid initiatives that are divisive to the voters. That is not to suggest avoiding initiatives that will trigger fierce institutional opposition. An initiative to reform union work rules, as attempted by the Vergara case which lost on a technicality, would arouse the full resources of the teachers union in opposition. That’s fine. But avoid initiatives that split California’s electorate into two bitterly opposed camps. We all know what those are. Steer clear of them. And that, too, will not be easy, because often the most committed and effective activists are those who care about one and only one issue. Their support is required. They must be respected and convinced to be part of a broader movement.

Another obstacle, perhaps the biggest, is to avoid diluting efforts. Across the state, there are groups of potential volunteers that want to be part of something big and are ready to support it with their individual donations and volunteer time. But which something? Will it be the recall Becerra effort, or the 2nd recall Newsom effort? And as the calendar winds its way into the 2022 election cycle, with several attractive reform initiatives being circulated, which one will they support?

The solution here is also not easy, but it is necessary. The grassroots, statewide groups of volunteers that intend to circulate reform initiatives will have to cooperate with each other. There are a few levels of cooperation, and the higher the level of cooperation that can be achieved, the better. Here are some ideas:

Ways Statewide Reform Initiative Organizations Can Cooperate

1 – At the very least, statewide groups cannot put out competing initiatives that both accomplish the same goal. During the recent Newsom recall effort, not only was Erin Cruz’s group circulating a petition, but another group led by James Veltmeyer also had a recall petition approved for circulation. Although Veltmeyer’s effort never acquired momentum, it created confusion among potential supporters. In a different set of circumstances in the future, duplicate petitions might destroy the chances of either to succeed.

2 – The next level of cooperation would be for the various county organizations that are set up to receive and verify signed petitions to cooperate with each other. This could be via an agreement between the statewide groups sponsoring them. For example, Orrin Heatlie’s California Patriot Coalition already has active networks in every county. DeMaio’s network of county organizations can presumably be activated at any time. Erin Cruz has announced the intention to mobilize organizations at the county level in the near future. What these statewide groups can do, along with not launching duplicate petitions, is to promise to forward signed petitions that one county group receives by mistake, to the correct county group. If that is impractical, then they can exchange with each other a single statewide address, and agree to forward petitions to the correct statewide group. This will prevent any petitions being lost.

3 – The ultimate level of cooperation would be for the statewide groups to share the resources of their county volunteer organizations. This could work on a county by county basis. But if, in a particular county, the volunteers for one statewide initiative effort have a backlog of thousands of signed petitions they need to verify, and in that same county, another statewide initiative effort has over-capacity because they have more volunteers available than petitions requiring verification, they could assist the other group. This would reassure volunteers that they aren’t in the wrong place. It would let them know that regardless of which organization they support, they will still be part of a unified effort to transform California.

Another way to cooperate would be to share online code. While the websites and databases necessary to run these efforts have already largely been built, each organization has online strengths and weaknesses. Sharing best practices would go a long way towards shortening the learning curve, and could spell the difference between success or failure for some efforts.

To coordinate a cooperative effort, the California State GOP could get involved, once their focus on November 2020 is behind them. But grassroots reform can occur with or without the CAGOP. In some respects, if the groups pushing these initiatives avoid extreme propositions that divide the electorate, it might be better for them to remain totally nonpartisan. Reforming public education, restoring law and order, rewriting CEQA for the 21st century, financing new water and transportation infrastructure, and saving the pension funds are not partisan issues, nor are they extreme. They are populist issues with broad support from Californians of all types.

Technology and populism can align to allow ordinary Californians to fix their broken state. California is ripe for a fundamental political realignment, and for the first time, California’s grassroots voters can take matters into their own hands.

This article originally appeared on the website California Globe.

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