Two Visions for California’s Future

/by

The average retail price of regular gasoline in California as of April 3, 2024, was $5.15 per gallon. Since that’s an average, there are spots where the price of regular gasoline is significantly higher, as I learned over the weekend while spending $6.15 per gallon to fill the tank. Californians now pay more for their gasoline than Hawaiians, which is quite an accomplishment. The state of Hawaii is a remote archipelago in the middle of the Pacific Ocean, with no in-state petroleum resources to speak of, whereas California is sitting on some of the most abundant reserves of oil and gas in the world.

Despite proven reserves of 2.3 billion barrels of oil and potentially another 10 billion barrels locked in California’s so-called Monterey Shale formation, California imports over 70 percent of its crude oil. Most petroleum geologists agree that if oil exploration were permitted in California, the quantity of proven reserves is likely to triple. But through a relentless barrage of legislation, California’s state legislature and the activist agencies that oversee the industry are doing everything in their power to shut it down. The same regulatory assault is underway with California’s natural gas industry, where, despite plentiful in-state reserves, over 90 percent is imported.

It’s not just energy that is expensive and in short supply in California. Every essential building block of a successful economy is subjected to politically engineered scarcity. The state’s water infrastructure is neglected, and instead of investing in new ways to harvest and store the roughly 200 million acre feet of rain that hits the state even in dry years, billions are being invested in systems designed to ration urban water use while farms throughout the state are taken out of production for lack of irrigation water. Freeways are neglected as billions are wasted on a high speed rail project that, even if it is ever completed, will do virtually nothing to alleviate freeway congestion.

California even has a shortage of developable land, which is absurd since the vast majority of California’s nearly 40 million people live in urbanized areas that only consume 5 percent of the state’s total land area. You could build homes for 10 million people, at four per household on quarter-acre lots, with an equal amount of space set aside for roads, retail centers, parks, schools, and commercial/industrial facilities, and you would only increase California’s urban footprint to 6.5 percent. Such new “sprawling” developments would only consume 2,000 square miles in a state that occupies 156,000 square miles. But there’s “no room.” There’s also not enough water, energy, or good roads and freeways to accommodate newcomers.

All of this is by design. All of this is a political choice. It is the result of a consensus reached between a coalition of special interests that together wield almost unimaginable power. California’s public sector unions collect and spend nearly a billion dollars per year, using a sizable percentage of that money to make or break the campaigns of every elected politician, all the way from local water boards to the governor. They want endless environmental regulations so they can grow their regulatory and enforcement bureaucracies, and to pay for it, they don’t want to see public money invested in practical physical infrastructure. They’re not alone.

California’s public utilities, quasi-private and owned by stockholders, are held to a fixed profit by regulators. This means that the only way they can increase their earnings per share is by raising their revenue. No wonder investing in “renewables” is so favored by these utilities. With no competition and captive ratepayers, their stock price will be a lot higher when they’re charging $.50 per kilowatt-hour and passing 9 percent down to the bottom line than when they’re charging $.05 per kilowatt-hour. How convenient that the state has decreed “net-zero” by 2045.

Anti-growth politics also benefit the homebuilding industry, at least what’s left of it. With exorbitant fees, artificially inflated land prices, ridiculously overwrought building codes, unnecessarily costly building materials since almost nothing can be sourced in-state, and punishing delays in acquiring permits from a Byzantine array of hostile agencies, it is impossible to profitably build most types of housing in California without subsidies. But why fix that? The small builders give up and find new professions. The big builders that have opportunities to profitably build affordable market housing in less regulated states without crawling to the government for subsidies have done so. That leaves California with a handful of politically connected mega-builders collecting billions in subsidies to build “affordable housing.”

If that were a complete list, it would be enough, but almost every special interest in California wants scarcity. Tech billionaires love it because elevated energy prices allow them to develop and sell every manner of green product, from energy management systems and electric cars to chipsets for “connected” appliances ala the “internet of things.” The data gathering sector alone stands to gain billions in revenue by collecting and parsing behavioral data from consumers using connected appliances. In a state where energy and water were abundant, these products and services wouldn’t sell. As it is, not only does the backdrop of high prices make them rational consumer choices, but just in case, the state legislature is mandating their adoption.

Finally, there are financial special interests that profit from high asset values. From California’s mammoth public employee pension systems to hedge fund investors and real estate investment trusts, the contrived scarcity of land and resources makes investments in land and resources more rapidly appreciate in value. There’s big money in scarcity.

Another anti-growth special interest, if you want to call them that, are the Californians themselves. Not the newcomers, invited into the Golden Sanctuary State to take all those “jobs that Americans won’t do.” Rather, it is the group that’s been here for a few generations—those millions of Californians who live in homes paid for long ago, paying minimal property taxes, and don’t want another ten million people moving into their state. Many of them are retired and are indifferent to traffic congestion on the roads. Millions of them live close to the coast and don’t have significant expenses to heat or cool their homes. For them, the orchestrated panic over “climate change” provides moral cover for what they really want, which is to slam the door on opportunities for anyone moving here.

This extreme anti-growth vision defines California today. But there is another extreme worth imagining. California could be a state where the public decides it would be desirable to develop another two percent of the state’s geography with spacious suburbs filled with detached homes on spacious lots. They could embrace more drilling and refining of oil and gas within the state and set an example to the world of how to do it responsibly. They could build more safe nuclear power plants to generate additional gigawatts of electricity while substantially lowering the construction cost by streamlining costly state regulations and using their considerable clout to demand the federal government do the same. They could invest in practical ways to harvest additional millions of acre feet of storm runoff and build desalination plants to provide abundant water to coastal megacities.

In this alternate vision of California, millions of good jobs would be created, attracting talent from around the world, and since the cost of living would be dramatically reduced, even entry-level jobs would offer people willing to work hard the same opportunities for upward mobility that were present during the state’s last golden era, the 1950s and early 1960s, before the anti-growth forces began to take control.

It is left to the reader to decide which vision of California ought to prevail and which sort of example might inspire the rest of the world to emulate.

This article originally appeared in American Greatness.

California’s Fiscal Woes Escalate Again

/by

While finalizing the upcoming fiscal year’s state budget back in May 2022, California governor Gavin Newsom boasted of an extraordinary projected surplus: $97 billion. The governor immediately collaborated with an enthusiastic state legislature to spend it all. Of course, new spending on new programs and benefits tends to become permanent.

This has happened repeatedly in California. Between fiscal year 2012–13 and fiscal year 2022–23 (the year with the projected $97 billion surplus), per capita general-fund spending doubled, from just over $3,000 per resident to just under $6,000. (All figures are in 2022 inflation-adjusted dollars.)

Where did the money go?

The state prison system, for example, increased spending by $3.4 billion (29 percent) over the last ten years. But during the same period, the state-prison population dropped, from 168,000 in 2009 to 96,000 in 2022. California’s state prison system in 2022 spent an estimated $159,000 per prisoner.

The spending binge wasn’t limited to prisons. The Department of Developmental Services, for example, more than doubled in that span (up 117 percent), while the Departments of Social Services (up 89 percent) and Health Care Services (87 percent) saw similarly large upticks.

The state’s education spending was particularly profligate in that ten-year span. Per enrolled student, state community-college spending went from $2,181 to $4,286, California State University spending went from $6,226 to $10,796, and UC System spending went from $13,253 to $18,305. In K–12 public schools, per pupil spending exploded from $8,751 to $13,377.

California taxpayers might ask: “What did we get?” Taxpayers in that ten-year span saw state spending double. Did the state see greater educational attainment? More housing and fewer homeless? Less crime? Anything?

Rather than go down that rabbit hole, consider what’s happened since Newsom and his acolytes envisioned such a bright financial future. As columnist and long-time Sacramento observer Dan Walters wrote last October, “within weeks of the budget’s adoption in June 2022, revenues started to fall below Newsom’s rosy assumptions and he was vetoing spending bills that the Legislature had passed in reaction.” Indeed, the governor “presented a 2023–24 budget that dealt with a projected $31.5 billion deficit. Since its passage in June, revenues have continued to fall below estimates.”

Revenues have indeed fallen. To cover its expenses, California relies heavily on personal income taxes. Since the technology sector, which dominates the state’s economy and provides much of the state’s income-tax receipts, is subject to frequent bubbles and corrections, tax revenue often takes a downturn alongside the tech sector. When tax revenue from all sources—individual income tax, corporate tax, sales tax—goes down, surpluses vanish.

The State Office of Legislative Analyst’s latest report projects a $73 billion dollar deficit for the next fiscal year. It won’t be easy to paper over this debt, but the state may use its opaque accounting system to hide the ball.

California’s general-fund budgets are reported on a cash basis. The state’s balance sheet, however, uses “accrual-based accounting.” Without getting too far into the weeds, this is an apples v. oranges situation. Instead of the algebraic perfection of private-sector income statements, balance sheets, and cash flows, government accounting provides no easy way to reconcile what you see on the budget, or income statement, with what you see on the balance sheet.

Government accounting is therefore more vulnerable to a bookkeeper “cooking the books” than is private-sector corporate accounting. This inherently inconsistent accounting method yields tedious and maddeningly convoluted auditor’s reports, which require forensic levels of skill to decipher. This approach overwhelms watchdogs, allowing the state to defer payments, hike debt, and kick the can down the road.

Some watchdogs, however, have succeeded in cracking the code. John Moorlach, one of the only certified public accountants to serve in the California State Senate, just published a review of the state’s fiscal health, focusing on the balance sheet. According to Moorlach, California’s balance sheet is in trouble.

Moorlach declared in a March California Insider interview that the state “now has the largest unrestricted net deficit in the US: $222 Billion.” In plain English, Moorlach is saying that California’s state government accounts have liabilities that exceed assets by $222 billion. No matter how creative Newsom and his financial wizards may be, someday that money will have to be paid.

A remedy that California has turned to over the years and will undoubtedly turn to now is to accumulate additional long-term debt. Emulating the federal government, but lacking its dollar-printing ability, California’s state and local governments and agencies have racked up over a trillion dollars in debt, primarily in bonds and unfunded pension liabilities. These liabilities, too, must be paid. Since that’s all but impossible, the liabilities must be serviced with payments that, just as at the federal level, will eat up more and more of the operating budgets.

The solution to California’s fiscal woes won’t come from creative accounting or more “stimulative” programs and benefits. The solution is deregulation and cost-effective, practical infrastructure investments, both of which lower the cost of living and create jobs. Such changes will, in turn, make it possible to eliminate or sharply reduce expensive government programs by enabling more Californians to support themselves. Unfortunately, the chances of enacting such reforms—much like Newsom’s dreams of state fiscal health—exist only in the realm of fantasy.

This article originally appeared in City Journal.

California’s Dubious Megaprojects

/by

It would be inaccurate to suggest that California’s state legislature can no longer think big. They can, and as such they are carrying on a tradition that two generations ago gave us the best universities in the world, expressways and freeways that helped catalyze a boom that lasted for decades, and the most remarkable system of water storage and transfers ever built, anywhere. Today California still thinks big. We aim to lead by example, and show the world how to design an economy that has achieved “net zero” and still functions. To that end, four megaprojects are in the works or already underway; high speed rail, offshore wind, the Delta tunnel, and the new kid on the block, carbon capture and sequestration.

Each of these projects, assuming they are ever completed, will cost tens of billions, if not hundreds of billions. The money will come from taxpayers and ratepayers, baked into public budgets and utility pricing to pay down bonds issued to finance construction. Once they are operating, their earnings will not begin to cover their construction costs. They will be a permanent, massive drain on California’s economy.

It’s easy enough to forgive some of the politicians who support these boondoggles. They are coerced into supporting them because they are represented as necessary to cope with the climate crisis. And in many cases, particularly in some of the rural counties where these projects are concentrated, they face the regulatory obliteration of their farm and energy economies, and are understandably desperate to see some sort of stimulative activity come along as compensation.

For a briefing on California’s proposed offshore wind projects, refer to WC #14, published last October. That report is rich on quantitative details overlooked by most observers, and those details may perhaps excuse the title, where offshore wind is delicately referred to as a “catastrophic scam,” For information on the proposed “Delta Conveyance,” refer to WC #30, “The Opportunity Cost of the Delta Tunnel,” and WC #28, “Comparing the Delta Tunnel versus Desalination.” Both of those were published in early 2024, and as well are rich in quantitative details that ought to compel consideration of alternative ways to spend hundreds of billions of dollars, but this is California.

Which brings us to High Speed Rail. Of the fantastic four megaprojects under review in this analysis, it is the furthest along. Which isn’t saying much. California’s high speed rail project will go down in history as a financial, environmental, and social trainwreck, to use the appropriate metaphor. Here is an update.

High Speed Rail was originally sold to voters in 2008 as a marvelous antidote to automobile transportation. The train was supposed to travel at 220 miles per hour and get built at a total cost of $33.6 billion. The original 2008 “business plan” wisely refrained from estimating a completion date, and that’s about the only thing they got right. Some of the claims they made reveal eye-watering levels of delusion.

According to the initial plans, laying track from San Francisco to Los Angeles would “alleviate the need to build about 3,000 miles of new freeway plus five airport runways and 90 departure gates over the next two decades.” The entire project was envisioned to extend north to Sacramento and south all the way to San Diego. Fat chance.

Today, 16 long years later, the bullet train is an expensive eyesore, albeit only along an initial stretch that will connect the San Joaquin Valley towns of Merced to Bakersfield. This “first phase” involves completing a mere 171 miles of what was planned to be 800 miles of high speed rail. To-date, even here where efforts have been focused, not one mile of track has been laid. The cost just for this initial segment is now projected to exceed $35 billion. 

Do California’s math-challenged legislators realize that even in costly California, paying $204 million per mile of track is an insane waste of public money? Wait till they try to tunnel through Pacheco Pass to connect the Central Valley line to the San Francisco Bay Area, or try to punch through the San Gabriel Mountains to connect the system to Los Angeles. And imagine, if you will, how much it will cost to blast a corridor for high speed rail through the actual metropolis of greater Los Angeles, or through the dense suburbs that run uninterrupted from south San Jose all the way up into the heart of San Francisco.

With these constraints in mind, even at $204 million per mile, the whole 800 mile system will cost $163 billion. And if anyone thinks a track that costs $204 million per mile on some of the flattest, most forgiving farmland topography in America will “only” cost that much to tunnel through mountains and displace fully built out areas, well, run for the state legislature. You’ll be right at home.

The most recent plan for California’s high speed rail is to skip Sacramento and San Diego, and only extend the system from San Francisco to Los Angeles. The latest official estimated cost to do this is a paltry $128 billion, but every year that number goes up. In 2008 it was $33 billion. By 2012, already scaling back the projected speed via “blending” the “high-speed trainsets” with low speed commuter rail (where all the passengers would be), the total cost was increased to $68.4 billion. In 2018, the “middle range” cost estimate was increased to $77.3 billion.

What is in store for Californians at this point is a “high speed” system that now shall include slow commuter trains in the Bay Area and Los Angeles, at a cost of $128 billion. It will be a system that will never pay its operating costs, much less pay back its construction cost which is sure to increase even further. The kicker? The 171 mile first stretch of track is not even intended to operate with “carbon free” electric locomotives. To help cut costs, they’re intending to use old fashioned diesel power out there.

There are alternatives to these misguided megaprojects. Instead of the tunnel, build infiltration beds in Delta channels to move massive amounts of winter water south without harming fish, and use the money that is saved to repair the levees and develop some protected new Delta habitat (and raise the limit on striped bass, if we’re serious about saving salmon). Instead of offshore wind, retrofit California’s existing fleet of natural gas power plants to incorporate the most advanced combined cycle designs, keep Diablo Canyon open, and explore additional nuclear energy options. Instead of high speed rail, pour that stupefying sum of money into upgrading and widening every freeway in the state, and upgrade existing conventional rail.

Next week, we will take a look at carbon capture and sequestration, another dubious megaproject moving quietly forward.

It is inspiring to imagine and follow through on megaprojects. During their construction they create thousands of well paying jobs. That’s all good. But those billions can be spent and those good jobs can also be created by choosing megaprojects that will yield permanent economic dividends to everyone in California. That was understood by California’s political leadership in the 1950s and 1960s. Today’s politicians have to recover that crucial element if they care about the citizens they serve, much less the world that watches.

This article originally appeared in the California Globe.

The Financialization of Nature

/by

Financialization: “A pattern of accumulation in which profit making occurs increasingly through financial channels rather than through trade and commodity production.”
– Greta Krippner, Economic Sociologist, University of Michigan

There are plenty of examples of how America’s economy shifted from a production-based economy to a financially-based economy over the past forty years. Starting around 1980, with the economies of post-World War II Europe and Japan fully rebuilt and roaring, and emerging Asian economies turning into powerhouses of manufacturing as well, America chose financialization as an alternative to rising up to meet the competition.

Abandoning a productive economy in recognition that foreigners were willing to work for daily wages that wouldn’t buy a pack of gum in America may or may not have been an unavoidable choice. But the result is a nation that has, for over four decades, spent far more than it has earned. America’s total credit market debt now sits at nearly 800 percent of GDP; federal government debt exceeds 120 percent of GDP. The cumulative trade deficit since 1980 is $16.2 trillion; $6.6 trillion in the last ten years. Since 1980, the United States has not had a single year with a positive balance of trade.

To cope with this level of debt, collateral is required. Whether it’s business assets or home equity, collateral is the engine of liquidity. No wonder we have inflation, and if inflation isn’t undercutting the real value of debt fast enough, engineer more inflation. That would explain one of the hidden agendas behind environmentalist restrictions on growth. Limiting development constricts supplies of essentials, leading to demand-driven asset inflation. But there are more sophisticated ways to engineer more collateral for an economy running on debt.

Remember when investment banks and brokerage firms started going public in the 1990s? It defied common sense at the time. These were service partnerships that made money by packaging productive private companies for sales, mergers and initial public offerings, or by collecting commissions on stock trading done on behalf of clients. Where was the equity?

What might have been common sense then is naivete today. Of course, they could securitize their business. Who said that publicly traded common stock had to be connected to actual physical assets? Sure, if you owned stock in Chevron, your equity was secured by actual oil wells and refineries. If you owned stock in General Motors, your equity was secured by actual automotive manufacturing plants. But so what? If you purchased shares in Goldman Sachs, you were owning part of a business that was making money hand over fist. Who cares if they just provide services? America’s publicly traded financial sector now has an estimated market capitalization of over $10 trillion, edged only by high tech.

In terms of financial innovation to create collateral, securitizing banks and brokerages was primitive by today’s standards. The next wave came around ten years later, when creative traders bought mortgage loans, bundled them up, and sold equity that was secured by these collections of mortgage debt. Amazing contrivances followed: credit default swaps, collateralized debt obligations, and, as the scheme grew beyond any bounds of prudence, subprime mortgages. The whole thing crashed in 2008, nearly taking down the global economy.

Undaunted, the financial wizards of Wall Street continue to innovate. Now they’ve got their eyes on the entire global energy economy via carbon trading. Under this scheme, literally all consumption of carbon, or in its gaseous form, CO2, will be measured and reported. A floating market price will be set per ton of carbon, and carbon users will pay for the right to burn carbon (coal, oil, natural gas) and emit CO2, and that money will flow through a brokerage and into the hands of either government or private entities that will engage in activities purported to mitigate the alleged impact of CO2.

Through all these transactions, brokerages will collect commissions on what is currently a global energy market with an estimated turnover of $6 trillion per year. Even that figure grossly underestimates the stakes, since this doesn’t involve merely energy transactions, but everything energy touches—that’s everything, folks. With “carbon accounting” and soon to be mandated “carbon monitoring and reporting,” the embodied carbon in every human activity and every product and service will have to be assessed. Exceeded your ration? Pay up. Buy an “offset.” The market at work!

One might laugh at such audacity. Once again, financialization, on a scale unprecedented even for Wall Street. Even the New Yorker, in an October 2023 expose, ridiculed the idea in an article titled “The Great Cash-for-Carbon Hustle.” But hustle or not, carbon credits are on the way. Just ask those pioneering Californians.

The Financialization of Nature

Which brings us to the next great idea to stimulate collateral formation without actually producing anything: the concept of publicly traded “natural asset companies.” This scheme, long in gestation, was formally proposed to the U.S. Securities and Exchange Commission in September 2023 by the New York Stock Exchange, which hoped to list these new companies. From the offices of Harriet Hageman, a congresswoman from the freedom-loving state of Wyoming, comes this explanation of how these companies would operate:

“According to the proposed rule, a Natural Asset Company (NAC) would ‘hold the rights to ecological performance,’ giving these companies license to control the management of both public and private lands through quantifying and monetizing natural outputs such as air and water. In other words, NACs would use the air you breathe as currency. Under the guise of climate change, NACs would make this ‘control’ mechanism profitable without the actual use of the land itself. By monetizing and leveraging the management of these natural outputs their war cry of ‘ecological performance’ would fall under the rules of sustainable development. ‘Natural assets’ would now belong to corporations that are potentially run by special interest groups such as The Nature Conservancy and the World Wildlife Fund, thereby requiring all production tied to the land to fall under the sustainability rules established by these non-governmental organizations.”

Hageman’s assessment is accurate, and in January 2024, the SEC, bowing to pressure from 25 state attorneys general, thankfully deferred approval of publicly listing NACs. But as the New York Times dutifully reported in the aftermath of the SEC’s decision, proponents of NACs will continue to implement the concept using private equity.

What financializing nature ultimately relies on is the idea that conserving nature has an economic value. While that is undoubtedly true, the idea assumes that somehow the preservation or enhancement of an ecosystem’s health can be quantified and monetized, generating a return equal to or greater than the value of the commodities that can be extracted from that land. This is a dubious assumption. For example, sustainable logging operations generally enhance the quality of forest ecosystems, making them more resistant to wildfires and often creating more hospitable habitat for wildlife. So how do you differentiate between the value of a property based on its marketable timber versus the value of a property because it hosts a healthy forest? Do you double-dip? Extract the timber and realize that profit, while also assessing your ecosystem health and placing an appreciating value on that as well? Maybe so. After all, that creates more collateral. But who makes those assessments?

The threat posed by natural asset companies must be viewed in the context of a preexisting land grab, funded by billionaires, billionaire-backed NGOs, and sovereign wealth funds, that is permanently transforming and consolidating land ownership in the United States and around the world. Permitting these companies to be publicly traded would inject additional billions, if not trillions, of capital into their treasuries, which would dramatically increase the capacity of these buyers to acquire more farmland, rangeland, and other valuable rural properties.

Natural asset companies enjoy a pernicious synergy with what has become a full-blown regulatory assault on farmers, ranchers, miners, and drillers throughout America and Europe. As millions of landowners, often working land that has been in their families for generations, are driven insolvent by regulations, in come the big corporate raiders to buy them out. If publicly traded natural asset companies come on the scene, the transfer of land from financially stressed families and small corporations into the hands of global financial interests will accelerate.

In the first few decades of the financialization of America, at least there was no pretense of virtue. Asset stripping American factories and offshoring operations, turning banks and brokerages into publicly traded companies, inventing subprime mortgages, and securitizing them—it was just business. There might have been some warbling about free markets and democratizing home ownership, but these moral rationalizations were generally subsumed in the mechanics of creating collateral out of nothing to facilitate another few decades of an epic debt binge.

That’s not the case today. Carbon trading and natural asset companies are a new type of financialization. They have an explicitly trickle-up impact as well as an operating model that depends on unprecedented government mandates and restrictions on energy consumption and land use. They differ in kind from earlier forms of financialization. They create collateral by using scarcity to inflate the value of existing real assets, and by inventing new asset categories that have no relation whatsoever to genuine productivity. And they will justify all of it in the name of fighting climate change. Buckle up.

This article originally appeared in American Greatness.

Who Rules the World?

/by

Many years ago a friend of mine insisted we go to a bookstore so I could purchase a copy of a book that had her howling with laughter. The title of the book itself suggests the source of her amusement, “Nothing in this book is true, but it’s exactly how things are.” Published in 1994, the book is an audacious farrago into everything from massive alien intervention to pop metaphysics. One of the book’s premises, if one is to assign that much coherence to it, is that not one, but dozens of extraterrestrial races currently intervene in the affairs of humanity. It is now a cult classic.

Today, of course, the internet collects tales of alien encounters by the millions and puts them at the fingertips of billions of people. If you want to know about the alien star base inside Mt. Shasta, or lurking at the bottom of the Mariana Trench, or pretty much anywhere else on the earth or beneath the sea, a few keystrokes will deliver links to endless reports, most of them bizarre and unsubstantiated. And if you want to examine more serious speculation regarding alien intervention in human affairs, now more than ever, you’ll find it.

Overall, the whole notion of extraterrestrials among us remains a fringe topic, content fodder and clickbait, but not generally accepted as probable. In a twist that would amuse H.L. Menken, some of the people who establishment media stigmatize as conspiracy theorists themselves consider any mainstream focus on aliens to be a carefully orchestrated hoax, perpetrated to distract us from much more sinister earthbound conspiracies.

All of this begs the question: who is running the world, and the related questions, who or what is motivating them, and what is their goal? Bringing up the possibility of alien involvement helps clarify this issue. If extraterrestrials are here, and are influencing the future of humanity without interfering through overt conquest, who would they approach?

Asking the question “who runs the world” in this hypothetical manner doesn’t require a conspiracy theory. It’s a simple question, worth asking. Where is the power to alter human destiny most concentrated? Attempting to answer this inevitably takes us down a rabbit hole. But to refrain from asking is to act as if this doesn’t matter when it’s arguably the only thing that matters. Is it safe to assume the world is just a chaotic miasma of factions, hurtling into the future, or that if it isn’t, that the people in charge are acting in our best interests?

In an attempt to understand who sits at the pinnacle of global power, an obscure article published in 2018 on the West African website TheInfoNG offers useful clues. The provenance of the article is dubious, and the theory put forth is widespread, but the title “Revealed: The 13 families who secretly rule the world,” suggests this is as good a place as any to have a look. They write:

“The forces that underlie the new world order follow a slow program to gain complete control of humanity and the resources of our planet. The masses are absolutely unaware that their freedom is being progressively removed. It is believed that at the top of the pyramid, all movements are orchestrated from an organization called the Thirteen Families, a council that consists of 13 of the most influential families on earth. In their opinion, they have the right to rule humanity because they are the direct descendants of the ancient gods and consider themselves royalty. These families are: 1 – Rothschild, 2 – Bruce, 3 – Cavendish (Kennedy), 4 – Medici, 5 – Hanover, 6 – Apsburg, 7 – Rupp, 8 – Plantagenet, 9 – Rockefeller, 10 – Romanov, 11 – Sinclair, 12 – Warburg, 13 – Windsor.”

The article goes on to claim the Rothschild family is by far the most powerful dynasty, controlling over $500 trillion dollars including ownership of the U.S. Federal Reserve Bank. Also in the article is an image that provides an interesting framework for this alleged control by 13 powerful families. The image, reproduced below, did not originate from TheInfoNG, insofar as a basic Google image search reveals it to currently exist on at least 46 different websites going back at least to 2013.

Immediately obvious in this pyramid chart is that people are at the bottom, outside the triangle of control, and within the triangle at the lowest level, wielding the least power, are national governments. Working up the pyramid, the next level are the major corporations, which are beneath the big commercial banks. Above them are national central banks, which in turn are subordinate to international central backs such as the IMF and the World Bank, which themselves answer to what is referred to on the chart as the “Central Bank of Central Banks,” otherwise known as the Bank for International Settlements. And at the tip of the pyramid? The 13 families.

It’s obligatory to question this paradigm, but rejecting the idea of 13 families running the planetary show doesn’t nullify the possibility that a global hierarchy of institutions exist that are more powerful than national governments. Anyone familiar with the ESG movement recognizes that it is being rolled out and enforced by banks and financial institutions who make access to cash, loans and investments contingent on compliance.

Similarly, anyone watching the contemporary obsessions with gender ideology and climate alarm has to acknowledge that corporations have incorporated them into their products and marketing. And do corporations control governments? Up until a few years ago when gender ideology and climate alarm coopted and silenced them, that is what the American Left had made a premise of their existence. Now, apparently, accusing the government of being beholden to corporations and banks is a “right wing conspiracy theory.”

If one does accept the idea that a handful of families own controlling interests in a hierarchy of financial institutions and corporations, that doesn’t necessarily mean the list published (or republished) by TheInfoNG is entirely accurate. Closer to home and more recently, Investopedia published an article “Top 10 Wealthiest Families in the World,” listing the following titanic dynasties: Walton, Mars, Koch, Al Saud, Hermès, Ambani, Wertheimer, Cargill/MacMillan, Thomson, and Hoffmann/Oeri. Is it them? Why aren’t the Rothschilds on this list? Where, for that matter, is Elon Musk, Jeff Bezos, or Mark Zuckerberg?

Regardless of how you calculate wealth and financial control, and who you determine occupy the top spots, it is probably naive to think that individuals with stupefying wealth would not also be controlling the most powerful institutions in the world.

The chart reproduced by TheInfoNG is actually dated in a manner worth noting. The “People, Planet, and All Living Things” depicted below the pyramid are now themselves being securitized. People are now data commodities, and the “planet and all living things” are now packaged as “nature backed securities.” God help us.

The next pyramid diagram, roughly similar but published by India Times in 2021, in an article helpfully titled “These Are The 13 Families In The World That Apparently Control Everything,” adds a few missing segments to the paradigm. It depicts religions, governments, media, and schools at the lowest tier, exercising “world population control.” Above that it places corporations which exercise “world resource control.” On the next tier up, all levels of banking along with tax authorities, exercising “world financial control.” At the very top of this pyramid, working upward, they have placed elite think tanks, then the “Committee of 300” which they describe as the “world’s richest, most powerful families,” topped by the “Crown Council of 13,” or “the world’s richest, most powerful sub-families. And of course, their 13 differs yet again (with some overlap), naming: 1 – Astor, 2 – Bundy, 3 – Collins, 4 – DuPont, 5 – Freeman, 6 – Kennedy, 7 – Li, 8 – Onassis, 9 – Rockefeller, 10 – Russell, 11 – Van Duyn, 12 – Merovingian, and 13 – Rothschild. On the pinnacle? A “World Monarch.” Of course!

It isn’t at all clear that India Times came up with this diagram, a basic Google image search for this one yields over 30 similar images, many of them identical and some with intriguing variations. The Conspiracy Watch blog depicts a version of this pyramid that names Queen Elizabeth II as the global monarch (today, King Charles?), it lists members of the “Council of 13,” goes on to name many of the “Committee of 300,” then identifies some of the think tanks – Bilderberg Group, Trilateral Commission, Club of Rome, Council on Foreign Relations,” along with “secret societies” such as the Freemasons. Here again is evidence of an ironic inversion – we learned to fear the nefarious and all-powerful Trilateral Commission from our leftist professors back in the stone age, that is, when leftists had not yet turned into running dogs of multinational corporations. The seductive power of gender ideology and climate alarm! It turned leftists into corporatists.

To explore the question of who, or what, operates unseen and yet largely determines our collective destiny may be a fool’s errand, but that doesn’t mean they aren’t there. Maybe this global hierarchy, should it exist, evolved naturally and without the intervention of aliens or the inspiration of God contending with the temptations of Satan. But regardless of exactly how power is distributed at the highest levels, or whether it is right or wrong, it is increasingly concentrated in the hands of elite individuals and institutions, and preserving competition between them is one of the only ways we may hope to maintain whatever freedoms, or even illusions of freedom, we have left.

The coordinated efforts to reset our entire civilization in order to prevent a “climate crisis” are an obvious and troubling example of elites grasping for more control, and less competition. And their agenda is so fatally flawed – renewables cannot power the global economy, and “owning nothing” does not make people happy, it destroys their character – that it is fair to wonder what truly motivates them? Satanic greed? Malevolent reptilian aliens gaining the upper hand in earth’s cosmic battlefield?

A red-pilled American who is relentlessly bombarded with the same transparently false, transparently misanthropic messages from every mainstream institution can be forgiven for believing in conspiracy theories.

So perhaps none of the details can be known, but that doesn’t mean it isn’t exactly how things are.

This article originally appeared on the website American Greatness.

America for Sale

/by

The dollar’s status as the sole transaction and reserve currency of the world gives America’s federal government unique privileges. International demand for dollars enables federal budget deficits. It also creates an incentive for trade deficits, because incoming investments effectively collateralize American currency. To perpetuate this multi-decade debt binge, America’s real estate and corporate assets are for sale to any foreign investor with surplus dollars.

This is financial treason, because it is an unsustainable scheme that won’t end until there is nothing left in America that any foreigner wants to buy. The ultimate ramifications of this policy are all bad. Eventually, unchecked, they will be fatal. But like any addictive drug, the early stages of abuse are intoxicating. As Americans are systematically being deprived of their individual financial independence and their national sovereignty, they binge on imported consumer products sold at giveaway prices, heedless of the lost American jobs those products represent, or the fact that the dollars they’re exporting by purchasing these imports are used to finance hostile foreign militaries and purchase America’s most cherished national assets.

There are endless connections, and consequences, to the financialization of America as it might be described according to the following interrelated factors: Federal budget deficits require foreign demand for dollar denominated debt. Trade deficits create a surplus of dollars in foreign accounts available to purchase federal debt. Offshoring American jobs creates trade deficits and unemployment. Unrestricted immigration combined with environmentalist mandated scarcity causes inflation, which elevates the cost-of-living but slows the rate at which foreign investment eats up America’s assets. Government spending on entitlements mitigates unemployment and unaffordability caused by offshoring, unrestricted immigration, and environmentalist driven scarcity, but those entitlements cause even bigger federal budget deficits.

Got all that? Some of these connections are obvious, others far more subtle.

The Financial Hijacking of the American Dream

Ever since trade deficits got out of control starting in the 1990s, and especially since federal budget deficits got out of control starting in the 2000s, American economic policy has been to monetize the world with dollars to preserve demand for dollars. This explains one motivation for America’s de facto policy of unrestricted immigration from impoverished nations. Total remittances – not all of them can be tracked – from foreigners working in the United States to their families in their nations of origin are estimated to total around $100 billion per year. In small nations, dollars become an alternative currency, often considered more reliable than the local currency.

Unrestricted immigration also increases the global demand for dollars in a more subtle but more profound way insofar as the massive numbers of people arriving drive up demand for housing and durable goods, which increases the value of real estate and the value of stock in manufacturers of durable goods. The impact of 8 million people arriving since Biden took office in January 2021 is an unheralded but major cause of inflation over the past two years. And as the value of American assets explodes to levels unaffordable to the average American citizen, the value of collateral for the American dollars goes up. Foreign buyers still want that beach house in Malibu or that Pied-à-Terre overlooking Manhattan, but now they’re paying $20 million instead of $10 million. Thanks to asset inflation, balancing the current account just got twice as easy.

Policies deliberately calculated to inflate the value of American assets also help explain why environmentalist extremism is tolerated in America. The war against suburban “sprawl” may have support from many constituencies, ranging from environmentalists who oppose all growth to rural inhabitants who don’t want to see their bucolic county transformed into just another undifferentiated slurb. But there are hard economic motivations that underlie the institutionalization of environmentalist inspired de-growth policies. When supply is artificially constrained, prices go up. An entire coordinated series of restrictive policies ensure this happens.

For example, not only is development on raw land increasingly difficult, as open space “nonprofits,” backed by billionaires, continue to buy up the land surrounding America’s urban centers for “conservancies.” There are also building codes, now designed to require “net zero” homes, that drive up costs, at the same time as America’s domestic timber harvesting and milling industries, decimated by excessive regulations, have driven up the cost of lumber. Not just lumber, but all building materials are impacted by unreasonable environmentalist restrictions: aggregate, steel, along with construction equipment and the required fuel.

The results of this deliberate squeeze on the ability to develop affordable unsubsidized housing are clearly irrational. Dilapidated 900 square foot shacks in the mountains surrounding the Silicon Valley are selling for over $1.0 million, while regular homes on modest acreage can go for ten times that much. And small wonder. Santa Clara County, host to the Silicon Valley, has a population that is 40 percent foreign born, a total population that has tripled within the past 50 years, and the most extreme environmentalist building codes and restrictions in the nation. Chinese billionaires buy these homes with what for them is pocket change, as long-time residents move to adjacent states in hopes of staying ahead of the inflationary wave.

Replacing Economic Freedom with Government Dependency

Where there is unaffordable shelter, unaffordable utilities, unaffordable food, and ridiculously high taxes, in steps the government, ready to subsidize households that have lost any hope of ever achieving privately earned financial security. One might even argue that deficit spending by the government is justifiable, if it is used to make long-term investments to build enabling water and transportation infrastructure so cities can expand, the stock of single family detached homes can increase, and home prices can come back down to earth. But that strategy belongs to a bygone era.

Today America’s federal and state budgets go broke and into the red in order to give to people the amenities they’re no longer asked to earn, or often are even capable of earning. Housing. College tuition. Food. Coupons to ride trains for free. At staggering cost, and like dominoes falling, Americans are being trained to forego hard work. Instead they’re taught to exchange personal responsibility for collective dependence on the government. The impact on character is insidious, and as Americans by the millions are driven into wallowing indigence, more foreigners arrive to take the remaining jobs.

Connectivity abounds. If Americans demanded reasonable environmental regulations and domestic sourcing of raw materials and manufactured goods, it would break the cycle. Without foreign demand for dollars, the federal government would have to limit its spending to its revenue, which would take away its ability to keep millions of Americans dependent on hand-outs. In a virtuous cascade of impacts, the availability of raw materials and finished goods including housing would go down, because foreign buyers would no longer be bidding up prices and American companies and workers would be turned loose to compete to produce products and housing at affordable prices. Who loses?

Contemporary Globalism is Misanthropic

This is a loaded question, because there is a moral case for financializing America to fund the economic development of foreign nations. At same time as we impoverish and erase our own people, loading them up with Fentanyl and brainwashing them with bizarre race and gender ideologies and climate panic, we are creating jobs in developing countries. The upside, so the globalist argument goes, is that the economic harm we do to our own nation is more than offset by the economic benefit we stimulate in every other nation. This argument, for all its seductive value to neoliberals who parrot it without bothering to understand its nuances, falls short in ways that actually harm foreign nations.

For starters, while overall economic growth may be maximized when every nation exports those products that they produce most cost-effectively, the local impacts are not all benign. Nations that produce coffee at competitive global prices, for example, end up with valuable cropland converted from food production to coffee plantations. These coffee plantations are typically owned by multinational corporations that repatriate profits to low tax nations elsewhere, while buying off a small local elite that streamlines the regulatory environment. Meanwhile, the nation becomes dependent on imports for everything except coffee, and even the coffee ends up priced out of reach for the average citizen. Replace “coffee” with any specialty product and the “gains of trade” translate on the ground into nations with seething, destitute populations dependent on accumulating debt and foreign aid.

Such is the value of globalist pieties. Environmentalism. Neoliberal free trade. It enriches multinational corporations and international banks, oligarchs and autocrats, NGOs and nonprofits. It empowers supranational institutions, and is presented as the only enlightened course for nations in a shrinking world. But everyone else loses. All too often the more general impact of globalization is to disenfranchise the vast majority of ordinary citizens from the United States to Somalia by denying them a diverse economy that might bestow a robust job market and national self-sufficiency.

America is for sale, because selling America helps preserve our federal government’s unique ability to print as many dollars as it wishes without short-term consequences. This enables an American oligarchy to impose its economic vision on the world. But there are alternative visions for global development that do not adhere to an agenda of artificial scarcity, populations dependent on their government, and nations beholden to a single crop or commodity for their economic survival. We may hope America’s leaders again recognize the value of investments and policies that foster abundance instead of dependency, for foreign nations as well as for their own citizens. Adopting that strategy may require a tumultuous rebalancing, but the sooner it happens, the easier it will be.

This article originally appeared in American Greatness.

California’s War Against Prosperity

/by

According to the U.S. Small Business Administration, small businesses are the backbone of the U.S. economy, generating 44 percent of all business activity. Take them out of the equation, and the economy collapses. But that is exactly what’s happening. The cards are stacked against small business in America today, and nowhere is it worse than in the State of California. The rules are rigged to make it harder for small, independent contractors and independent businesspeople to survive, much less thrive. Excessive regulations invariably favor large companies, because the cost of complying is far easier for a company with a billion dollars in annual revenue than it is for a company with a million dollars in annual revenue.

This obvious fact is well understood by corporate monopolists whose rollup and consolidation of industry after industry in America is only accelerated in recent years. This excerpt from a January 2023 report by S&P Global, sums up the trend: “In 91 of 157 primary industries, the five largest U.S. companies by revenue combine for at least 80% of total revenue.”

The report goes on to explain how monopoly power is a double-edged sword. On one hand, “growing monopoly power stifles competition and productivity in the U.S. economy.” The counter-argument is that “very, very productive firms end up dominating the industry.” From the perspective of the ordinary American worker, either as an employee of a monopolistic corporation, or as an independent proprietor trying to compete in markets getting swallowed up by the giants, both of these arguments are true, and both are bad news.

The fact that regulations actually benefit the largest corporations clearly doesn’t translate to a recognition by progressive voters that deregulation – or at the very least, a more judicious application of regulatory oversight – might help small business survive and might help consumers avoid new rounds of price gouging when entire markets are captured by a few giant companies. And California is ground zero for this cognitive dissonance.

A more subtle impact of excessive regulations is how it redirects productivity, rendering the value of enhanced productivity far more ambivalent than one might suppose. In California, for example, with costs for land, energy, and raw materials driven artificially high due to regulations, gains in productivity are offset by higher costs for these inputs and by higher costs to comply with regulations. Apart from wiping out the smaller competition which is good for the monopolies, where is the benefit?

The Punishing Middle Class Tax Burden

If a sole proprietor aspires to upward mobility by working harder, the cards are particularly stacked. The following chart shows just how demotivating current tax laws are on people with taxable income between $90,000 and $160,000, particularly in California where state taxes are particularly onerous.

The first thing to consider when reviewing this chart is that in California, depending on where you’re living, it is difficult if not impossible to support a family on $90,000 per year. That income is the entry level to the middle class. For the same reasons, in California, a taxable household income of $160,000 per year is by no means upper middle class. In many parts of the state, it still spells tight budgets and tough spending decisions for families.

But where is the incentive to work harder, beyond the pure necessity to survive? If a person is making $90,000 per year as an independent contractor (married filing jointly), and they forfeit nights or weekends to take on extra work, they will give 43 percent of their income to the government. That is, for every $100 they earn, they’ll only keep $57. If they are set to make $132,000 per year and they take on an extra job, they’ll pay 47 percent of their earnings to the government. Forty-seven percent tax.

This is an appalling abuse of some of the hardest working citizens in America. People who are barely able to make ends meet, who need to supplement their income by sacrificing whatever time they can spare after fulfilling their obligations to their family and to their primary clients, are forced to give nearly half of every dollar they earn to the government. And in a bizarre twist of logic, white collar law partners and consultants, who collect higher compensation as hired clerisy for monopolists and billionaires, end up paying less marginal taxes. As soon as their taxable income exceeds $160,000 per year, their 12.4 percent Social Security assessment goes away, and their marginal tax burden drops from 47 percent down to 34 percent. In America’s supposedly progressive tax environment, a 47 percent marginal tax burden is not reached again until income exceeds $400,000 per year.

Interesting, isn’t it? A guy who takes on extra work to pay rent for his home and tuition for his kids and scrapes together $130,000 per year is paying more taxes on that last dollar than a corporate litigator whose last billable hour topped out at $390,000 per year. Some might say there is a distinction between Social Security taxes and “taxes.” But when your biggest concern is having enough money left to cover your monthly bills, that’s mumbo jumbo. Money for the government is money for the government. It doesn’t matter where it’s going or what you call it.

The Cost-of-Living Burden

It’s not easy to draw the line between what regulations facilitate authentic capitalism, where companies have to use their productivity innovations in order to sell competitive products at competitive prices to customers with options, versus regulations that empower monopolies and throw up impassable barriers to smaller emerging would-be competitors. In California’s case, nobody has even tried to thread that needle. Instead, the state legislature has never considered a regulation they didn’t like. With accelerating frequency and intensity, and specifically with respect to “saving the planet,” California’s regulatory state has made it impossible to live a middle class lifestyle.

Thanks to environmentalists pressuring the state into imposing ridiculous “net zero” building codes, along with cordoning off cities to prevent the far less expensive option of building on open land, the average home in California costs over $728,000. That’s actually slightly down compared to a year ago, but payments are still way up. With a 30 year fixed mortgage now up to 7 percent, the average home in California will set you back $4,844 per month. But that’s not all: California’s much vaunted low property taxes, at 1 percent, still pack a wallop on such a huge base. Add at least another $1,200 per month for the 1 percent property tax, the various local “fees” that get around the 1 percent cap, plus mortgage insurance and homeowners insurance.

How far is that $90,000 per year going, now that you’ve spent $72,000 just to get your family under the average roof? Add to that the most expensive total costs for natural gas, electricity, gasoline, and water in the United States, and you’ll be lucky to have a dime left over for clothing, groceries, or health care. Want to keep your kids out of the public schools? Good luck. On average that will cost another $16,000 per year in California, per child. And it is not tax deductible.

All of these costs are elevated either indirectly or explicitly thanks to environmentalist regulatory excess. The state has plenty of land for homes, trees for lumber, abundant reserves of gas and oil, and amazingly productive farmland. But in every one of these areas, the foundations of prosperity, environmentalist inspired rules have restricted supply and raised costs. The only economic interests that have benefit are monopolists.

What Kind of Government is This?

One must ask how it came to this. Californians pay ridiculously high taxes. If they are within that middle class band of income between $90,000 and $160,000 per year, their marginal tax rate is more than people earning up to $400,000 per year. And for what? A government that passes regulations that have made the state unaffordable. California’s government has declared war on its hardest working citizens. It is literally engaging in economic expulsion of its middle class citizens.

For California’s low income communities, the situation is no better. How does it serve social justice to make the most basic necessities of life unaffordable? How does it serve environmental justice to cram millions of people into already crowded cities because a “greenbelt” has been stretched around every urbanized region of this vast, underpopulated state? How does it foster upward mobility for low income families when the only thing achieving middle class economic status brings is no more government subsidies and instead, brand new, crippling rates of taxation?

And then there’s the entire spectrum of failed state phenomena – rampant drug addiction, decriminalized crime, a completely unregulated homeless population, and public schools where children are taught identity politics and climate crisis indoctrination, filling their head with resentment and terror, instead of grammar and multiplication tables. Why should anyone work anymore? Why try? The government schools teach values that nurture irresponsibility – blame systemic racism and corporate greed for anything missing in your life, at the same time as government regulations have created an economy where in any case, even a hard working and responsible person cannot afford to live.

California’s only hope is for its voters to recognize what has happened and in a multiethnic, nonpartisan seismic wave of populist rage replace every one of their dysfunctional, wholly owned legislators. California’s voters must demand politicians and policies that strike a reasonable balance between the needs of the environment and the needs of civilization, to once again enable an economy where small companies can compete with large companies, where consumers have choices, and a low cost-of-living appropriately reflects California’s abundant resources and innovative people.

This article originally appeared in American Greatness.

California Per Capita Spending Doubles – Where Is It Going?

/by

California’s state government is spending twice as much as it did a decade ago, and by every metric that matters to ordinary Californians, things have only gotten worse.

Even without further analysis, this is an incredible fact. California’s state government, in constant dollars, is spending nearly twice as much per resident as it did a decade ago, and what do they have to show for it? Are the schools better? Are the roads improved? Is crime and homelessness down? The answer to these and similar questions is no. 

According to reports downloaded from the California Legislative Analyst’s Office (LAO), and after adjusting for inflation and for population growth, the state’s general fund budget is up 84 percent compared to just ten years ago. Put another way, the state’s per capita general fund spending in the current fiscal year is just under $6,000 per California resident, and ten years ago — in 2022 dollars — it was just over $3,000 per resident.

Digging into what drove this tremendous increase doesn’t reveal much, because the increase is across the board. As the table below indicates, the seven departments that logged the biggest dollar increases in spending were, in most cases, increasing their budget by a lower percentage than the 84 percent by which overall spending increased. Still, some of these multibillion dollar increases bear examination.

The state prison system, for example, increased spending (all figures are in 2022 dollars) by $3.4 billion over the last ten years, a 29 percent increase. But the inmate population in state prisons dropped during the same period, from 168,000 in 2009 to 96,000 in 2022. This fiscal year, California’s state prison system is now spending an estimated $159,000 per prisoner.

How is it possible that inflation-adjusted spending is up 29 percent when the inmate population is down by 45 percent? 

Similar questions arise with every element of the state budget. The basic LAO report reduces the general fund budget to 12 categories: (1) Business, Consumer Services, and Housing, (2) Corrections and Rehabilitation, (3) Environmental Protection, (4) General Government, (5) Government Operations, (6) Health and Human Services, (7) Higher Education, (8) K-12 Education, (9) Labor and Workforce Development, (10) Legislative, Judicial, and Executive, (11) Natural Resources, and (12) Transportation. But each of these categories can be expanded; viewing all subcategories will reveal 302 separate line items.

For this reason, “Government Operations” rising from $800 million ten years ago to over $5.0 billion today, only begins to become explicable if you wade through its 66 line items. The biggest line, accounting for nearly half the increase? “Health & Dental Benefits for Annuitants,” otherwise known as OPEB (Other Post-Employment Benefits), that costly benefit afforded to state retirees that constitutes the unseen but nearly as financially voracious cousin to pension benefits.

The next three lines are all subcategories falling within the category “Health and Human Services.” These are big numbers. The “Dept. of Social Services” nearly doubled its spending (remember, all these calculations are after adjusting for inflation). So what’s costing another $8.1 billion a year? It turns out most of this is for so-called SNAP benefits (Supplemental Nutrition Assistance Program), once known as food stamps. Factors influencing this rise would include $6 billion per year of recently allocated “emergency allotment benefits,” part of the state’s response to the COVID pandemic. Another reason for the rise in spending is the decision of the state to award SNAP benefits to undocumented immigrants, but there is no publicly available data on how many of California’s undocumented residents are recipients.

The eligibility of undocumented immigrants is also a factor in the biggest single line item increase in the state budget over the past ten years, that of Health Care Services. Nonetheless, most of this increase, $17.3 billion, is the result of the expansion of Medi-Cal under the Affordable Care Act. By 2015, so-called Obamacare in California had grown to cover 12.7 million people, a nearly 60 percent growth in under two years. By 2018 there were an estimated 13.5 million Californians covered by Medi-Cal. By 2022, enrollment grew to nearly 14 million. Because most of the costs to cover Med-iCal recipients qualifying under the Affordable Care Act are covered by the Federal Government, however, it remains unclear just how much of this cost increase is due to higher enrollment, and how much is attributable to higher costs per insured, the extension of benefits to the undocumented, and more bureaucracy.

When it comes to the primary recipients of general fund spending for education, there is almost no case to be made that the population served has increased. As shown on the next chart, compared to 10 years ago the total enrollment is actually down at community colleges and in K-12 public schools. In the California State University system, enrollment is up 12 percent compared to a decade ago; enrollment at the University of California is up a bit more, at 22 percent compared to a decade ago.

But these enrollment trends, at most up by 2 percent per year, do not begin to keep pace with overall spending increases in every case. Per student spending in just the last ten years increased (again, after adjusting for inflation) by 97 percent at the community colleges, 73 percent in the Cal State system, 38 percent for the UC System, and 53 percent in the K-12 public schools.

The most egregious of these examples has to be the K-12 schools. They receive approximately 38 percent of the state general fund every year, no matter how swollen the budget gets. Imagine the perverse incentive this creates. The powerful teachers unions will push for anything that increases the state budget, because no matter what the expenditure is for, they will get 38 cents out of every dollar increase. But all this money has not improved educational outcomes.

Before moving on it’s important to note that the $13,377 per pupil spending reported by the LAO is nowhere near the actual amount Californians pay for K-12 education. That is just the general fund’s share. When spending from all other sources are considered, the per pupil expenditure rises to over $20,000. That is a spectacularly high amount of money, reminiscent of the apocryphal $600 hammer once uncovered in a defense budget audit. But at least the hammer hammered. Are California’s children learning?

The big remedies are as obvious as they are anathema to the government unions that run Sacramento.

Tens of billions every year could be saved by scrapping defined benefit pensions and OPEB benefits, and instead giving public employees the same state-funded retirement package that every taxpaying citizen is entitled to, i.e., Social Security and Medicare. That would not only restore solvency to every local government in California and eliminate the looming state budget deficit, but it would reestablish a badly needed sense of shared fate between public servants and the citizens they serve.

Such reforms might also stimulate a more meaningful dialogue in the state legislature as to what realistic limits might be placed on taxpayer supported benefits to undocumented Californians. If the weight of undocumented beneficiaries threatens to sink the budgets and hence the systems that state workers also depend on along with their fellow citizens, maybe a more appropriate balance will be struck between policies that are compassionate and policies that are sustainable.

Another way to save would be by implementing school choice, where parents would have the ability to direct the public funds allocable to their child into whatever accredited school they wished. Tens of billions in education establishment bloat could be saved with better educational outcomes.

To truly restore solvency in the state government, California could also enact common sense policies that would lower the cost of living and stimulate genuine economic growth: deregulate the housing market, loosen building code restrictions, abandon the policies of urban containment to free up land for housing, end the assault on natural gas drilling and distribution, keep natural gas generating plants open, invest in water infrastructure to lower the cost of food and housing, bring back the timber industry to create jobs, and enable access to low-cost lumber, and create a business climate that is friendly instead of hostile. 

Instead of pursuing practical measures, and making tough decisions, California’s state legislators are exclusively committed to simply spending more money. A lot more money, as the past decade clearly indicates. If lawmakers would balance their penchant for spending with a commitment to eliminate inequitable and failed — and very expensive — programs, it would help everyone living here, instead of just the special interests.

This article originally appeared in the California Globe.

Voters Approve Over $3.0 Billion Per Year in New Local Taxes

/by

When state ballot initiatives propose new taxes, it’s big news. This past November, voters rejected Proposition 30, which would have added another 1.75 percent tax on personal income above $2.0 million. The arguments for and against Prop. 30 were litigated in saturation level television campaigns waged by both sides; total expenditures were nearly $70 million.

But while every election features a handful of state tax and bond proposals that get statewide attention, additional hundreds of local state and bond proposals fly under the radar. Fortunately, after each election cycle and once all the votes are certified – something that in California doesn’t occur until 30 days after election day – the California Taxpayers Association puts out a report that shows the outcome of every local tax and bond proposal.

The impact of these hundreds of bids to raise taxes and increase borrowing, as documented by CalTax, in sum can exceed the amounts of the statewide initiatives.

We saw this demonstrated yet again this past November, when 131 bond proposals were placed on local ballots up and down the state, along with 234 local tax proposals. Of the proposed local bonds, 86 percent of them were approved by voters, dumping another $23.2 billion in debt onto Californians. In terms of budget impact, based on a 5 percent interest rate and a 30 year term, this new borrowing is going to cost taxpayers another $1.5 billion per year in principal and interest payments.

The fate of local tax proposals tells a similar story. 65 percent of them were approved by voters, adding another $1.6 billion annual burden onto California’s taxpayers.

These local increases in taxes and borrowing, which are almost exclusively regressive and will cost taxpayers at least another $3.1 billion per year, are comparable to the impact of Prop. 30, had it passed. Prop. 30, which would have affected California’s already overtaxed wealthy households, was estimated to bring in between $3.0 and $5.0 billion per year.

It’s interesting to see the categories of new local taxes. Note the projected big earner categories: “Documentary Transfer Tax,” “Gross Receipts Tax,” and “Transactions and Use Tax” (sales tax). The first two of these three are relatively recent innovations in a system that for decades relied primarily on sales tax. Expect more innovative tax schemes, such as “Vacancy Tax,” presumably designed to discourage people from owning real estate unless they plan for it to be occupied.

The propensity for voters to approve local taxes is well documented, as the next chart proves. The only category that has not performed extraordinarily well over the past ten years are General Obligation Bonds, which, still while more likely than not to pass, rarely deliver supermajority rate of approval. This is because School Bonds only require a 55 percent majority in order to pass, whereas General Obligation Bonds require a two-thirds majority.

When proponents only have to get 55 percent of voters to approve a bond, it does pretty well. Measured by the amount of proposed borrowing, school bonds consistently log over 90 percent approval by California’s local voters. The payments to service these bonds typically appear on the property tax bills of homeowners, and the amounts are not trivial. Most Californians can expect to pay considerably more than the legislated maximum of 1 percent of their home’s value, mostly thanks to local school bonds that are exempt from these limits.

As for local taxes, 2022 was a below average year for proponents, passing “only” 65 percent of them by number, and 59 percent by amount. While highly favoring proponents, this rate of approval is considerably lower than in previous elections, and may indicate voter fatigue with new taxes.

Compared to other elections in the past decade, 2022 was not bad. While California taxpayers added over $3.0 billion to their annual tax burden, voters did not approve a single statewide tax or bond proposal.

It’s a little early to look ahead to 2024, but three initiatives have already qualified for the November 2024 ballot. One of them aims to “increase personal income taxes to fund pandemic detection and prevention.” Expect additional statewide proposals to increase taxes, since California’s much vaunted budget surplus has evaporated. Voters may also count on hundreds of local tax and bond proposals, and if history is any guide, shall approve the vast majority of them.

This article originally appeared in the California Globe.

Increased Supply Lowers Prices More Than Gas Tax Repeal

/by

California Assemblyman James Gallagher is one of the architects of The California Promise, a six point set of political priorities unveiled by the state’s Republican Party in October. First among these is “An Affordable California,” and first in that category is “Repeal Gas Tax.”

To emphasize this priority even further, on the top of the Assemblyman Gallagher’s home page a counter has been installed, showing how long it’s been “Since Newsom & Democrats Promised Gas Tax Relief.” As of this moment on the afternoon of December 8, that’s 274 days, 19 hours, 25 minutes, and 15 seconds.”

It would be great to have a gas tax holiday in California. It is a regressive tax that adds, per gallon, 54 cents in state excise tax, 23 cents for California’s cap-and-trade program, 18 cents for the state’s low-carbon fuel program, 2 cents for underground gas storage fees, plus state and local sales taxes. Altogether this equals, not including another 18.4 cents in federal excise tax, and give or take a few cents depending on local sales tax rates, $1.20 to the price of every gallon of gasoline you buy.

Nonetheless it is a mistake to put so much emphasis on a gas tax repeal. At a time when California’s much vaunted budget surplus has suddenly morphed into an estimated deficit of at least $25 billion in the next fiscal year, what was already a hard sell becomes impossible. Try to stop taxes from going up even further. For now, that will do.

Meanwhile, instead of focusing on eliminating taxes, why not focus on lowering the cost of goods that are being taxed?

For example, in 2017, when state gas taxes and fees already amounted to nearly $1.00 per gallon, you could purchase gasoline in Los Angeles for $2.86 per gallon. In 2015, gasoline prices were down as low as $2.58 per gallon in California. Instead of repealing the “gas tax,” which even if repealed would only apply to the state excise tax of $.54 cents per gallon, and would not take away the rest – the cap-and-trade fee, the low-carbon fee, the underground storage fee, or the sales taxes – why not focus on increasing production and thus increasing competition? Wouldn’t that lower prices?

Put another way, if lowering the cost-of-living, starting with gasoline, is a priority, why not fix the economic conditions that have in only five years accounted for over $2.50 per gallon of increased cost per gallon to the consumer, instead of the gas tax, which at best might take $.54 cents out of the cost per gallon?

Even more to the point, if this is all symbolic posturing on the part of the California GOP, which it most certainly is, and if the purpose for all this posturing is to expose the elitist disregard California’s Democrats have for normal hardworking Californians, then why not advance broader principles that voters, everywhere, might not only connect to why their gas is so expensive, but to why everything is so expensive?

California is not unaffordable because taxes are too high. The high taxes, and they are too high, only add insult to injury. The economic factors breaking Californians, however, are that Democrats have regulated the economy to a standstill, creating scarcity and driving up costs.

The real reason housing is unaffordable in California, to cite an example even more painful than the cost of gasoline, is because of California’s neglected water, energy, and transportation infrastructure, its decimated timber industry, its offshoring of the sources for every necessary building material, its punitive policies of urban containment, its protracted, capricious, and extortionate process to obtain building permits, and its ridiculously overwrought building codes.

All of this was engineered by Democrats. Unaffordable housing, along with unaffordable gasoline, is the result of political choices made in a one-party, Democrat ruled state. That is the message Gallagher and his fellow republicans need to send to voters.

California, of all states, is literally floating atop stupendous reserves of oil and gas. In the 1980s, California field production of crude oil per day stood at over 1.0 million barrels. Today, production is down to 330 thousand barrels per day. This despite the fact that onshore and offshore reserves of oil in California total an estimated 15 billion barrels. If there is any place on earth where these resources could be responsibly extracted, it’s here in California. But instead we send jobs and dollars to petro-dictatorships around the world.

There’s no good reason for this. In 2021, foreign suppliers accounted for 56 percent of the oil refined in California. The entire energy strategy of California’s state legislature is flawed. Simply mandating a phase in of increasingly advanced hybrid vehicles could allow the state to maintain its desired downward trend in oil consumption. This would take pressure off the state’s utilities to double production of electricity – something they have absolutely no idea how to accomplish while conforming to “renewables” mandates.

California’s Republican state legislators, who as of 2023 will account for a mere 27 out of 120 seats, cannot possibly expect to push through legislation opposed by Democrats. But they do have an opportunity to make a lot of noise, and they have very little to lose. They should be demanding, if anything, that California’s refineries apply their windfall profits to increasing capacity. They should be demanding and defining policies that will offer a roadmap to energy companies once again drilling here in California for more oil and gas. When supply rises, prices fall.

Publicly challenging fundamental premises of the Democrats, starting with their faith-based, utterly irrational belief that we can precipitously eliminate consumption of oil and gas, should be the mission of Republicans in Sacramento. GOP politicians should be openly defying the absurd premises that Democrats pass off as gospel, instead of trying to creatively navigate within their parameters.

At the same time, California’s GOP politicians should be espousing the principle of competition through deregulation as the only way to make California affordable again, because that’s the unassailable truth. Lowering one tax, temporarily, merely invites accusations – not entirely unfounded – of indifference to deficits. Lower spending, then lower taxes. But since you can’t do either, shout louder, hit harder, and aim for the heart, not the hair.

This article originally appeared in Epoch Times.