The Cost to Taxpayers of Enhancing Sonoma County Employee Pensions

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In the early 2000s, along with many other cities, state agencies, and counties in California, Sonoma County enhanced their employee pension benefits.

As of 6/30/2018, Sonoma County’s pension system had $2.7 billion of invested assets, but nearly $3.1 billion in actuarial accrued liabilities. To what extent is its $400 million unfunded liability attributable to the pension benefit enhancements? Put another way, how much have these enhancements cost Sonoma County’s taxpayers?

Just as it is impossible to know with perfect accuracy the amount of a pension fund’s actuarial accrued liability, it is impossible to precisely calculate the cost to taxpayers of Sonoma County’s pension benefit enhancements. There is enough data available in the financial statements provided by Sonoma County’s pension fund, however, to provide credible estimates.

To improve the credibility of these estimates, the assumptions made herein are designed to understate the costs. For example, the impact of the increased cost is not assessed until the year the enhancements were fully implemented. In the case of general Sonoma County employees, that was 2005, and in the case of public safety employees of Sonoma County, that was 2006.

Sonoma County’s original pension benefits were based on the typical annual percentage accrual, multiplied by years worked, with the total percentage multiplied by the final pension eligible salary to calculate the retirement pension. For example, up until 2005, Sonoma County’s general (non-safety) workers would accrue their pension benefit at a rate of 2 percent per year. An employee who worked 30 years would have a pension equivalent to 60 percent of their final salary (2 percent times 30 years). As of 2005, that percentage was raised to 3 percent, and the age of eligibility to receive a full pension was increased from 57 to 60.

For public safety employees, the increase was even more dramatic, because not only did the annual percentage accrual increase from 2 percent to 3 percent, but the age of eligibility was lowered, from 55 to 50.

By assuming a typical case for a Sonoma County general employee, and another for a Sonoma County safety employee – before and after the pension benefit enhancement – it is possible to calculate the required annual contribution as a percent of payroll. The method to do this, along with all calculations related to this analysis, can be downloaded here.

Because the pension eligible payroll for Sonoma County since 2000 is disclosed in their Consolidated Annual Financial Reports (CAFRs), it is a simple matter to multiply these hypothetical contribution percentages by the actual payroll that was issued to Sonoma County employees. In this way, the differing costs – with or without the pension enhancements – can be calculated.

As it turns out, an employee working 30 years collecting a “2% @ 57” pension, retiring at age 60, requires an ongoing annual pension contribution equivalent to 14.7 percent of payroll. If that benefit is increased to a “3% @ 60” formula, the required contribution increases to 22.1 percent of payroll.

Similarly, for a safety employee working 30 years collecting a “2% @ 55” pension, retiring at age 55, requires an ongoing annual pension contribution equivalent to 16.8 percent of payroll. If that benefit is increased to a “3% @ 50” formula, the required contribution increases to 25.2 percent of payroll.

Using this method, between 2005 and 2018, if Sonoma County had not enhanced their pension benefits, they would have needed to contribute a total of $686 million to their pension system. Taking into account the cost of the benefit enhancements, they would have needed to contribute $1.02 billion to their pension system. This suggests that at the least, the pension benefit enhancements enacted by Sonoma County cost their taxpayers $331 million over the course of 14 years.

This is a very low estimate, however, for the following reasons.

1 – Sonoma County didn’t increase the value of their pension benefit accrual just for work yet to be performed. They increased the value retroactively. This has profound financial consequences. Employees who were nearing the ends of their careers suddenly had their pension benefits increased by 50 percent, from 2 percent, times the years they worked, to 3 percent, times the years they worked. But no extra money had been set aside for this over all the years prior to the enhancement. Sonoma County’s taxpayers had to make up that shortfall in the years after 2005.

2 – The shortfall, or unfunded liability, caused by the retroactive increase was itself a source of increased costs, because of the cost of not having those assets earning interest. While Sonoma County issued a $289 million pension obligation bond in 2010, there were the interest costs on the unfunded liability prior to 2010, plus the new source of interest expense required for the County to pay off this new bond. Moreover, even after this pension obligation bond was issued, at the end of 2010 the pension system’s unfunded liability still stood at $249 million (down from $402 million the year before).

3 – Sonoma County projects a long-term annual rate of return for its pension fund of 7.25 percent. But according to their latest CAFR, for the last 20 years, they have only managed to earn an average of 6 percent per year. This lower rate greatly increased the costs to fully fund the pension system. It also greatly increased the cost of the pension benefit enhancements.

To fully explore these additional variables is possible, but beyond the scope of a preliminary summary of the impact. But the baseline estimate, plus accounting for these additional factors, makes it virtually certain that Sonoma County’s pension benefit enhancements cost their taxpayers at least a half-billion dollars over the past 15 years, with ongoing costs into the future.

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

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How Trump Can Declare War on the Homeless Industrial Complex

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California’s homeless crisis is now visible to everyone living in the state. Along with tens of thousands of homeless who are concentrated in various districts of the major cities, additional thousands are widely dispersed. If you drive into most major urban centers, you will see their tent encampments along freeway junctions, under bridges, along frontages, beside drainage culverts. Even in very small towns, they congregate by the dozens in parks and parking lots, along the streets and in the alleys. In California’s largest cities, by the tens of thousands, they erect makeshift housing along sidewalks, using tarpaulins draped over shopping carts, tents, boxes. It is completely out of control. Billions have been spent to ameliorate the situation, and these billions have only served to make the situation worse than ever.

It’s hard to identify ground zero for California’s homeless crisis. But the San Francisco Bay Area and Los Angeles County host, between them, well over 100,000 of California’s estimated 130,000 homeless. And in both of those metros, local government policies have utterly failed. This failure is partly because local elected officials are hampered by state laws which make it nearly impossible to incarcerate petty thieves and drug addicts, or institutionalize the mentally ill, and court rulings that prohibit breaking up homeless encampments unless these homeless can be provided free and permanent “supportive housing.”

The state and federal governments have even mandated that providing “housing first,” and getting every homeless person under a roof prior to any allocations of funds for treatment to overcome drug addiction or manage mental illness, is a condition of  receiving government funds to help the homeless.

As if these laws and court rulings that have made homeless populations unmanageable weren’t enough, California’s state legislators have crippled the ability of developers to cost effectively construct any type of housing. State laws designed to prevent “sprawl” have caused land prices within cities to skyrocket. California’s environmental laws, most notably CEQA (the California Environmental Quality Act), require a dizzying, time consuming and expensive, seemingly endless array of reports from developers seeking project approvals. There are literally hundreds of various applications and fees that developers have to file with dozens of state and local agencies, and often these agencies will take months if not years to process the applications.

But instead of challenging these laws, local elected officials have used them as an excuse to engage in one of the most corrupt misuses of government funds in American history. Without first changing these laws, the problem cannot be fixed. But a special interest movement has been created to spend the money anyway. This alliance of special interests constitutes what has now become a Homeless Industrial Complex, comprised of government bureaucracies, homeless advocacy groups operating through nonprofit entities, and large government contractors, especially construction companies and land development firms.

They have used money from the state general fund, from state bond funds, from special local taxes and fees, and from local bond measures, to construct housing for the homeless, heedless of the per unit cost. While a few thousand units of actual housing units have been constructed so far, billions have already been spent.

An audit recently released by L.A.’s City Controller Ron Galperin exposed the City’s inability to build enough homes with the $1.2 billion in Prop HHH voter approved bond funds to address the crisis of homelessness. At an average cost of $550,000 per apartment unit of “permanent supportive housing,” small wonder. Similar or even higher average per unit costs are typical of previous efforts in Los Angeles as well as throughout California.

Diverting nearly all funding to “Housing First” at the expense of treatment, and elevating the costs of that housing through legalized corruption, guarantee that billions more will be wasted as homelessness in California only gets worse. California’s local, county, and state governments have demonstrated themselves to be administratively and ethically inept. It is time for the Federal government, under the vision and leadership of President Trump, to intervene and solve this problem with a comprehensive interagency response.

If several federal agencies launched a coordinated effort to get California’s homeless crisis under control, it could be accomplished in months instead of several years. As it is, California’s homeless crisis is out of control and getting worse every day. Federal action would not solve the homeless crisis overnight, but it would prevent something truly catastrophic occurring such as a disease epidemic, and it would set the stage for Californians more swiftly implementing permanent solutions, for which there currently is no end in sight.

For example, the IRS could reform the laws governing nonprofits to curb the legalized waste of billions that pour into what have become special interest behemoths.

The SEC could classify the taxpayer as having investor rights, in a long-overdue move that would make it a lot more difficult for public projects to squander public funds.

The SEC could also require consultants to public agencies to register as financial advisers and be subject to the same restrictions on political donations that govern these consultants in the private sector.

The Justice Dept. could investigate some of the more egregious wasteful projects allegedly launched to help the homeless to possibly uncover cases of collusion or racketeering.

The Justice Dept. could also send in DEA agents to break up the criminal gangs and drug traffickers who exploit California’s lenient drug laws and hide among the homeless encampments.

The Dept. of Housing and Urban Development could reform the Low Income Tax Credit program to put a cap on per unit costs for housing projects to qualify. They could repeal the disastrous “housing first” mandate that prevents homeless programs from prioritizing treatment equally to constructing shelters.

The Dept. of Education could get even more aggressive against the teachers union which resists competition in K-12 education, and is consequently responsible for thousands of students graduating into homelessness instead of productive lives.

The Centers for Disease Control could declare a health emergency and sweep through the homeless encampments, cleaning up the trash and human excrement.

The EPA could participate in that effort by declaring – quite accurately – homeless encampments to be Brownfields, in order to save California’s soil, water, and runoff to the ocean.

The Dept. of Labor could implement an executive order preventing Project Labor Agreements from being used to inflate the cost of housing projects, as if with the shortage of construction laborers in California, there is any need for PLAs.

And the Dept. of Veterans Affairs could house homeless veterans on unused sections of California’s abundant military bases.

These and other suggestions are covered in detail in the remainder of this article.

How Federal Agencies Could Work Together to Tackle the Homeless Crisis

Treasury Department/Internal Revenue Service (IRS)

One of the biggest sources of legalized corruption that victimizes the American taxpayer is the fact that there has been no reform to nonprofit tax law. A nonprofit is the most tax-advantaged way to legally launder profits and act as an advocacy wing of major corporations. The US Tax code has been greatly abused by large national nonprofits who have turned charity work into a bankable industry, the power of which now rivals the private sector. 

Today’s large charitable organizations are part of the Homeless Industrial Complex. These nonprofits outrival many small businesses today by using the tax code to their benefit. Why pay taxes if you can find a loophole in the tax code? According to one report the nonprofit sector – 10% of the American workforce or 11.4 million jobs – is the third largest workforce in the U.S., behind retail and manufacturing. Total charitable giving in the U.S. in 2016 was about $390 billion, a 2.7% increase from 2015.

One of the most tax advantaged ways to legally embezzle public dollars is via a nonprofit entity, which then creates a for-profit subsidiary. All of the revenue goes directly to the nonprofit controlling entity, wherein there are no caps on salaries and everything is effectively a write-off, and it becomes a zero sum game to show zero profits. They can pay consulting and contracting fees to for-profit entities, which often can result in additional pay if the same employee is on the payroll of both entities. Why use a for profit business to own property when you can create a nonprofit entity, therefore excluding yourself from property taxes? The really savvy nonprofits know how to use the tax code to their advantage by hiring the most sophisticated tax attorneys and accountants, and creating multiple entities in order to do this.

Recommendations: The IRS should comprehensively reform the regulations governing nonprofits. For example:

  • Set a threshold for annual (pre-tax) revenue from all sources of income and contributions, and once that maximum is exceeded, the IRS will automatically reclassify the nonprofit as a for profit entity, and tax accordingly.
  • Require all tax-exempt organizations to file public consolidated financials to replace current 990 requirements. Currently, under IRS guidelines, whether or not a tax-exempt organization has a parent, affiliate, subsidiary, and/or related entities, only the tax-exempt organization needs to file a public tax return. This is how they avoid disclosing their true assets and total salaries paid to employees. When an organization has multiple entities, an employee can work for any of these entities, with different titles and roles, while also receiving a salary from each of them. Without consolidated financials, it is impossible to determine how much a nonprofit executive, board member, or consultant makes. Additionally, Private Foundation tax-exempt entities are not required to disclose current 990’s to the IRS, which every other tax-exempt entity is required to do.
  • Make the above requirement effective to-date, with a 2 year retroactive look back provision in order to be in good standing and maintain its tax exempt status. By doing so, you would likely see a sudden drop in organizations seeking a tax exempt status, and find many entities suddenly converting to traditional for-profit organizations. If an entity was not in compliance within a certain time frame, you could freeze its tax exempt status until it was able to do so, ultimately cutting off their fundraising ability.
  • Impose a tax on excess executive compensation among tax-exempt organizations. Even a limit of $500,000 for any individual or executive pay would have a huge impact. While a limit of $500K per year may seem high, some of these nonprofit executive salaries are much higher. At these rates of compensation the entity is no longer a public benefit, as it now benefits a specific employee.
  • Tax all public charity organizations in the same manner, as private foundations. While there are 30 types of 501(c) organizations, there are two different types of 501(c)(3)s, Private Foundations vs. Public Charities. Private Foundations pay taxes on net investment income which generally includes interest, dividends, rents, royalties, and capital gain net income, and is reduced by expenses incurred to earn this income. In reaching the asset threshold, the assets of related organizations are considered. A 501(c)(3) public charity follows different taxation rules from that of a Private Foundation.
  • Disallow Private Foundations from 501(c)(3) exemption. A Private Foundation consists of nonprofits that don’t qualify as public charities. Foundations may be sub-classified as private operating foundations or private non-operating foundations and receive some of the advantages of public charities. Well-known foundations include the Rockefeller Foundation, Bill and Melinda Gates Foundation, and the Getty Foundation. In essence, highly profitable, multinational corporations have figured out how to take advantage of the tax code, and the creation of a private foundation is THE best and most tax advantaged way to do so.
  • Tax tax-exempt organizations for any business activity outside of their chartered IRS exemption.
  • Hold all 501(c)(3) organizations to the same lobbying disclosure rules. Other tax-exempt organizations that lobby, must either notify their members as to how much of their dues are nondeductible because they’re spent on lobbying or pay a proxy tax at the highest corporate rate, yet this rule does not apply to 501(c)(3) organizations.

Nonprofit organizations have become corrupt and politicized, and gone far beyond the charitable missions for which their tax exempt status was originally conceived. Reforming the tax laws governing nonprofits will not only result in leaner, more effective nonprofit advocacy for the homeless, which translates into less expensive homeless shelters and less expensive housing for the homeless. It will remove the incentives for individuals and organizations to abuse the nonprofit exemptions in all segments of American society.

Securities and Exchange Commission 

Affordable housing developers are not disclosing the value of City Land, therefore engaging in what is arguably taxpayer backed fraud by not disclosing the full project costs to the investor, which in this case is the taxpayer. All real estate – whether it is single family, commercial, or investment – is an investment made by an individual, who pays property taxes to local governments. Property taxes are allowable deductions for investment properties, therefore, the property owner is an investor.

Recommendations: Use the SEC Act of 1933 and 1934 to do the following:

  • Recognize the American taxpayer as a protected class of investors by the SEC.
  • Recognize any interest in real estate meets the definition of a “security.”
  • Apply insider trading laws to real estate investing.

If the American taxpayer is afforded the same rights that investors are accorded in private investment transactions, it will become far more difficult for public agencies to get away with waste and fraud. This will not only lower the costs for public homeless shelters and public housing for the homeless, it will lower the costs for all taxpayer funded public projects.

Securities and Exchange Commission / Division of Enforcement 

Local elected officials accept campaign donations from special interest groups, and in return, give them the rights to large redevelopment projects. This is a pay to play scheme. These groups are not registered as investment advisers, yet they provide investment advisory services to municipalities. 

Recommendation: Apply Section 206(4) of the Investment Advisers Act of 1940 to all industries who partake in municipal contracts, requiring that investment advisers are subject to a two-year timeout from providing compensatory advisory services or political contributions. 

Why should investment advisers have to register and adhere to campaign finance restrictions in the private sector, but not in the public sector? Holding them to the same rules as in the private sector will eliminate obvious conflicts of interest, and make the bidding process for homeless projects and services more competitive.

Justice Department / AntiTrust Division

The special interest movement known as the Homeless Industrial Complex may be engaging in collusive practices to substantially lessen competition, and this may include price-fixing schemes where one person holds property for the benefit of another. We are facing a manufactured crisis today by special interest groups and elected officials, who stand to benefit financially from the crisis, thus potentially making this a racketeering case.

Recommendation: Invoke the Sherman Act of 1890, the Clayton Act of 1914 and the Federal Trade Commission Act of 1914, to prohibit cartels and the abuse of monopoly power.

Taking these steps will make all the stakeholders involved in helping the homeless, where billions have already been spent, far more careful in what sorts of partnerships they form, and what sort of “arms-length” transactions they execute.

Justice Department / Drug Enforcement Administration (DEA)

In California, voter enacted Propositions 47 (downgraded property and drug crimes) and 57 (early release of nonviolent inmates) have worked together as a perfect storm only to perpetuate a constant cycle of drug use and the need to commit crimes to pay for them. Drug dealers now operate their businesses with minimal deterrents. Organized drug traffickers are able to hide under the guise of homelessness within homeless encampments. 

Recommendation: Drugs are still illegal on a federal level, and the DEA needs to get involved in fighting drug trafficking that is camouflaged within the homeless communities. 

California’s policymakers have abandoned their citizens to an epidemic of drug use. State laws make it nearly impossible to stop public use of hard drugs. Traffickers and users operate with near impunity, and the state has become a magnet for both. With rampant drug use comes organized crime, exacerbated mental illness, property crimes to support drug habits, and public disorder. A federal crackdown will get this all back under control.

Justice Department / Law Enforcement Agencies 

The State of California and City of Los Angeles no longer enforce the core responsibility of any government, which is to guarantee public safety. Private property is no longer respected under this diminished rule of law, thus violating the civil rights of law abiding residents victimized by a state of lawlessness. 

Recommendation: Activate and deploy Federal Law Enforcement Agencies such as the US Marshals and Federal Bureau of Investigations to restore law and order to citizens. 

With federal agencies cooperating with local law enforcement to enforce federal crimes, including robbery and larceny, the deterrent against property crimes that went away with the enactment of Prop. 47 will be reestablished.

Housing and Urban Development / Federal Housing Administration

Federal tax credit programs and taxpayer-backed dollars are being abused by special interest groups, under the guise of social redistribution policies. Specifically, the LIHTC (Low Income Housing Tax Credit) program may be unduly influenced by non-profit housing developers with no incentive to build cost effective solutions, and are now reaching “affordable housing” per apartment costs that can exceed $750,000. These high costs are due to California’s state and local governments requiring hundreds of permits with exorbitant fees and lengthy processing times, excessive environmental regulations, and prevailing wage requirements. Very few developers are capable of complying with this punitive array of obstacles, ensuring that the “subsidy” goes to powerful and favored special interest groups, defeating the underlying policy of the program in general.

Recommendations:

  • Repeal “housing first” which prevents funds from immediately being shared with treatment programs.
  • Federal tax credits must be prioritized towards projects that are cost-effective.
  • Withhold Community Developer Block Grants from the State of California.
  • Require the exemption of state prevailing wage requirements in order to use the Federal LIHTC.
  • Set a maximum costs per bed/unit in order to receive public funding.
  • Reform the LIHTC program so that it only financed “affordable housing” within 60-120% of area median income, but require developers to prove that residents could afford to live there, using household budgeting tools that take into account utilities and surrounding expense factors.
  • Reform LIHTC so that deeper LIHTC subsidy models in the 30-50% of AMI have their own program, similar to HUD programs like Section 8.
  • The HUD Office of Inspector General should identify examples of abuse of federal subsidies and prosecute offenders.

By setting conditions on federal funds for homeless projects, and by removing the “housing first” rule that prevents treatment from getting equal priority to shelter, for more assistance will be possible with the same amount of funding.

Department of Education

Where you live determines where you go to school, so California’s inner city youth are most impacted. For a child education is destiny, and it is the only way out of poverty. We are spending billions of dollars on the homeless crisis and job training for the uneducated, and public schools in California rank 40th in the nation. Unless we provide opportunities to Americans, they will fall victim to substance abuse. We have witnessed a market failure in public education, and the only way to correct market failures is to open up competition.

Recommendations:

  • We need an “Education First” policy that recognizes that the teachers union is the primary barrier to improving educational outcomes in the United States;
  • We must improve our failing public education system by allowing competition via new charter schools and allowing for a robust opportunity scholarships (AKA, voucher) programs. 

California’s public education system has been fatally undermined by the teachers unions, which oppose any sort of competition to traditional public schools. Breaking their monopoly through charter schools or even vouchers will provide opportunities to students who today are graduating to homelessness instead of living productive lives.

Health and Human Services / Centers for Disease Control

Our homeless crisis is in large part a mental illness and drug crisis, masked as an “affordable housing” crisis by special interests. The mentally ill are our most vulnerable population, requiring our most help as they are a danger to themselves and others. A recent study by the Los Angeles Times has found that 78 percent of the unsheltered homeless in the City of Los Angeles suffer from mental illness.

Recommendations:

  • Declare a health emergency to address mental illness and substance abuse among the homeless, and,
  • Create a federal tax credit to build and reopen mental healthcare facilities, for locations based outside of urban areas. We are witnessing a mental health and drug addiction epidemic afflicting tens of thousands of homeless, making Los Angeles’ “Housing First” policy ineffective.
  • Subsidize the costs and regulate addiction treatment programs which can cost $30-60K per visit. Funding on these programs needs to revised criteria that creates an incentive for providers who can do it cost-effectively.
  • Directly pay individuals who directly provide care for and house a family member with a severe mental illness.

Getting people back into mental health treatment, either through more cost-effective publicly funded programs, or by making it easier for family members to care for their mentally ill loved ones, would ameliorate some of the most tragic consequences of the ineffective approach to-date.

The homeless crisis is also creating a risk of a disease epidemic. The trash and human excrement accumulating in homeless encampments has spawned an exploding population of disease carrying animals and insects that thrive in these conditions: rats, fleas, mosquitoes, ticks, mites, lice. Los Angeles already has outbreaks of typhus, hepatitis and tuberculosis, as do other cities in California. Shigella, a communicable form of diarrhea, is now common among the homeless. There have even been outbreaks of trench fever, spread by lice.

Recommendation: The Centers for Disease Control should declare a health emergency to swiftly clean up the trash and human excrement. The out-of-control populations of rats, fleas, mosquitoes, ticks, mites, and lice should be exterminated.

California’s policymakers have utterly failed to protect the public from the diseases being spawned and spread by the trash and excrement piling up in homeless encampments. Declaring a health emergency and applying federal resources to the problem can fix it before it’s too late.

Environmental Protection Agency

California’s state legislature recently passed AB 1197, and it was quickly signed by Governor Newsom. The new law only pertains to the City of Los Angeles, and exempts any homeless housing project from the California Environmental Quality Act. Yet because of the homeless, our streets are littered with feces, needles, and trash. While many are campaigning about climate change, far more imminent threats to public health and quality of our oceans is linked to the growing homelessness crisis in California with thousands of tons of human excrement and drug paraphernalia runoff flowing directly in our oceans and water systems. California’s environmentalists have somehow forgotten that all drains lead to the ocean. Equally troubling, the trash and human excrement in these homeless encampments has lead to an explosion of disease carrying rodents. Now there are issues with homeless related fires.

Recommendations:

  • Declare areas where the homeless are concentrated as Brownfields, via the EPA Brownfields program;
  • Mandate a community EPA liaison on any state project given an environmental exemption in order to deter environmental crimes.

Using Brownfield status to bring financial resources and regulatory leverage to bear on homeless encampments may be the only way to stop ongoing degradation of California’s soil, water, and ocean runoff.

Homeland Security

Today we are witnessing organized crime hiding within the extensive homeless encampments, taking advantage of permissive laws to conduct many illicit actives in broad daylight. Criminal organizations are growing among the homeless, understanding our laws and using them to their benefit, in order to diminish the role of law enforcement.

Recommendation: The Department of Homeland Security needs to infiltrate these homeless encampments and root out organized criminal networks.

If the DHS and the Justice Dept. work together to bring federal power and federal statutes into what have become lawless areas of California, the laws that tie the hands of local law enforcement can be overridden.

Department of Labor

States with the highest homeless populations, such as California, are run by special interest groups which require union memberships to work. 

Recommendations:

  • Implement a presidential executive order that exempts housing programs from prevailing wage laws and project labor agreements.
  • Require At Risk Targeted Persons (ARTPs) Employee Hiring Mandates;  ex-felons, persons with mental illness, chronically homeless individuals; sober ex-drug addicts;
  • Develop meaningful federal tax incentives and tax abatements to small business to incentivize employment of ARTPs and provide on-site workforce housing.

By exempting housing programs from prevailing wage laws and project labor agreements, the Dept. of Labor can lower the per unit costs of shelter beds and units of housing. California’s labor market is so tight that these exemptions will not harm the workers. Similarly, by creating incentives for employers to hire at risk individuals, more of the homeless will begin to reenter society. Organized labor should compete for projects and should not hinder the ability of organizations and companies to hire at-risk individuals as nonunion workers, and the Dept. of Labor can ensure that through executive order.

Department of Veterans Affairs

Veterans experience homelessness at a higher rate than the civilian population. About 7 percent of people in the U.S. can claim veteran status, but former service members make up around 13 percent of the country’s homeless population, according to the National Coalition for Homeless Veterans.

Recommendations:

  • Use military bases to house homeless veterans.
  • Work with Department of Labor/ Office of the Assistant Secretary for Veterans’ Employment and Training.

Offering on-base housing to homeless veterans is an idea whose time has come. Giving them this respect after their service to our nation is fitting, and could make use of surplus facilities throughout California’s extensive network of military bases.

Federal Intervention Could Quickly Get America’s Homeless Crisis Under Control

The objective of these recommendations is not to presume they offer the complete set of answers, or even the complete list of federal agencies that can be involved. These solutions that involve the federal executive branch are limited only by how conscientiously and how creatively they can be crafted. But the impact of the recommended changes would be immediate and profound.

If these recommendations were implemented, California’s homeless crisis would quickly improve. Criminal drug traffickers would be looking over their shoulders. The CDC and EPA would declare an emergency and clean up homeless encampments. Homeless veterans would find immediate shelter. And the power of the Homeless Industrial Complex, a special interest movement that has been enriched by going slow and overspending on everything, would be shaken to its foundations.

Nonprofits would no longer be able to legally squander funds intended to help the homeless. Taxpayers would have the same rights as private sector investors, making it less likely public agencies could waste money on projects. Federal funds would be contingent on cost-effective projects. Unions would have to compete to participate in projects, and with the shortage of construction workers in California and the many projects awaiting funds, that would not be a hardship to them. Over time, maybe a sustained effort by the Dept. of Education to introduce competition to the monopolistic union controlled public schools might even change both the aptitude and the attitude of students graduating into California’s workforce.

Eventually, maybe the other root problem connected to homelessness, prohibitively expensive housing, could get addressed. Not only through many of the reforms proposed here, which could apply to low income housing as easily as to permanent supportive housing, but through a loosening of the requirements to run building permit applications through an obscene gaggle of local and state agencies. Projects that take as little as 20 days in Texas to get approved, and at most 20 months in most states, can take up to 20 years in California. Small wonder there’s a housing shortage. These countless applications with their exorbitant fees and endless delays constitute criminal negligence and naked, insatiable public sector greed, masquerading as a public service.

In California, at the state and local level, despite well-funded rhetoric to the contrary, there is a shortage of creativity and a shortage of conscientiousness. The residents of the most hard hit cities facing this problem are trailblazers, pointing out that Emperor Newsom has no clothes, yet their cries for help have been ignored.

California’s policymakers are puppets of special interests. Those special interests include their own bureaucracies, which are controlled by public sector unions that gain membership dues and power whenever a public sector challenge worsens. Similarly, the other special interest members of the Homeless Industrial Complex, developers and nonprofit corporations, gain profits and revenues when the homeless crisis worsens.

It is time for the federal government to take decisive action where our public servants on the state and local level have utterly failed the public. It must never be forgotten that this failure victimizes not only the taxpayers and the members of the public who live in areas overran with homeless people. It also victimizes the homeless themselves, who are not getting shelter, and who are not getting treatment.

The power of the special interests who have turned homelessness into a self-serving, taxpayer funded industry, must be broken.

An executive order from President Trump declaring a state of emergency, followed up by an interagency effort according to a blueprint patterned after this checklist, could get America’s homeless crisis under control. And it could happen in months instead of interminable years.

This article originally appeared in American Greatness.

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CalPERS is Investing in Chinese Companies

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On October 1st, 2019, the People’s Republic of China celebrated its 70th anniversary. The centerpiece of their festivities was a massive military parade down the streets of Beijing, and the centerpiece of that parade was China’s newest intercontinental ballistic missile, the Dongfeng-41. This missile travels at a speed of Mach 25, carries multiple nuclear warheads, and can reach the United States in under 30 minutes.

California’s public employees will be pleased to know that their retirement funds have invested in companies controlled by the Chinese military, which manufacture parts for the DF-41 missile, along with a range of aircraft, unmanned aircraft systems, and airborne weapons.

For that matter, these pension funds not only invest in Chinese companies (and index funds, tracked by mutual funds, that are heavily weighted with Chinese companies) directly involved in manufacturing military equipment and surveillance equipment, they also invest in Chinese companies involved directly or indirectly in human rights, labor rights, and environmental protection violations all over the world.

California’s largest public employee pension fund, CalPERS, provides a case in point. In search of the elusive and eternal 7 percent annual return, CalPERS nonetheless foregoes investments in Iran, Sudan, assault rifles, tobacco products, and thermal coal. But CalPERS continues to invest in Chinese companies.

A review of what is still the most recent report on CalPERS investments, dated 6/30/2018, show there is no summary wherein their international investments are subtotaled by country. A keyword search under “China” turns up 172 companies, partnerships, etc., nearly all of which (by virtue of their name) are probably based in China, with a total market value of $3.1 billion. This is obviously understating the total, since, for example, one of the listed companies, “Bank of Chongqing Co Ltd,” is almost certainly a Chinese company, but along with many others, is not within that total.

Roger Robinson, president and CEO of RWR Advisory Group, a Washington DC based risk consultancy, is an expert on U.S. investments in China. When reached for comment, he posed the following question, “Why would CalPERS hold in their investment portfolio Chinese and Russian companies either actively, or passively via index providers, that have been sanctioned by the U.S.?

Robinson, who earlier served as chairman of the congressional U.S./China Economic and Security Review Commission, elaborated on the risks facing pension funds that invest in China. “Doesn’t being sanctioned represent an asymmetric material risk to the share values and corporate reputations of these companies, and if so, are California’s public employees being properly protected as investors?”

Concerns about U.S. investment in China is spreading. Earlier this year, according to a press release from his office, U.S. Senator Marco Rubio (R, Florida) “requested information from MSCI, Inc. (MSCI) regarding the company’s controversial decision to add Chinese companies in its equity indexes. MSCI indexes are listed on U.S. stock exchanges and available to retail investors. The MSCI Emerging Market Index includes 24 countries with emerging economies, including China. Specifically, Rubio requested information regarding whether MSCI examined the potential for funding Chinese companies involved in the Chinese government and Communist Party’s military, espionage, human rights violations.”

Because mutual funds that collectively manage direct investments totaling several trillion dollars will mirror the selection and weighting of companies in the MSCI index, their decision to increase their holdings in Chinese companies offers a tangible benefit to those companies. It translates directly into increased U.S. investment into China by any pension system that includes MSCI tracking funds in their portfolios.

In response to a request for the total value of CalPERS investments in Chinese companies, CalPERS did not answer, offering an innocuous non-reply “CalPERS is a global investor, with holdings in approximately 49 countries. Our Annual Investment Report reflects all investments at the end of the most recent fiscal year.”

While there is a legitimate moral argument for constructive engagement governing investment policies, even with a nation as problematic as China, that argument becomes strained when examining certain companies that are part of the CalPERS investment portfolio.

A blistering report published by Bloomberg Businessweek in Sept. 2018 highlights abuses committed by China Communications Construction Co., which CalPERS owned shares in as of 6/30/2018. The in-depth article recounts fraudulent bidding practices, corruption, environmental violations, mistreatment of workers, national security concerns, and even a role in building Chinese military bases on reefs in disputed areas of the South China Sea. Bloomberg writes, “There’s no shortage of companies, including American ones, that have been accused of bribery and environmental damage when operating abroad. Yet the number and scope of allegations involving CCCC set it apart.”

Another Chinese company where CalPERS owns shares is China Aerospace International Holding, a subsidiary of China Aerospace Science and Technology Corp., which is operated by the People’s Liberation Army, and China Unicom, a company which, according to the Washington Post, helped build and operate North Korea’s internet network.

When contacted regarding its Chinese holdings, the following response came from CalPERS: “CalPERS has a fiduciary duty to ensure retirement benefits for our members after a career in public service. To that end, we will pursue and explore all legal investments that help us further that goal.”

While investing in China remains legal, it may be argued that these investments, at the very least, challenge CalPERS divestment principles. On page 15 of their Total Fund Investment Policy, human rights violations are an important focus.

When asked about how ongoing and escalating human rights violations by the Chinese regime in Xinjiang, Tibet, Inner Mongolia, Hong Kong, and within Central China could be reconciled with their divestment principles, the response from CalPERS was “CalPERS believes engagement with the companies we own is the most fruitful way to enact change. In limited cases, divestment decisions have been mandated by legislative action and by the Board in accordance with our policies.”

A troubling article published in Epoch Times in July 2019 exposed allegedly deep ties between the Chinese regime and the Chief Investment Officer at CalPERS, Yu Ben Meng. The article claims that Meng’s position as deputy CIO at China’s State Administration of Foreign Exchange (SAFE), which he occupied from 2015-2018, “have provoked controversy about the operations of the largest public retirement fund in the United States.”

SAFE  is responsible for managing over $3 trillion in foreign reserves controlled by China. According to Investopedia, “Its mandate includes the study and implementation of policy measures for the gradual advancement of the convertibility of the renminbi (CNY), China’s official currency.” Apart from the Chinese military, maybe, it’s hard to imagine an organization more central to the global strategy of the Chinese regime than SAFE. Meng’s role as deputy CIO with SAFE almost certainly put him in regular contact with the most powerful people in China.

CalPERS did not react favorably to a question about Meng’s role with SAFE. When asked “Is it plausible to assume that when the Chinese hired Mr. Meng to occupy a high ranking position with SAFE from 2015-2018, that the Chinese government relied on his loyalty to the Chinese regime,” the response was:

“Your suggestion is patently absurd, and frankly, offensive. Ben Meng is a United States citizen born in China. He is globally respected investor, serves as a member of the CFA Institute’s Future of Finance Advisory Council, and is an associate editor for the Journal of Investment Management. Mr. Meng has a Ph.D. from University of California, Davis. In addition, he not only has master’s degree in financial engineering from University of California, Berkeley, but has also taught at the Haas School of Business where he was the recipient of the Cheit Award for Excellence in Teaching. Mr. Meng was hired by CalPERS after a rigorous recruitment for the CIO position and was found to be the most qualified and best-positioned candidate to lead the investment office and to help ensure the security and sustainability of the CalPERS fund.”

This is indeed a touchy subject. But what happens if constructive engagement with China fails? What if the momentum of history finds the United States in another cold war, this time with China?

Here, quoted from People’s Daily (use Google translator), is Meng’s reaction in 2017 to working again in his native China, after moving to the U.S. at age 25, “In a person’s life, if there is an opportunity to work for the motherland, this responsibility and honor is unmatched by anything.”

This Chinese “motherland,” as reported earlier this month by NPR, is now “The U.S.’s top intelligence threat.”

Nathan Yu, an investigative reporter for Epoch Times who has covered communist China for years, had this to say when asked if Yu Ben Meng might have a conflict of interest as chief investment officer of CalPERS. “He was part of the Thousand Talent Plan which is operated by the Chinese regime, but we don’t have proof that he has ties to the Chinese Communist Party other than what is available to the public.” As reported in June 2018 by the South China Morning Post, “China’s “Thousand Talents” programme to tap into its citizens educated or employed in the US is a key part of multi-pronged efforts to transfer, replicate and eventually overtake US military and commercial technology, according to US intelligence officials.”

CalPERS did not respond to multiple follow up requests to disclose whether or not Yu Ben Meng has ever received a security clearance from the Chinese regime, or was ever a member of the Chinese communist party. In a follow up email, their statement read “We have no additional comments, other than what we’ve said: Ben is a U.S. citizen and an investor respected globally for his skill and integrity.”

Yu elaborated on the risks of investing in China, highlighting both a financial and moral hazard. “There are so many uncertainties when you go to China to invest. Most investors have not thought through the circumstances in China. It is a country without any transparency. A country that puts the communist party above the law. If there is ever serious instability going on in China against the ruling communist party they will use whatever means available to control the investments and financial markets. If anything like that happens it is a big risk to all the investments from the US in China.”

On the moral hazard of investing in China, Yu had this to say. “Of course it empowers the Chinese regime to have the money flowing in. The investment from the US to China empowers the Chinese regime and helps the regime to continue its human rights violations and persecution of religious groups. Investors really need to think about the values behind their investments. When Americans invest in China it violates our values and empowers the values we’re against – we empower the forces against transparency and rights of personal happiness. The Chinese regime has no respect for the right to pursue happiness.”

An August 2019 article in the Atlantic offers a sobering assessment of China’s intensifying espionage offensive against the United States. But the writer concludes with a caution against overreacting, pointing out “China is both a rival and a top trade partner. The economic and research relationship between the two countries benefits them both. At the same time, Chinese immigrants and visitors to America risk being unfairly targeted if U.S. officials fail to find the right balance.”

The challenges and controversy facing CalPERS is certainly bigger than who they’ve hired to be their CIO. There are gaping contradictions in their investment policies, which exclude nations like Iran and Sudan, yet favor nations like China which are just as repressive to their citizens, and pose a far greater threat to the security of the United States.

The risks and hazards of U.S. pension funds investing in Chinese companies, directly or indirectly, is not going away. In August of this year, U.S. Senator Jeanne Shaheen (D, New Hampshire), joined with Senator Rubio in a bipartisan effort to pressure the Federal Retirement Thrift Investment Board, which manages pension assets for federal employees, to “reverse a decision that is set to channel billions of US dollars into funding Chinese companies that they say support Beijing’s military, espionage and domestic security efforts.”

It’s worth asking Mr. Meng, along with all of his deputies in the CalPERS investment office: When are you going invest tens of billions in equity positions in California’s infrastructure projects? When are you going to accept lower rates of return, so you don’t have to chase emerging markets that include China, which is arguably the biggest security threat the United States has ever faced? And when are California’s public sector unions, to whom you answer, going to establish investment rules that benefit an American “belt and road” initiative, instead of furthering the strategic objectives of a murderous regime halfway around the world?

This article originally appeared on the website California Globe.

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San Francisco’s Prop. A – Expensive Insanity Marches On

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The definition of insanity is doing the same thing over and over and expecting different results.
– Albert Einstein

There is no solid evidence that one of history’s greatest geniuses ever said this, but its applicability to California’s housing crisis is too big to let attribution get in the way. Because California’s politicians are trying to solve the problem by doing the same thing over and over, and the result is always the same – the problem just gets worse.

One current example of how California’s ruling class continues to attempt fabulously expensive, laughably feeble “solutions” to increasing the stock of “affordable housing” can be found in San Francisco’s Proposition A, “Bond Issue for Affordable Housing.” Voters will decide whether or not to approve Prop. A on November 5th.

One misperception regarding these bonds may be found on the proponent’s website “Yes on A,” where they claim “this $600 million bond will fund the construction of more than 2,800 affordable housing units over the next four years.” This implies a cost of $214,285 per unit. But that’s not even half the story.

The average cost these developers are turning in to construct “affordable housing” and “permanent supportive housing” in California’s big urban areas bottoms out at around $500,000 per unit. For example, in Los Angeles, the Measure HHH bond, approved by voters in 2016, poured $1.2 billion into construction of supportive housing. Three years later, with only a few units ready for occupancy so far, the estimated cost is over $500,000 per unit.

In San Francisco, the cost to construct a new apartment hovers around $700,000 per unit. At this rate, $600 million dollars will only pay for 857 apartments. Acknowledging this, proponents of San Francisco’s Prop. A intend to use most of the money to rehabilitate existing public housing. Which is to say, all this money will have a minimal impact on total housing stock in San Francisco. So what’s really going on?

Taxpayers Cover Nearly 100% of Affordable Housing Costs

To get the rest of the story, it’s first necessary to understand how any new affordable housing or supportive housing gets funded. Because of state and local policies that make it almost impossible for developers to build anything, the commercial price of a modest new apartment in California’s urban centers ranges between a half-million and $750,000 per unit. “Affordable housing” projects are no exception, and it’s important to realize that taxpayers cover 100 percent of the costs. When these bonds are issued with language that implies a total taxpayer contribution via the bond of $214,000 per unit (SF Prop. A), or $117,000 per unit (LA Measure HHH), taxpayers need to know where the rest of the money comes from – because all of it comes out of their pockets.

An illustrative example of this is found in the project summaries disclosed by the City of Oakland, showing the use of funds for their share of the Measure A1 “Affordable Housing Bond.” Measure A1, passed by voters in Alameda County in 2016, allocated $580 million for the construction of “affordable local housing.” The table shown below, taken from the City of Oakland report, shows the total project cost, and as can be seen, taxpayers funded nearly all of this project.

On the above table it can be seen that the Measure A1 Bond only contributed 3 percent to the construction of 87 affordable housing units. But the total project cost was a whopping $64 million, which equates to a cost of $736,000 per unit. And as can be seen, matching loans from the City of Emeryville (7.2%), the City of Oakland (3.2%), plus other federal and state sources (17.6%) constituted much of the remainder. The biggest source of funds, “LIHTC Equity,” at 42.9 percent, bears further explanation.

LIHTC stands for “Low-Income Housing Tax Credit,” and these tax credits, which can be bought, sold, and traded, represent a one-to-one reduction of a corporate tax bill. They are not a tax deduction, they are a tax credit, meaning that for any profitable corporation that pays taxes, their face value is equivalent to that same amount of cash in the bank. Who pays for tax credits? Taxpayers, since whenever taxes are avoided in one place, the resulting shortfall in tax revenues has to be covered by other taxpayers.

Taxpayer Funded Affordable Housing is a Patronage Racket and a Rigged Lottery

There are alternatives to the insanity of spending $750,000 of taxpayers money to build “affordable housing” for low income families and “supportive housing” for homeless people. The insanity of current policies should be crystal clear. According to the United States Interagency Council on Homelessness, “As of January 2018, California had an estimated 129,972 experiencing homelessness on any given day.”

By most accounts that number is understated because of flaws in how HUD manages the annual count, and the number is rising, not falling. But using that number, it would cost roughly one hundred billion dollars to get every one of California’s homeless individuals “permanent supportive housing” as it is currently designed and funded. This is impossible. This is insane. Again, what’s going on?

According to Thomas Busse, treasurer for the Libertarian Party of San Francisco, which is the only organization that has come out in opposition to Prop. A, “San Francisco’s ‘Affordable Housing’ is a patronage racket making housing less affordable.”

Busse explains further, stating “What San Francisco programs do are crowd out natural affordable housing with program affordable housing – distorting the market. This removes housing from the market at the bottom end, pushing the market rate up for those who don’t win the affordable housing lottery. The Mayor’s Office of Housing is called that for a reason: it reeks of patronage. The local housing lotteries are rigged – this has been reported on extensively over two decades.”

An October 7th report in the San Jose Mercury offers a vivid example of how affordable housing policies can actually increase costs to tenants. The article describes how an apartment building in Antioch was converted to affordable housing, but when the renovations were completed, the tenants actually ended up paying more in monthly rent. These renovations to existing housing (referred to in the bond text as “rehabilitating”) are exactly how most of the Prop. A money could be applied. And once the property is converted to “affordable housing,” the owners are exempt from property taxes.

Californians need to realize not only that it is insane to expect taxpayer funded housing this expensive to ever solve the state’s housing and homeless crisis, but that it has become a lucrative scam for all parties involved. To expand on the implications of the property tax exemption, for example, consider this finding by Reason Foundation researcher Marc Joffe, as reported in Fox & Hounds Daily: “Affordable housing projects are often operated by not-for-profits that qualify for a ‘welfare’ exemption from property taxes. In San Francisco, a total of $2.4 billion of real estate is shielded from property taxation due to this exemption.”

What libertarian Thomas Busse refers to as “natural affordable housing” is the only practical solution to California’s housing crunch. Streamlining the permitting process, reducing the requirements to be granted a development permit, lowering the extortionate building fees, taking away the exemptions granted nonprofit developers, and expanding the urban footprint are all ways to bring down the cost of housing. If taxpayer funds must be used, set up pre-fab homes, or, for that matter, durable tents, in low cost areas. But using government funds to convert existing housing into tax exempt “rehabilitated” “affordable housing” that costs tenants more in rent is insanity.

There are additional solutions to California’s housing and homeless crisis, but they encroach on many conventional pieties. Many of the homeless on the street, to indulge in rank heresy, are there by choice. When it is impermissible to arrest and hold vagrants for petty theft or possession of hard drugs; when it is impermissible to require vagrants to move out of public spaces unless you can provide them with free and “permanent supportive housing;” when it is virtually impossible to commit demonstrably insane people to asylum care; when public shelters offer food and urgent care without any preconditions whatsoever (sobriety, drug counseling, drug testing); when the weather on the coast of California rarely dips below freezing – you will have an aggressive, problematic homeless population. Forever.

A memorable essay on San Francisco’s homeless crisis was just published in City Journal by the incomparable Heather MacDonald. She writes, “For the last three decades, San Francisco has conducted a real-life experiment in what happens when a society stops enforcing bourgeois norms of behavior. The city has done so in the name of compassion toward the homeless. The results have been the opposite: street squalor and misery have increased, even as government expenditures have ballooned.”

Another famous quote of indeterminate origin and indisputable wisdom goes as follows: “The first step in solving a problem is recognizing there is one.” San Francisco’s politicians have to understand the solutions they’re offering to solve their housing crisis and homeless crisis are insane. And they aren’t sort of insane, or arguably insane. They are batshit crazy insane.

New approaches are needed.

This article originally appeared on the website California Globe.

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Towards A Nationalist Economic Policy

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Suggesting that managed inflation and currency devaluation are pathways to greater national prosperity is bound to invite howls of derision. But critics may be ignoring factors, which, if acknowledged, might point towards consensus. At the least, it might provoke a more useful discussion.

With that in mind, here are four economic realities in America today:

1 – Despite that the word “fiat” is often used as a term of derision, all currencies are fiat unless backed by redeemable commodities. China is stockpiling gold amidst rumors they may try to tie the Renminbi to gold. Good luck with that.

2 – Throughout history, nations with the ability to sustain capital formation through financial innovation are the ones that succeeded. Prudently managed fractional reserve lending, a financial innovation, enables far more liquidity in the economy.

3 – The biggest engine of liquidity is not printing currency – there’s only about five trillion in actual printed US dollars extant in the world – it is debt formation, backed by collateral, that finances massive projects and asset acquisitions.

4 – American has been on a borrowing binge since the 1980s and total market debt – consumer, commercial and government – now stands at nearly 3.5 times GDP. This level of debt is unsustainable.

On this final axiom there should be agreement. As for the others, concerned observers might agree to disagree. Suffice to say that the economic disruption, and unintended consequences, that would accompany transition to a commodity backed currency would dwarf what we may expect in most other scenarios for the American dollar. So how do Americans unwind nearly $80 trillion in hard debt?

If one accepts the premise that this debt is unsustainable, and that further debt accumulation is no longer possible, than broadly speaking, to facilitate the inevitable rebalancing there are only two possible outcomes – inflation or deflation. The problem with deflation is there is no model of deflation that doesn’t include a complete collapse of liquidity and a near cessation of economic activity. A deflationary collapse would not simply wipe out a few big banks. It would wipe out all banking, big and small, multinational and local, because the value of the collateral that backed all their loans, no matter how healthy their reserve ratios had previously been, would have collapsed.

There is a model of inflation, however, that permits America to continue to prosper economically. It is vital to make the distinction between inflation caused by wages increasing faster than asset values vs inflation caused by asset values increasing faster than wages. Understanding this distinction, and recognizing what is at state in the choice between them, cuts to the heart of what constitutes nationalist economic policy vs globalist economic policy.

Globalist Economic Policy

For at least the last 20 years, American wages have not kept pace with inflation. Examining the core elements of this inflation offers clues to why most Americans are worse off economically than they were 20-30 years ago. And the primary driver of inflation outpacing wage growth is the financialization of the American economy. This is the reliance on creating overvalued assets (asset bubbles) to serve as expanded collateral to enable increased consumer borrowing.

Allowing consumers more capacity to borrow took momentary pressure off of consumers to earn higher wages. This served the interests of multinational corporations and international banks whose profits were optimized when they exported jobs and imported workers. By importing cheap products from overseas and stimulating borrowing on inflated home equity values, for a time, most Americans weren’t suffering the consequences of an economy running on debt instead of productivity.

It’s worth considering all the ways that financial inflation was imposed on ordinary Americans, forcing them into debt. Already reeling from the globalist tactic of exporting jobs out of their country, and importing workers (and welfare recipients) into their country, Americans also had to contend with higher prices for everything that couldn’t be imported – which are those items that use up most disposable consumer income – rent or mortgages, and utility bills. Why?

The answer to this exposes the other primary strategy of globalism, synergistic with the tactic of exporting jobs and importing low wage workers, which is climate change mitigation in all of its almost endless permutations. In the name of protecting the planet, artificial scarcity has been imposed on Americans from coast to coast, and in those regions where state and local governments are overran the most with globalists, that scarcity is most acute.

In the name of fighting climate change, globalists – oops, environmentalists – challenge the ability of entrepreneurs to do anything. To the extent new housing developments are permitted, after years, not months, and millions, not thousands, in fees, they must be confined within the boundaries of existing cities.

It is impossible to overstate how misanthropic this policy is in terms of its effect on ordinary Americans. At the same time as millions of immigrants, legal and illegal, continue to pour into the country, draconian environmental laws are cramming all new housing within the footprints of existing cities. Tranquil neighborhoods are being demolished to make room for millions of newcomers. People are being literally piled on top of each other. But the investor class sees their real estate portfolios soar. Collateral grows, enabling more borrowing, enabling more spending.

Renewable energy, also mandated by law in the interests of supposedly cooling the planet which is supposedly warming catastrophically, also creates artificial scarcity. The cost of renewable energy far exceeds that of conventional energy, which itself costs far more than it should because of permitting delays, lawsuits, and excessive regulations.

Renewable energy requires costly upgrades to the power grid. It requires storage assets to make up for the daily intermittent nature of wind and solar power. The lifecycle costs to manufacture, operate, decommission, and periodically replace wind and solar power arrays are grossly underestimated, especially when considering how these systems have to be oversized to account for seasonal fluctuations in renewable energy output. Power management systems at the grid level and within the home, extending to every “wired” appliance, also add stupendous costs. But public utilities earn far higher revenues when they deploy renewables, which, since their profit percentages are regulated, is the only way they can increase their profits. And everyone up and down the supply chain, from green entrepreneurs to high tech companies, exploit mandated market opportunities that would not otherwise exist.

Climate change panic has turned our schoolchildren into manipulated puppets and morphed a generation of environmentalists from sincere activism to militant hysteria. These minions support every piece of legislation and every lawsuit, despite the impact: higher prices for everything, artificial scarcity, and inflated collateral to keep the borrowing party going. Other significant sources of inflation, college tuition and health care in particular, have other primary causes – in particular, unionization and the inefficiencies and higher costs that come with unionization – but the pretext for demanding higher wages and benefits in the first place, or even the drive to unionize itself, stem from the reality of unaffordable homes and unaffordable energy.

Nationalist Economic Policy

It is important to emphasize that nationalist economic policy is not “conservative,” nor is it Republican. The only reason nationalists, or conservatives, for that matter, vote for Republicans is because Republicans are not Democrats. While far too many Republican politicians are still just members of the establishment uniparty, at least they haven’t had their vanguard completely taken over by international socialists and climate change zealots. But to suggest that a nationalist economic policy is further evidence of yet another betrayal of alleged Republican, “fiscal conservative” principles is to miss the point entirely.

A nationalist economic policy should have one goal: unwind American debt in a manner that will avoid a deflationary collapse while at the same time shifting the weight of ongoing inflation from financial asset inflation to wage inflation. To do this, both of the key premises of globalism have to be broken. Immigration must be limited to reduced quantities of highly skilled immigrants, and climate change alarmist legislation must be replaced with practical policies designed to promote private sector development of cheap and clean fossil fuel throughout the United States and around the world.

Reducing the supply of labor via more restrictive immigration policies will cause wages to inflate. Increasing the supply of housing and energy by reforming absurdly restrictive environmentalist laws will cause prices for these commodities to level off or at least not rise as quickly as wages. And this might be enough to slowly allow the real value of debt in the economy to erode via inflation. But why stop there?

Fiat currencies maintain their value based on the underlying economic strength of the nations that issue them. The US Dollar is the reserve and transaction currency of the world because no other large national economy has anywhere near America’s industrial diversity, demographic vitality, wealth of natural resources, top universities, broad and deep leadership in high technology, political stability, and military strength. What if devaluing the dollar would actually increase America’s underlying economic strength, and what if the only way to devalue the dollar were to continue to engage in federal deficit spending, and incrementally lower the federal reserve lending rate?

Cue the howls.

About a year ago, it was leaked to the press that President Trump was asking his economic advisers “what’s better, a strong dollar or a weak dollar?” Literally everyone, from the entire media establishment to every anti-Trump pundit, took this opportunity to ridicule Trump, as if he should have already known the answer to this question. But there is huge disagreement among experts on this question, and Trump, as usual, was displaying common sense by asking to hear both sides of the issue.

Trump’s gut instincts appear to favor devaluing the dollar. A devalued dollar means it costs relatively more to import raw materials than to extract them domestically (note to environmentalists – it’s also less hypocritical). It also means it costs relatively more to import manufactured goods than to manufacture them domestically. This not only creates jobs, it further bids up the cost of wages. These policies will also help mitigate potential negative impacts on Americans of yet another rising mega-trend, automation.

Everything Trump’s doing, restricting immigration, developing oil and gas wells and pipelines, trying to repatriate money, and negotiating better trade deals, is designed to shift the model of inflation that we’re dealing with from a bad inflation model to a good inflation model.

As for deficit spending, it’s very principled to talk about deficit spending as if it’s an evil, and it’s certainly something that’s created a problem, but at least in the short run, it is not possible to eliminate deficit spending. If wages are increasing faster than the cost-of-living, than spending on entitlements including Social Security can be indexed to stay at or below the rate of inflation, slowly reducing its share of the federal budget. Immigration reform can reduce that burden on federal and state/local budgets. Maybe military spending can settle in at somewhat a somewhat lower percentage of GDP than it did during the last cold war. We can certainly use federal money more efficiently, and probably save a few hundred billion there. But precipitously eliminating the federal budget deficit is impossible, and continuing deficit spending might actually help devalue the dollar, stimulate “good” inflation, and diminish the real value of government and consumer debt.

International Globalism vs. Nationalist Globalization

Ultimately the choice of economic policies for the U.S. comes down to only one; inflation where wages grow at a faster rate than assets appreciate. The reverse of that is the financialized economy we’ve lived with, which has enriched the globalist political donor class but impoverished everyone else in America. The catastrophic third option is deflation, which carries a high risk of cascading implosions of collateral, putting the economy into a depression era tailspin.

There is no policy without risk and without downside. Inflation, for example, will victimize holders of fixed income investments no matter what. It might as well be wage inflation rather than asset inflation, particularly since asset inflation can lead to property tax increases that are particularly harmful to people on fixed incomes. And it’s a bit disingenuous for budget hawks to attack economic solutions involving inflation, when these are typically the same folks who want to throw America’s seniors onto 401K plans. Such a strategy would imply a supreme confidence in every American individual’s ability to manage their own personal retirement portfolios, including, presumably, inflation hedged investments.

Americans, along with citizens in every nation, have a choice. They can become commodities in a global marketplace, where the assets they’ve earned and accomplishments they’ve logged have no meaning and no merit. Or they can assert their sovereignty, preserving their culture, their wealth, their independence, and the privileges they’ve earned as citizens. They can compete with other nations, they can coexist with other nations, they can cooperate with other nations, but they can survive with their identity and traditions intact.

In America’s case, the challenge is particularly complex, because of America’s leadership role in the world. The American military doesn’t have to engage in nation building. It can be more judicial in deciding when to engage in police actions. But no matter how much those activities are attenuated, America’s military still has to pursue international terror networks, wherever they are, and America’s military still has to deter Chinese expansionism. Like it or not, America is in an undeclared cold war with China, and has been for decades. This is a war that can only be kept cold through deterrence, and deterrence, while fabulously expensive, is cheaper than a hot, horrific war.

Globalization, to clarify, is not the same thing as globalism. Technological advances make globalization inevitable. Intercontinental travel is now available and affordable for literally billions of people. The internet has made mass communication available from anyone, anywhere on Earth, to anyone, anywhere else on earth. Electronic transfers of funds occur instantaneously from anywhere to anywhere. Trade between nations has never been easier. And multinational corporations and banks have lost their national identities and operate as global entities.

Globalism, by contrast, is an ideology. In the crudest, most accurate terms possible, globalism can be described as the naive belief that turning global governance over to an unelected cadre of corporate and financial elites is the best possible future for humanity. But it’s not, because globalists want to cram humans into congested cities like cattle, erasing cultural and national identities and traditions. They want to ration availability of energy, water, land and raw materials, justifying it in the name of saving the planet. And they’re willing to relentlessly demonize, marginalize, ostracize and silence anyone who questions their agenda, stigmatizing them as racists and climate “deniers.”

Perhaps some globalists are truly naive, while others are cold and cynical. If so, naive globalists apparently think that rampant population growth among the impoverished nations constitutes less of a burden on the planet and its peoples than empowering these nations with cheap fossil fuel which would induce them to voluntarily check their population growth. And perhaps cynical globalists simply don’t care. They just want the power that globalism offers them, and if renewable energy fails to deliver a sustainable civilization and chaos ensues, so what? The great cull would be a violent but very effective shortcut for the elites to establish their breakaway civilization, their privileged Elysium.

The reality of accumulating debt and persistent federal spending deficits will eventually push Americans to a crossroads. Most everyone agrees about that. Hyping the tropes that keep donor dollars flowing into libertarian think tanks is not the same as offering constructive alternatives. Those critics who wish to offer up a solution more realistic that what is proposed herein are emphatically invited to do so.

This article originally appeared on the website American Greatness.

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Venice Beach’s Monster on the Median

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When President Trump arrived in Los Angeles on Tuesday, he had a few words to say about the city’s homeless problem. “We can’t let Los Angeles, San Francisco and numerous other cities destroy themselves by allowing what’s happening,” the president told reporters. “In many cases [building tenants] came from other countries and they moved to Los Angeles or they moved to San Francisco because of the prestige of the city, and all of a sudden they have hundreds and hundreds of tents and people living at the entrance to their office building. And the people of San Francisco are fed up, and the people of Los Angeles are fed up.”

In response, Mayor Eric Garcetti posted a video on social media in which he stated: “It is time for us to pause politics and not to demonize Americans who are on the street.”

Garcetti also warned the president that it’s not possible for authorities to “arrest their way out of the issue.” Instead, Garcetti would like “federal government aid to L.A. with surplus property or money to create additional shelters.”

But Trump better not release a dime of federal money until there’s a federal investigation that exposes how Los Angeles has wasted hundreds of millions on housing for the homeless in one of the most outrageous misuses of funds in American history.

Paradise Lost

To see just how ineffective homeless policy in Los Angeles has been to-date, and how Garcetti’s schemes will only destroy neighborhoods, wasting hundreds of millions of dollars, while doing nothing to solve the homeless problem, President Trump is invited to visit Venice Beach.

When you consider the population of homeless in Venice, estimated at around 1,000 people, you might not consider it to deserve the title “Homeless Hub of America.” You’d be wrong. Because what the Venice Beach homeless situation lacks in numbers, it makes up for in other ways.

First, consider Venice Beach itself, as opposed to the mean streets of downtown Los Angeles. If you want to sit on a warm beach all day, stoned on heroin and Xanax, or maybe just bask in an alcoholic stupor or savor a potent strain of weed, Venice Beach is for you.

In Venice Beach, you’re relatively safe. The well-heeled, clean-limbed residents aren’t going to form vigilante gangs and prey upon you. Quite the opposite. Most of them will look the other way, because they’re still struggling to reconcile compassion at any cost with reality.

In Venice Beach, the homeless can set up camp almost anywhere, and if this world class tourist destination is their choice, c’est la vie to those residents who’ve worked their entire lives to pay for the same privilege.

Bad Policies Exacerbate the Crisis

The fact that a place as beautiful as Venice Beach has been overrun with homeless people—with nothing the hard-working residents can do about it—is one reason it should be Exhibit A in the story of how bad policies have turned a manageable homeless challenge into an expensive, agonizing nightmare. But the corrupt, inept, utterly ineffective, shamefully self-righteous, scandalously hypocritical response of policymakers is what makes what’s happening in Venice Beach so exemplary.

The people interviewed for this article did not want their names used. The latest tactic the politicized homeless population of Venice Beach have adopted against anyone who objects to their presence is to have them “feceed,” that is, human excrement is deposited on their driveway, or at their doorway.

Once these homeless predators, networked by smartphones, find out where someone lives who has objected to their presence, watch out. These bold souls may expect a literal shit storm. One must ask: why don’t the police take a stool sample and save the DNA?

Then again, crime and punishment is different these days in California. Proposition 47, supported by an alliance of hardcore progressives and naïve libertarians, was passed in 2014. The measure was designed to eliminate “oversentencing.” In practice, that means if you steal anything worth less than $950, or if you make “personal use” of “most illegal drugs,” no matter how many times you are caught, you will face misdemeanor charges at best. Police call it the “catch and release” law.

Hello criminal. Hello drug addict. Welcome to Venice Beach, one of the most beautiful urban hotspots in the continental United States. Come on in. You don’t have to pay rent. You’re an “urban refugee.” Settle down. Do what you like. We can’t stop you.

YIMBYs and Other Useful Idiots

Not only are the residents of Venice powerless to stop criminals, drug addicts, drunks, and psychopaths from camping on their doorsteps, they are stigmatized as “NIMBYs” who lack compassion or awareness of their own privilege. Never mind how hard someone may have worked to live in an expensive and very beautiful neighborhood. It’s time to be “inclusive.” Shame on anyone who isn’t a YIMBY!

Behind pushing this narrative however aren’t the progressive activists, increasingly joined by their equally fanatical, equally delusional, libertarian allies. Those are just the useful idiots. This narrative of compassion at any cost is being pushed by powerful special interests who acquire power and profit from this game. After all, billions in taxpayer dollars are now being spent to help the homeless. But who gets most of that money? The middlemen.

Two projects planned for Venice Beach to help the homeless epitomize this scam, and justify its designation as the epicenter of homeless mismanagement gone wild. The first is a “temporary” shelter, a semi-permanent tent, which is being constructed on city owned property two blocks from the beach and boardwalk.

It is planned as a “wet” shelter, meaning any homeless person, no matter how deliriously wasted they may be, can stagger into this place and get a meal. If they’re really lucky, they’ll get a bed. Lucky, because while some 1,000 homeless people live in Venice Beach, this shelter will only have around 150 beds.

The cost? Some latest estimates put the total cost at $16 million, not including operating costs, nor including the value of the property, which could be sold for around $100 million. Imagine what could be done with that much money.

The Monster on the Median

But this $16 million tent is nothing compared to the other project proposed to “help the homeless” in Venice Beach. Dubbed the “Monster on the Median” by its detractors, this “permanent supportive housing” monstrosity will occupy 2.7 city-owned acres that are used currently for beach parking. It is in the heart of Venice, just one block from the beach.

Located amid one- and two-story residences and consuming the only parking area available to working families who stream to the beach after work and on weekends, this massive structure, planned to be up to five stories in height in some places, would house 140 units. Half of them will be offered to “artists” on low incomes, and the other half will be “permanent supportive housing” for homeless people.

And the cost?

Despite numerous public record act requests to the City of Los Angeles, the official estimate remains undisclosed. But other similar projects launched in Los Angeles to help the homeless came in at a cost of between $430,000 and $750,000 per unit. The “Monster on the Median” will almost certainly be in the $750,000 per unit range, for several reasons.

There is a high water table close to the beach. That, plus concerns about sea level rise affecting a structure so close to the shore, will compel extra work on the foundation. Also, the structure will be built to wrap 360 degrees around a parking garage in the center. This parking garage, unlikely to offer enough spaces to accommodate residents and visitors to the beach, will use an elevator—they call it “automated lift parking”—to deliver vehicles from the street level to the garage. Imagine the queues on North and South Venice Boulevard as people patiently wait to be hoisted up the car elevator. But why be practical?

If that weren’t enough, the structure actually will have to pass over the north end of one of Venice Beach’s scenic canals, completely covering a block of this historic amenity which is central to the identity of Venice Beach. Including the value of the property—the low estimate of the property value is $50 million—the “Monster on the Median” will cost an estimated $155 million, which comes out to $1.1 million per unit.

But that isn’t the end of the story. For example, there is also the story of how developers who build “permanent supportive housing” are exempt from normal zoning laws including height limitations, density maximums, setback requirements, parking space minimums, and even compliance with the California Environmental Quality Act.

False Compassion Breeds Official Corruption

It’s important to review these incentives, because it clarifies exactly why Venice is the epicenter of America’s homeless mismanagement crisis. Not only are homeless people incentivized to become homeless—since there is minimal law enforcement permitted, they can migrate to a beautiful place and take over. And then, in a brutal inversion of fairness, the people who live there are vilified for objecting.

But what about the land developers and the powerful nonprofit organizations? They have an incentive to see more homeless people. Because then they can build more structures that are exempt from the rules—justifiable or not—which govern all other construction.

Simple, very simple, math explains how preposterous—if not criminal—the situation in Venice has become. To house every one of Los Angeles County’s 60,000 homeless in the “Monster on the Median,” or similarly expensive structures, would cost $66 billion. Got that? Just to provide “permanent supportive housing” to the existing homeless in Los Angeles.

That’s Eric Garcetti’s “vision.”

Perhaps the tone of this commentary lacks compassion for the homeless. That would be a fair criticism. But not adequately explained in most reports on the homeless population is that the majority of the allegedly 60 percent of them who are simply people down on their luck, who don’t use drugs or commit crimes, have found shelter. They either stay with friends, family, occupy legitimate campsites, or stay in existing shelters.

The majority of the homeless who stay on the street, on the other hand, are drug addicts, alcoholics, or mentally ill, along with criminals and bums. They need to be rounded up, sorted by affliction, and treated in cost-effective compounds. There are examples all over the world of well-managed tent cities that cost a minute fraction of what the “Monster on the Median” will cost in Venice Beach. Put these compounds out in remote and inexpensive areas of Los Angeles County, and use the hundreds of millions in savings to offer humane treatment to these lost souls.

There is nothing compassionate about building million dollar apartments for a handful of homeless, condemning the rest of them to stay on the street. Venice Beach’s proposed Monster on the Median, an out-of-place, oversized, sterile box with a veneer of architectural flourishes, is corruption incarnate. It must never be allowed to exist.

President Trump has a background in property development. He likes to build things. But he has enough common sense to know you can’t build a Trump Tower, with gilded faucets and cathedral ceilings, to house homeless people.

Before the federal government sends Mayor Garcetti any more money to help the homeless, it would be a good thing to expose this unforgivable waste of money and hold people accountable. We can hope President Trump will demand Garcetti build homeless accommodations that cost literally 1/100th as much per bed, and build them in weeks, not years, and locate them in low cost areas of Los Angeles County, instead of on a world-class beach.

This article originally appeared on the website American Greatness.

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The Enemies of American Infrastructure

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Between 2008 and 2019, China opened up 33 high speed rail routes, connecting 39 major cities along four north-south and four east-west main lines. The 18,000 mile network runs trains at an average speed of around 200 miles per hour. By 2030, the Chinese expect to double the mileage of their high speed rail network by expanding to eight north-south and eight east-west main lines. In less than 20 years, the Chinese have completely transformed their rail transportation network.

This is typical for the Chinese. China is also building three new airports – offshore. Dalian, along the north coast opposite the Korean peninsula, Xiang’an, on the central coast facing Taiwan, and Sanya, off the coast of Hainan Island in the strategic South China Sea. All three airports are to be built to the highest international levels, with 12,000 foot runways able to accommodate the Airbus A380, the world’s largest passenger airliner. All three are built on “reclaimed land,” i.e., the Chinese intend to bulldoze a few mountains into the ocean and flatten them into runways. And all three, from start to finish, will be built in under ten years.

China’s ability to construct big infrastructure, fast, is beyond debate. The Three Gorges Project, the largest dam in the world, created a deep water reservoir an astonishing 1,400 miles long. Its hydroelectric capacity of 22.5 gigawatts is the largest in the world. This massive construction project was done, from start to finish, in 12 years.

While China Builds, America Litigates

To argue that Americans don’t need high speed rail, or massive new airports on ocean landfill, or yet another massive hydroelectric dam, is beside the point. Americans can’t do any big projects. A perfect example is the Keystone Pipeline, which if it’s ever completed, will be capable of transporting 830,000 barrels of oil per day south from the tar sands of Alberta to existing pipelines in Nebraska. This pipeline has been tied up in permitting delays and litigation since 2008. Eleven years later, not one mile of pipeline has been built.

Even with aggressive support from the Trump administration, will Keystone ever get built? Not if an army of environmentalist plaintiff attorneys have their way. According to a recent report by PBS, as soon as a judge dismissed the most recent lawsuit against Keystone, another lawsuit was filed. Another construction season has been lost, another year of delay. Quoting from the article: “Representatives of a half-dozen other environmental groups vowed to keep fighting in court and predicted the pipeline will never be built.”

While Americans are divided over whether they support construction of the Keystone Pipeline, everyone supported quickly constructing towers to replace the World Trade Center towers lost in the attacks of 9/11/2001. One may assume that in the aftermath of the 9/11 attacks, designs, bids and permitting were fast-tracked, yet it took over five years before construction began. Freedom Tower, the dazzling replacement to the twin towers, didn’t open until 2014, over 13 years after the 9/11 tragedy.

By contrast, the Empire State Building was built in 14 months. And while Freedom Tower is undoubtedly constructed to higher modern standards, that should be offset by equally more advanced construction practices. A more current example would be the tallest building in the world, the Burj Khalifa in Dubai. This mega-structure, more than twice the height of Freedom Tower, was built in just under six years.

America’s inability to build anything big has almost nothing to do with the quality of American engineering, or capabilities of America’s construction industry. Blame lies exclusively with American politicians, judges, government bureaucrats, and plaintiff attorneys. Nobody wants to throw away all environmental protections, but the process now in place of permit delays and litigation has paralyzed the nation. It has become extreme. Americans are wearing out infrastructure that was built decades ago. Thanks to permit delays and litigation, the costs of replacements and upgrades are prohibitive.

President Trump, who made his billions in the construction business, has done as much as he possibly can to cut regulations on builders, but without support from Congress or the courts, change is incremental. In late 2017, when announcing regulations he was eliminating, Trump stood in front of two piles of paper. One set of stacks, barely reaching his knees, represented the federal regulations in place in 1960. The other set of stacks, over seven feet in height, represented the totality of federal regulations in effect today. These regulations, upheld and expanded by courts and bureaucrats, serving as fodder for their delays and extortionate demands, are the reason America can no longer build anything big.

Unaffordable Homes? Thank Permitting Delays and Endless Litigation

Even housing starts are tied up in knots thanks to federal regulations, although differing regulatory environments in various states make a big difference. In California – which will be America if Democrats regain the White House in 2020 – it is nearly impossible to build homes.

A particularly egregious example of what California has in store for the rest of America is the proposed Tejon Ranch housing project that has been embroiled in permitting delays and lawsuits for over 25 years. This massive project, a planned community of over 19,000 badly needed new homes, would straddle Interstate 5 in the northwest corner of Los Angeles County. The developers have committed to set aside ninety percent of the land as a nature preserve, after which the NRDC, the Sierra Club, and the Nature Conservancy all withdrew their objections. But it only takes one: The “Center for Biological Diversity” has filed yet another lawsuit, and another year is lost.

Americans could build so much more, for less money, and in far less time, if balance were restored to the process of approving construction projects. The cost of permitting delays and litigation can literally double or triple the costs of construction, or worse. California’s Carlsbad desalination plant was constructed at a capital cost of $17,000 per acre foot of annual capacity; modern desalination plants in Israel (that require less electricity) are being constructed at a capital cost of just over $4,000 per acre foot of annual capacity, less than one fourth as much.

Everywhere on earth, nations are building big infrastructure and providing affordable housing for a fraction of what it costs in America.

If these environmentalists, bureaucrats, and plaintiff attorneys actually believe in saving a planet and a people desperately threatened by “climate change,” they’re being awfully impractical. How can Americans possibly build seawalls to protect them from the storm surges of a rising sea, or desalinate seawater to take pressure off the drought stricken rivers, if projects take decades instead of years, and cost many times what they might cost in other nations?

How, for that matter, since the environmentalists and the open-borders crowd are birds of a feather, can America add hundreds of millions to its population through a massive wave of immigration that hasn’t abated in over 30 years, yet make it nearly impossible to build homes or enabling infrastructure?

Competitive Abundance vs Rationed Scarcity

The prospects for abundance instead of rationed scarcity are good, if Congress and the courts were to support the president and enact meaningful reforms to a host of environmental regulations that have gone way too far. Nuclear power, clean fossil fuel, desalination plants, upgraded roads with high-speed “smart lanes,” high-rise agriculture, flying cars and spaceports. Entire new cities with millions of beautiful homes on spacious lots – none of this is out of reach. But it requires the kind of freedom that developers enjoyed in the 1960s, tempered to modern sensibilities, but with balance.

The consequences of not reforming America’s stultifying regulatory climate go beyond denying the American people a life of affordable abundance, delivered by competitive development of land, energy, and water resources. They spell the end of American preeminence, because while Americans spend trillions to pay unionized government bureaucrats and environmentalist attorneys, the Chinese are spending equivalent trillions on cost-effective infrastructure, with plenty left over to develop hypersonic missiles, brilliant pebbles, particle beams, etc.

Joel Kotkin, editor of NewGeography.com and perhaps California’s smartest Democrat, just published a column entitled “Will the Democrats End Up Saving California’s Republican Party.” He argues that “their [the Democrats] flawed, draconian positions on what to do about climate change have made things worse for ordinary Californians by raising housing and energy prices as well as chasing employers out of the state, but with only mediocre results.” In his conclusion, he explains what’s needed – in California and in the rest of America: “You need a positive program centered on reining in pensions, reform of schools, better attention to roads, promoting new houses in redundant commercial areas as well as the periphery and cuts in the cost of energy. Focus on these issues would expose Democrats as creatures of special interest — teachers unions, public employee groups, the renewable energy lobbies — whose power hurts middle-class homeowners, a group which has been drifting away from them for a generation.”

Kotkin’s analysis is accurate. “Public employee groups” and “the renewable energy lobbies” are special interests. If not one and the same, they are allied with the government bureaucrats and environmentalist attorneys who amass power and money every time they stop or delay another infrastructure project or housing development. They are sapping American wealth, oppressing the American people, and empowering hostile regimes around the world.

This article originally appeared on the website American Greatness.

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Inflation vs Deflation – Only One Choice

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Critics of government deficit spending correctly point out that perpetual debt accumulation is not sustainable. They’re right. But before they criticize an economic policy that aims to use inflation to whittle away the real value – and hence the actual burden – of accumulated debt, they’d be wise to consider the alternatives. Because there aren’t any.

Deficit spending has been touted as a potential driver of inflation, because only with devalued (inflated) currency can Americans hope to erode the real value of mounting levels of government debt. Continuing to print U.S. dollars, it is claimed, can only lead to too many dollars in the system, and hence a devalued dollar. We should be so lucky.

When American households join the Federal Government in spending more than they make, the only way to keep this up is to lower interest rates and increase the value of the underlying collateral. This second factor, the value of collateral, is particularly important for the American consumer, who has relied on home equity appreciation to enable ongoing borrowing which in-turn enabled ongoing spending beyond their means. The so-called financialization of the American economy over the past few decades has been specifically aimed at increasing the value of assets in order to stimulate more borrowing and spending.

The deflationary risk caused by debt accumulation becomes most acute if and when this asset-price bubble bursts. When the market value of the collateral suddenly becomes worth less than the amount of the loans outstanding, banks cannot extend new credit to the private sector, even at very low rates of interest.

Another way to put this is as follows: Liquidity is a function of two factors, money supply and collateral. But the impact of available collateral is far more critical to maintaining liquidity than the money supply. According to the most recent data from the U.S. Federal Reserve, in the first quarter of 2019 the total U.S. wealth, all sectors, totaled $98.3 trillion. What happens to the value of that collateral if banks cannot extend new credit? How is a deflationary spiral avoided when no new borrowing is possible, causing a collapse of demand to purchase assets, causing a compounding drop in the market value of those assets?

This is the cascading collapse of liquidity that was narrowly avoided in 2009. But with total market debt in the U.S. still hovering at approximately 343 percent of GDP, or not quite $80 trillion, it remains a threat to the American economy. Raising interest rates at this time risks the catastrophic possibility of a deflationary collapse, because if interest rates rise, borrowing and spending slow down, asset values drop because of reduced demand, and one after another, bank balance sheets show loan balances that exceed collateral value. Yet this is the alternative that deficit hawks apparently prefer to managed inflation. It is neither a more virtuous solution, nor is it necessary, nor would it work.

Even if raising interest rates does not trigger an economic calamity, it would merely continue the relentless transfer of wealth in America from the middle class to the investor class – Americans would not have borrowed so much if the economy had not become financialized, making everything cost far more. Inflation transfers wealth back from the investor class to the middle class, by eroding the value of their debt. Those responsible Americans who didn’t succumb to the debt temptation should think twice before rejecting the inflation choice. It won’t matter if your bank savings are intact when the banks fail.

How Can Inflation Be Managed to Benefit Ordinary Americans?

If one is willing to assume that inflation is a better pathway out of excessive debt than deflation, the prevailing challenge becomes how to ensure this inflation will benefit ordinary Americans. Since the 1970s, wage inflation has not kept pace with asset inflation. The challenge is to flip that ratio, so that asset inflation (and debt devaluation) does not keep pace with wage inflation.

If this can be accomplished, the cost of living for ordinary Americans will actually go down, even in an inflationary environment. Their wages will be increasing faster than the consumer price index, and the real value of their debt and interest payments will be declining. How can this be done?

As noted in a previous article, two key policy shifts are necessary to ensure wage inflation outpaces asset inflation and the CPI. First, get immigration under control so there is a sellers market for labor instead of a buyers market for labor. Second, relax the extreme environmental laws that prevent Americans from developing their own natural resources and upgrading their infrastructure. Relaxing these ridiculously excessive, punitive, misanthropic, misused and extreme environmental regulations will also dramatically lower the price of new homes.

Not only does increasing mining and drilling operations within the United States create more jobs, but it is a necessary step to take as domestic inflation equates to currency devaluation. By devaluing the dollar through inflation fueled by deficit spending and low interest rates, in-country development of natural resources becomes cheaper than importing them.

Managed Inflation is the Only Alternative

Critics of deficit spending act as if there is a choice to be made, that somehow the circumstances and givens that confront America’s policymakers are not unyielding, that somehow by harping on the virtue of living within our means, they can bend reality. But they can’t. The harsh reality is this: America’s federal government is locked into a pattern of deficit spending that cannot be stopped in the near future. America’s accumulated debt will either be smoothly resolved via managed inflation, or resolved catastrophically via unmanageable deflation that will cause an economic meltdown.

Moreover, federal deficit spending needs to increase. Now. Because putting aside the fantasies of all who would wish this weren’t so (libertarians, socialists, and nationalists all have such wishful thinkers well represented within their ranks), America is in a battle for global supremacy with the Chinese, who must be contained by the United States waging an expensive cold war that will last for decades. One does not have to be a “neocon shill” to recognize this sad fact. One only has to study history, and then observe the actions of the Chinese regime.

None of this macroeconomic reality is meant to absolve the American consumers who decided to sink into debt up to their eyeballs. It doesn’t excuse the students who chose to pay obscene amounts for college tuition, using borrowed money, nor does it excuse the loan sharks who extended them that credit, or the criminals who turned higher education into a money making scam. It is not meant to ignore the costly, useless “solutions” demanded and received by poverty pimps and identity fascists. It doesn’t let off the hook all those environmentalist fanatics and their opportunistic “green” crony capitalist puppeteers who tied our economy up in knots, nor does it forgive the public sector unions who made government services unaffordable and inefficient.

It just is what it is. Where do we go from here?

There is no palatable alternative. If America’s policymakers return to the feckless cowardice of the Obama years, appeasement will again define federal policy. Appeasement of the Chinese by neglecting our military readiness and a firm commitment to containment. Appeasement of the deficit hawks by raising interest rates, as if somehow without inflation we’re still going to whittle away $80 trillion in government and household debt. Appeasement that will turn the fate of the world over President Xi, and turn America into a debtors prison.

The United States needs to spend more on its military, it needs to spend more on its infrastructure, even if that means increasing the federal deficit. The United States then needs to restrict immigration and roll back extreme environmental regulations in order to ensure that wages inflate faster than the consumer price index. This managed inflation will not only whittle away the real value of American debt, but it will serve as a tool to reduce the real value of non-military, non-infrastructure related entitlement spending.

This article originally appeared on the website American Greatness.

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Deficits Are Secondary to WHAT You’re Paying For

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“I am not worried about the deficit. It is big enough to take care of itself.”
– Ronald Reagan

If you pay attention to the libertarian purists, President Reagan earns mixed reviews on his economic policies. After all, in 1983, the federal budget deficit exceeded 6 percent of GDP. But Reagan was untroubled by federal budget deficits for at least two reasons, and in both cases he has been vindicated by history.

Reagan’s priorities were to unleash the American economy, which he accomplished through deregulation, and to invest in American military supremacy. As the federal budget surpluses of the 1990s and the collapse of the Soviet Union can attest, Reagan had his priorities straight, and got the results he sought.

When it comes to deficit spending and the military challenges facing an American president, Reagan and Trump have a lot in common. Mostly through executive orders, and to some extent through legislation, Trump has deregulated the American economy. He has also successfully reinvested in America’s military.

To put this in perspective, Trump’s projected 2019 federal budget deficit of $960 billion is 4.5 percent the 2019 GDP projection of $21.2 trillion. And Trump’s projected 2019 defense budget of $716 billion is 3.3 percent of GDP. Military spending during most of the Reagan years was around 6 percent of GDP, and during his presidency the federal budget deficits averaged 4.3 percent.

Like Reagan, Trump took office having to clean up after a predecessor whose foreign policy amounted to feckless weakness and futile moralizing. Jimmy Carter faced Soviet aggression, Barrack Obama faced Communist China. Neither of them were taken seriously by these adversaries. Both of them neglected America’s military. But Trump’s mess is bigger than Reagan’s ever was.

To properly deter China, an expansionist, racist, fascist kleptocracy bent on world domination, a high-tech prison camp with 1.3 billion inmates, America’s defense budget should rise to the percentage of GDP that it was during the Reagan years. This would suggest that America’s defense budget for 2019 should rise to 6 percent of projected GDP, or increase by over a half-trillion dollars from $716 billion to $1.3 trillion. Although this increased spending would generate some offsetting new tax receipts, in 2019 it could hypothetically increase the federal budget deficit from the currently projected 4.5 percent of GDP to as much as 7.1 percent of GDP.

Without something approaching that level of new investment, the United States will struggle to maintain and upgrade its existing military assets and, at the same time, conduct fast-tracked investment in next generation strategic weapons.

Deficits Are Secondary to WHAT You’re Paying For

In an era where irony abounds, it’s particularly ironic that among Trump’s greatest critics are also those who are seizing upon the trendy new “modern monetary theory” (MMT) to claim that deficits don’t matter. An only slightly oversimplified summary of MMT would be the following: as long as the government has a monopoly on the issuance of currency, than the government can print as much money as it needs, and therefore deficits don’t matter. Just print more money.

There are plenty of lucid criticisms of MMT, but in one vitally important context, some critics miss the point. If resorting to MMT truly is unsustainable in the long-run, than what all that money is used for in the short run matters a great deal. According to economic sages on the left, such as Alexandra Ocasio-Cortez, the federal government needs to print money – heedless of deficits – in order to pay free college tuition, free healthcare, and a host of other wonderful benefits. But while the American Left wins elections by promising more benefits, this is not the best use of funds.

To the extent military spending goes into the pockets of soldiers who spend the money in America, or send it home to be spent by their families in America, it has the same Keynesian benefit as more broadly distributed benefits such as free tuition or free healthcare for everyone. But reforming healthcare policy and dismantling most of the education bureaucracy are necessary prerequisites that might actually make increased government spending unnecessary in those areas. Military spending, on the other hand, has the salutary benefit of making America able to deter China. Spending on research and development for new strategic weaponry also delivers the Keynesian boost, while guaranteeing America’s military remains the most fearsome on earth, and yielding technological spinoffs that benefit America’s private technology sector.

The other place where deficit spending would yield strategic economic benefits is in infrastructure. Back in the 1930’s, after the last debt bubble collapsed, and America encountered a liquidity crisis, deficit spending put millions of Americans to work. Unlike the fraudulent “shovel ready” infrastructure scam perpetrated a few years ago by President Obama and his banker cronies, during the 1930’s the Americans built hydroelectric dams across the United States. They rolled out rural electrification projects. They upgraded America’s infrastructure to make the nation competitive in the 20th century. The infrastructure investments made in the 1930s are still paying dividends to the American people.

To be fair to President Obama, he did not create the paralyzing, extortionate shakedown that constitutes infrastructure approvals in 21st century America. These days, funding an infrastructure project feeds most of the money into the pockets of attorneys, environmental consultants, and government bureaucrats. Applications take years, and almost nothing ever gets built. For several decades, Americans have been living off of an aging infrastructure that was actually built 50-100 years ago.

Where the Economy is Headed is Bigger Than Any President

To be fair to President Trump, if the economy falls off a cliff, it will be the result of a debt binge joy ride that began in the 1980s. Unlike Reagan, who started his presidency confronting negligible national debt, Trump faces an accumulated federal debt burden nearly equal to GDP. But in a nod to the MMT gang, it is unlikely that more deficit spending will push the U.S. economy off a cliff, because for that to occur, international confidence in the U.S. Dollar would have to falter. And how could that possibly occur?

America is the only major economy on earth that has it all – a preeminent military, preeminent technology, the best universities, political stability, human rights, demographic health, abundant natural resources, and diverse industries. As for America’s debt burden, it is less problematic than the many financial challenges facing the European Union and the Chinese, which are the only other economies big enough for their currencies to challenge the U.S.

This is why President Trump is right to urge the Federal Reserve to cut interest rates. It helps people living in the United States to devalue the U.S. currency, and it is in the interests of the United States to experience high single digit inflation across all industries for many years. Devaluing the U.S. currency will force manufacturers to source raw materials and skilled labor domestically, creating more jobs and wealth. Moderate inflation will whittle away the real value of American consumer debt, as well as the real value of the debt burden that confronts American government agencies at all levels.

For all of this to work, however, fundamental changes are necessary in two areas of national policy. First, immigration will have to be further controlled, in order to turn the job market into a sellers market, bidding up wages at a faster rate than inflation. Second, extreme environmental laws and regulations will have to be repealed, in order to allow U.S. companies to tap America’s rich store of natural resources to replace foreign sources. Without these changes, currency devaluation could be a perilous gamble.

Economists who object to lowering interest rates fear that in an economic downturn, if interest rates are already too low, it will be impossible to rely on lowering them further in order to stimulate the economy. They’re right, but America’s economic prospects vs the rest of the world evoke the parable of the two men fleeing an aggressive bear in the woods. The survivor does not have to run faster than the bear, they only have to run faster than the other human. There is no nation on earth that is positioned even slightly as well as the U.S. to survive a global downturn.

There are contingency plans to inject liquidity in the markets in the event of a severe downturn. To ensure it is not a fool’s errand, however, a temporary fix, the United States has to use deficit spending to make investments that bring it into the 21st century – resilient new infrastructure, and military technology that leapfrogs that of our adversaries.

This article originally appeared on the website American Greatness.

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The Real Reason Behind the Drive to Unionize Charter Schools

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Want to know another reason California’s teachers unions are desperate to unionize charter schools? They want the leverage to force these schools to participate in CalSTRS, because CalSTRS charges all its participants the same pension contribution rates.

This is a truly amazing, grotesquely unfair, astonishing scam. It means that new schools have to pay for the every financial mistake that CalSTRS ever made, and they’ve made plenty. CalSTRS is only 64 percent funded. CalSTRS is $107 billion in debt – that’s $238,000 per active member. Better get more active members!

Even CalPERS, the largest public employee pension system in the U.S., and one that has engaged in its own share of accounting gimmicks, doesn’t make its financially responsible participants pay for the negligence of its financially irresponsible participants. Every agency that relies on CalPERS has its funded ratio individually calculated. If a local governing board managed to negotiate financially sustainable benefits, or increased their contributions, or otherwise managed to do something right, they have a higher funded ratio, a lower liability, and make lower payments.

Not so with CalSTRS.

A grim gallop through the latest financial reports for CalSTRS will vividly illustrate just how royally CalSTRS will abuse any newcomer to their system, and you don’t have to look very far. Page two of the report for 6/30/2018 has a table displaying the 38.7 percent contribution rate – expressed as a percentage of pension eligible payroll – that participants pay. Employers pay 18.13 percent, the state kicks in another 10.33 percent, and the members – through payroll withholding – pay 10.25 percent.

Altogether, taxpayers – that is, the local employer plus the state – pay 28.5 percent of payroll to fund CalSTRS. That’s a lot, and the reason it’s so much is because CalSTRS has to collect extra to pay down that $107 billion unfunded liability. How much of the contribution is for that?

Good question. On page 4 that question is answered in the section entitled “Normal Cost Rate for CalSTRS 2% at 62 Members.” The relevant passage reads: “As of June 30, 2018, the Normal Cost Rate for the CalSTRS 2% at 62 members is 17.863%. We recommend the board adopt this rate.”

Got that? If you are entering the CalSTRS system with a fresh set of employees, without the baggage of missed earnings forecasts, or the history of scandalously undercharged contributions, you should be paying 17.9 percent of pension eligible payroll into the pension system in order to deliver a “2% at 62” pension to your employees. If the employee pays half of that via payroll withholding (they’re paying 10.25 percent currently, which is more than half), then the employer only has to come up with 9 percent.

Instead, if you join CalSTRS as a new agency participant, the required contribution is 38.7 percent of payroll, or 28.5 percent for the employer after taking into account the 10.25 percent contributed by employees via payroll withholding. That’s a pile of money. It more than triples the employer’s pension contribution, from 9 percent to over 28 percent. For nothing.

The astute reader will note that a new local “agency” would not actually pay 28.5 percent, since the state government pays 10.33 percent of that. This is true, which means actually the local employer’s pension contribution only increases from 9 percent to 18 percent in order to pay for the past mistakes of CalSTRS. It only doubles. For nothing. But the employer contribution is paid for by taxpayers, whether those funds are sourced locally or from Sacramento. To fund teacher pensions, taxpayers are paying triple what they would be paying if CalSTRS had been managed responsibly. And, for that matter, why should an employer’s “normal” contribution be 17 percent? Why not 9.2 percent, which would constitute an excellent private sector retirement benefit – 6.2 percent for Social Security and a 3 percent matching contribution into a 401K?

It isn’t as if CalSTRS didn’t know what they were facing. Scroll down to page 47 of the 6/30/2018 financials for CalSTRS and have a look at the table entitled “Historical Aggregate DB [Defined Benefit] Program Contribution Rate.” This is damning evidence. In 2009 CalSTRS knew they needed to raise their contribution rate to 32 percent (the green line), but they kept their actual collected contributions barely over 15 percent, less than half what was needed. Over the next few years they raised their required contributions marginally, not breaking 20 percent until 2014, then suddenly ramping them up to 25 percent in 2015, and then finally they began to charge over 30 percent of payroll, but not until 2017, eight years after they knew they had a huge problem.

This dismal failure to face financial reality is reflected in the growth of the unfunded liability for CalSTRS, as disclosed on page 24 of their financials. Back in 2008, CalSTRS was 87 percent funded, but one year later, in 2009, it was only 78 percent funded. By 2010 that had dropped to 71 percent, and the fall continued all the way through 2017, when they bottomed out (hopefully) at 63 percent funded.

Why did CalSTRS wait so long? And why, when participating in CalSTRS is a choice that new charter schools still have, would any of them, anywhere, ever want to make that choice?

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

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