Will California’s Voters Reject their Global Warming Act?

/by

A citizen’s initiative that looks likely to make it onto the November ballot this year is the aptly named “California Jobs Act,” which would suspend implementation of AB32, California’s Global Warming Act, until unemployment in the Golden State drops down to 4.8%. Passed in 2006, AB32 calls for California’s Air Resources Board (CARB) to write new regulations designed to lower, by 2020, California’s greenhouse gas emissions to 1990 levels. According to CARB’s report “California 1990 Greenhouse Gas Emissions Level and 2020 Emissions Limit,” in 1990, Californian’s emitted 433 million metric tons of “CO2 equivalents” in 1990, and by 2004 these greenhouse gasses had increased to an estimated 484 million metric tons.

Back in 2006, when AB32 was passed by California’s State legislature, and signed by Governor Schwarzenegger, California’s economy was at the crest of the debt-fueled housing-bubble boom. Now that California’s unemployment rate is nearly 13%, the highest in the nation, it is dawning on California’s voters that schemes to go it alone and adopt the bleeding edge of climate mitigation policies may not be the best prescription for economic recovery. Notwithstanding promises of abundant “green jobs,” and visions of a prospering “green economy,” what is most likely to be the economic outcome if California fully implements AB32 by 2012 as planned?

There are several examples surfacing that suggest CARB’s original economic assessment was overly optimistic. An analysis on the net impact of AB32 on jobs in California prepared in March 2010 by California’s non-partisan Legislative Analyst’s Office refuted CARB’s conclusions, and claimed implementation of AB32 would cause net job losses, not net gains. One of the first of studies of the actual economic impact of publicly subsidized renewables, entitled “Study of the effects on employment of public aid to renewable energy sources” was released by economists at the University of Rey Juan Carlos in March 2009.  It documented how the Spanish “green jobs” policies in fact destroyed jobs, detailing this in terms of jobs destroyed per job created and the net destruction per installed mega-watt.

Proponents of AB32 will continue to argue that implementing AB32 will accelerate transition to a prosperous “green” economy, but ultimately their economic argument has to rest on the premise that green policies and green products are cost-competitive with conventional technologies and existing policies. And in most cases, this position is dramatically false. It is one thing to subsidize strategic research into energy technologies that will eventually yield breakthroughs in price and performance, but quite another to require substantially more expensive current renewable energy technology to be deployed at scale today. Solar energy and wind energy are still 2-3x more expensive than conventional energy solutions, and with recent developments in shale gas extraction as well as ongoing progress in safe nuclear technologies, that cost gap is not shrinking. Proponents of solar and wind energy also frequently fail to account not only for the installation cost of these intermittent energy generators, but also the cost of maintaining back-up conventional generators that have to be activated when the sun sets or the wind dies down. They also often fail to assess the costs of constructing additional high-voltage transmission lines to transport electricity from decentralized wind and solar farms to urban areas, as well as the costs to buffer the power grid to accommodate massive fluctuations in generating output from these intermittent sources of energy. Ironically, proponents also fail to assess the costs of lawsuits and permit processes which add, especially in California, massive additional cost to any new energy project, conventional or alternative.

Evidence that renewable energy costs significantly more than conventional energy is not hard to find. An article in the Los Angeles Times, dated March 15th, 2010, entitled “DWP plans 37% rate hike over four years to cover cost increases,” states the primary reason for this is to pay for renewable energy. Other utilities across the state are planning similar increases – not just power utilities, but all utilities who consume power, such as the water, sewage and sanitation districts. All of these utility rate increases cascade into the cost of doing business as a private sector company. And it doesn’t end there – to implement AB32 and realize the ambitious goals for greenhouse gas reduction, CARB intends to rewrite regulations on land-use and land management, vehicle efficiency, building energy efficiency, transportation policies – in general, they intend to regulate virtually every industrial process that results in greenhouse gas emissions. There is a cost for all of this.

California may have a liberal electorate, but Californian’s also have a very well documented aversion to higher taxes. And “mitigation” in the name of global warming is an indirect tax. By raising prices for energy and other resources required by California’s industries, many will leave California. Those who remain will have to defer investment in job creating activity, such as plant expansion or research and development, in order to absorb higher utility expenses and invest in new equipment for mitigation. The “green” jobs created by construction of subsidized, non-competitive energy and utility infrastructure are vastly outnumbered by the jobs lost because the business community has to allocate more of their financial resources to paying energy and utility bills, and consequently have less financial resources to create new products and new jobs.

On the demand side of the economy the same consequences apply. Consumers will have to pay more for energy and other utilities, as well as for products produced in California – including transportation and housing. This will reduce their discretionary consumption, further shrinking the economy. These mandated increases to the cost of doing business and the cost of living in California thanks to AB32 are not explicitly called taxes, but that is what they are.

California has a well-earned reputation as a political trend-setter. Californians were the first electorate to enact term limits. Their property tax revolt in 1978 stunned the nation. California’s voters have the potential – if they vote to suspend AB32 this November – to begin to reestablish their State as a leader of responsible political action. The impact of Californians suspending AB32 will not only be to save themselves from punitive new hidden taxes, but to reignite a constructive discussion regarding what green technologies are really ready for prime-time, and what a realistic balance should be between environmental stewardship and economic growth.

The Climate Money Trail

/by

One of the most lucid recent commentaries that addresses the question of climate politics and money is by Australia’s Joanne Nova, who posted “The Money Trail” on March 4th. As we wonder again whether the consensus of scientists regarding climate change – if there ever was such a thing – is now unraveling in the wake of climategate, glaciergate, amazongate, methanegate, etc., it is important to also take another look at the money trail.

My own position on climate change has been consistent for many years. Back in 1995, when I launched www.ecoworld.com, I was determined, among other things, to present both sides of the climate change debate. A post from 2008 entitled “Environmentalist Priorities and the Global Warming Scare” offers links to dozens of reports EcoWorld published on the issue of climate change. These reports provide ample references to primary sources of data, and document a growing conviction that anthropogenic CO2 emissions have little to do with any recent climate change, that predictions of impending catastrophic climate events are improbable, and that the cure is worse than the disease. But what about following the money?

A June 2009 CIV FI post entitled “The Climate Alarm Industry” lists several reasons why it is ludicrous to accuse climate skeptics of being motivated by financial incentives, when the financial incentives to be a climate alarmist are several orders of magnitude greater:

Financial incentives to promote anthropogenic CO2 as a dangerous pollutant:

– Insurance companies charge higher premiums
– Fossil fuel companies keep prices (and profits) high
– Politicians enact new taxes
– Public sector entities get new taxes to fund their pensions
– Environmental organizations get more funds
– Left wing activists get a new basis to attack private ownership
– More public sector funded jobs are created
– Lawyers have a new basis to file lawsuits
– CPA firms begin to audit carbon accounting
– Wall street gets to trade emissions credits
– Climate researchers get more grant requests funded
– United Nations bureaucrats get a guaranteed revenue stream

Before quoting some of Joanne Nova’s astute observations on this same topic, here are three articles by Dr. Richard Lindzen, a professor of atmospheric science at MIT who is one of the most credible climate skeptics in the world. These articles are interesting both because they summarize and debunk many of the scientific arguments in favor of climate alarm, but also because they document in great detail the politicization of the academic community in favor of alarm. Read “Is There a Basis for Global Warming Alarm,” “Climate Science – Is it Currently Designed to Answer Questions,” and “Why Global Warming is Unlikely to be a Safe Area for Investment.”

In “The Money Trail,” Nova quantifies some of the financial incentives motivating climate alarm. Consider these points:

“The US government spent $79 billion on climate research and technology since 1989 – to be sure, this funding paid for things like satellites and studies, but it’s 3,500 times as much as anything offered to sceptics. It buys a bandwagon of support, a repetitive rain of press releases, and includes PR departments of institutions like NOAA, NASA, the Climate Change Science Program and the Climate Change Technology Program. The $79 billion figure does not include money from other western governments, private industry, and is not adjusted for inflation.”

“What the US Government has paid to one side of the scientific process pales in comparison with carbon trading. According to the World Bank, turnover of carbon trading reached $126 billion in 2008. PointCarbon estimates trading in 2009 was about $130 billion. This is turnover, not specifically profits, but each year the money market turnover eclipses the science funding over 20 years.”

“Commissioner Bart Chilton, head of the energy and environmental markets advisory committee of the Commodity Futures Trading Commission (CFTC), has predicted that within five years a carbon market would dwarf any of the markets his agency currently regulates: “I can see carbon trading being a $2 trillion market.” “The largest commodity market in the world.” He ought to know.”

“Unpaid skeptics are not just taking on scientists who conveniently secure grants and junkets for pursuing one theory, they also conflict with potential profits of Goldman Sachs, JP Morgan, BNP Paribas, Deutsche Bank, HSBC, Barclays, Morgan Stanley, and every other financial institution or corporation that stands to profit like the Chicago Climate Exchange, European Climate Exchange, PointCarbon, IdeaCarbon (and the list goes on… ) as well as against government bureaucracies like the IPCC and multiple departments of Climate Change.”

Joanne Nova, like any responsible skeptic, has done her homework. Here is her take on the actual science of climate change:

“And as far as evidence goes, surprisingly, I agree with the IPCC that carbon dioxide warms the planet. But few realize that the IPCC relies on feedback factors like humidity and clouds causing a major amplification of the minor CO2 effect and that this amplification simply isn’t there. Hundreds of thousands of radiosonde measurements failed to find the pattern of upper trophospheric heating the models predicted, (and neither Santer 2008 with his expanding “uncertainties” nor Sherwood 2008 with his wind gauges change that). Two other independent empirical observations indicate that the warming due to CO2 is halved by changes in the atmosphere, not amplified. [Spencer 2007, Lindzen 2009, see also Spencer 2008]. Without this amplification from water vapor or clouds the infamous “3.5 degrees of warming” collapses to just a half a degree — most of which has happened.”

With a citizen’s initiative entitled the “California Jobs Act” currently working its way onto the November 2010 ballot that will suspend implementation of California’s “Global Warming Act,” it will be interesting to see what arguments the opponents of suspension will muster. Will they accuse skeptics of being “flat-earthers,” or call them even worse names? They would be better advised to rejoin the scientific debate, if they value their credibility. Will they accuse the skeptics of “following the money?” Because in that regard they will be making a terrible mistake. The bigger money trail is not hard to see – and is yet another example of Wall Street collusion with big government. To wrap up, here is Joanne Nova’s take on the attacks made on climate skeptics:

“The starkly lop-sided nature of the funding means we’d be fools not to pay very close attention to the evidence. It also shows how vapid the claims are from those who try to smear skeptics and who mistakenly think ad hominem arguments are worth making.”

No Profits, No Pensions

/by

California Gubernatorial candidate Jerry Brown knows he’s in a fight. His presumptive Republican opponent, Meg Whitman, not only is doing a good job presenting herself as a socially moderate, fiscally conservative candidate, but she has abundant personal wealth she can tap in order to finance her campaign. So Jerry Brown has to turn to the only reliable source of campaign cash out there, the public employee unions.

In Joel Fox’s report of March 22nd entitled “Brown Embraces the Public Unions,” Fox quotes Brown as saying “California’s fiscal problems are not the unions’ fault but that of Wall Street and corporations.” Get ready for a campaign season filled with more bashing of corporations. And here are some reasons why this rhetoric is absurd, nihilistic, corrosive, deceptive, utterly bankrupt, and at least to-date, tragically effective:

Public sector unions are by far the most powerful source of campaign cash in California. They can pretty much spend as much as they want to make sure their candidates get elected, and their opponents are defeated. Without these unions, Jerry Brown wouldn’t have a chance against Meg Whitman. But is Brown only singing the union song in order to get their financial support? After all, in late February 2010, in a closed meeting with a group of California business leaders, Brown admitted the single greatest mistake he made as Governor back in the 1970’s was his decision to sign legislation allowing public sector workers to unionize.

Public sector unions have successfully convinced Californians that Wall Street and corporations are basically to blame for all the problems in our society – from deficits to poverty, from bad public policies to social injustice. But public sector unions are in bed with Wall Street. In the United States, there is no source of new investment capital bigger than public employee pension funds – most of it flowing through Wall Street brokerages. The public sector unions, through their pension funds and through the state and municipal governments – which they control – worked with Wall Street and enabled Wall Street. It was Wall Street who packaged the investments that public pension funds purchased – and it was Wall Street and the public sector unions who, more than anyone, wanted to believe they could earn 8.0% annual returns forever.

That’s not all. In 2006, California’s legislature, controlled by public employees, enacted AB32, California’s “Global Warming Act.” Already, agencies and utilities throughout California are tacking “global warming mitigation” fees into their billings. And in less than two years, when AB32 takes full effect and California starts auctioning tradeable CO2 emission allowances, it is Wall Street firms who will broker these CO2 allowances, and it is Wall Street who will package all the CO2 “offset” prospectuses. Read the “scoping plan” from CARB, which lays out how AB32 will be implemented. You will learn how CO2 “offset projects” – which will receive the proceeds of the CO2 emission allowance auctions – will earn reimbursements by how much they reduce CO2 emissions. For example, by mandating even more draconian high-density than we already endure here in California, municipalities will be able to calculate the emissions they have saved relative to “sprawl,” and collect annual reimbursements. Pet projects that create jobs at taxpayers expense for union workers, such as light rail, will go in regardless of practicality, and also receive carbon offset funds calculated on the basis of their potential to reduce CO2 emissions. California’s global warming act, which will do nothing to address alleged global warming, is a scheme, hatched by public sector bureaucrats to transfer more money from taxpayers into the government. And Wall Street will stage-manage the entire process – making billions in fees.

When Jerry Brown, on behalf of public sector unions, demonizes Wall Street, he’s being a blatant hypocrite, but at least he has a point. In the case of industrial corporations who want to employ people and build actual products, however, Brown and the public sector unions have no point. According to Brown and the unions, if only corporations would behave themselves and pay their “fair share,” all of our problems would disappear. Where is the logical end-point of this nonsense? The last politician to tell the truth about taxes and corporations probably was Ronald Reagan, who correctly pointed out “corporations don’t pay taxes, because they pass the taxes through to the consumer as a cost – ultimately it is individuals who pay taxes.” The public sector union’s answer to this truth, observed by Reagan and confirmed by history, is for government to simply reduce corporate “profits.” If the corporations were forced to make less in profit, supposedly they could afford to pay higher taxes AND charge a fair price to consumers for their products. But profits are the life-blood of economic growth and wealth creation. Without profits, there is no reinvestment in equipment and upgrades, no research and new product development, no new job creation, no dividends to shareholders, and no stock appreciation which provides the return to public employee pension funds. No profits, no pensions. And in any event, corporations in California are beat down, intimidated by public sector unions and environmentalist attorneys, reeling from the effects of recession and the impact of excessive, punitive regulations. California’s business community has been practicing appeasement with the public sector unions and environmentalist attorneys for years – they cower like Théoden, King of Rohan, wasting away, corrupted by fear, waiting for Gandalf and Aragorn to awaken him before all is lost. But we live in California, not Middle Earth.

What public sector unions ought to know, and cannot admit, is that tax revenues they collect and allocate, especially through public pension fund investments, are the engine that fuels Wall Street, and they are as responsible as anyone else in this economy for the excesses and abuse of the financial sector in America. What they also should know, as they watch their pension funds crumble, is the fiscal policies they have forced onto compliant politicians are unsustainable and are cannibalizing the wealth of the country. To distract voters from this financial fact: that California’s public sector bureaucrats, on average, now make 50% more in base pay, 100% more in current benefits, and 200% more in retirement security – compared to the taxpayers who now serve them and pay for this hideous inequity – public sector unions and the candidates they control must preach the politics of resentment and envy, hatred of wealth and environmental panic, corporate demonizing and phony Wall Street bashing. They must brainwash our children in their union-dominated public schools, and bamboozle our electorate through their massive campaign advertising, so they can continue to feed for a few more years on the ailing carcass of what was once the greatest free-market economy in the history of the world.

For more on public sector unions and government solvency in California, read:

The Razor’s Edge – Inflation vs. Deflation, March 15th , 2010

Pension Rhetoric vs. Pension Reality, February 24th, 2010

California’s Union Ballot Initiatives, February 18th, 2010

Sustainable Pension Fund Returns, February 2nd, 2010

California’s Personnel Costs, January 24th, 2010

Maintaining Pensions Solvency, January 9th, 2010

Real Rates of Return, June 26th, 2009

Nonpartisan Healthcare Legislation

/by

This phrase, “nonpartisan healthcare legislation,” is an oxymoron, unfortunately, but let’s try. And in the interests of full disclosure, my preference is to see private institutions continue to bear the primary responsibility for providing healthcare in America. So rather than moving healthcare into government-run programs, the primary goal of healthcare legislation should be to rewrite the regulations that govern healthcare. The marketplace can deliver healthcare more efficiently than the government, providing more quality healthcare to more people for less money – but to do this in an equitable manner, good regulations are essential. An earlier post, “Healthcare in America” listed some of these ideas – this post is to elaborate on those and add a few ideas that aren’t getting the discussion they deserve:

(1)  Allow individuals the same tax deductions for their health insurance premium payments as businesses receive. No special breaks or special fees, no ceilings or floors on eligibility for the deduction, nothing. Whatever an individual or an employer spends for healthcare is deductible, and whatever healthcare benefits an individual receives are not taxable.

(2)  Make it easier for associations and organizations to offer group health insurance plans, instead of only favoring companies who may or may not provide an individual a job for life. This is the only realistic way individuals who have the financial means to purchase quality healthcare, but don’t work for a company that has a group plan, to ensure their health insurance won’t be canceled if they get sick.

(3)  Eliminate interstate barriers to health insurance companies so they can operate and compete in every state. This is certain to lower costs – it will increase competition and favor companies who have lower overhead. At the same time, abolish the exemption health insurance companies currently have from anti-trust laws.

(4)  Enact tort reform so malpractice lawsuits are reined in. Not only do the inordinately inflated malpractice insurance premium payments charged to doctors increase overall costs, but even more significant are the costs of over-testing and over-treating as a precaution against lawsuits.

(5)  Enforce right-to-work laws in the healthcare industry nationwide. De-unionize healthcare workers. Or reinvent unions to restore the meritocracy to the workplace and allow management to manage. It isn’t the over-market wages that are the biggest problem with unions – this is something union advocates should appreciate more. Union reformers are equally concerned with the cost of benefits and the work rules. These benefits can cost, when you take into account current benefits plus future retirement benefits – literally more than the actual wages. The irony is that these benefits would cost less if healthcare regulations, and the regulatory environment for all essentials – healthcare, water, land, mineral resources, energy – were optimized to promote development and competition. And when you have a unionized health industry workforce, even more costly than the over-market wages and benefits are the work rules – resistance to more efficient procedures, resistance to reducing headcount, resistance to promotions based on merit instead of seniority, inability to fire incompetent workers, and credentialism, which requires hiring overqualified, overeducated (and hence overpaid) medical staff. These indirect costs are staggering and synergistic. Credentialism, for example, is the union’s answer to the meritocracy, by replacing job performance with credentials as criteria for advancement. Credentialism also creates artificial scarcity, since competent personnel who would respond well to on-the-job training and become exemplary medical technicians and nurse practitioners, are excluded because they lack the requisite degree. This is all a consequence of unions. Labor unions and healthcare do not mix well, if you want to provide quality heathcare to more people at a reasonable cost.

(6)  Require health insurance companies to make one simple disclosure in their pricing schedules, updated every twelve months: “During the most recent fiscal year, our company spent X percent of our total revenues paying claims directly to healthcare providers.” This simple disclosure would add a critical variable to aid in consumer evaluation of every health insurance company in America – because the higher this percentage, the more likely this company would be pricing its health insurance at competitive rates.

(7)  Create a privately administered fund that would insure the insurers to cover pre-existing conditions. Just as plans for seniors such as Medicare Advantage cover the gap between what Medicare pays and what a procedure may actually cost, this fund, which insurance companies would all pay premiums into, would cover the difference between what they would charge a healthy new entrant to their plan and what the premium would be if they were evaluated based on their preexisting condition. Depending on how the rollout of association-based health insurance companies is implemented, this fund might not even be necessary, since group plans are generally prohibited from banning coverage to new applicants with pre-existing conditions. But having a super-fund of this manner could also provide another tier of coverage beyond policy limits, enabling insurers to provide another option for consumers who wish to purchase the ultimate in health care.

(8)  Streamline the approval process for new drugs. In general, the rest of the world adopts drugs, often developed in the U.S., years before the same drugs are approved for use here.

(9)  Recognize we are going to need a multi-tiered system of healthcare in America. Rather than forcing everyone to purchase healthcare, by instead enacting tort reform, allowing interstate competition, and de-unionizing the medical profession, free clinics and quality emergency room care will again be affordable institutions that can be supported through private philanthropy and government grants. This is where people who can’t afford healthcare will get their medical treatment. People of modest means who want better healthcare than this can – either through their employer or through associations they can join – purchase existing HMO coverage, or if they consider healthcare to be a huge priority for their families, they will purchase existing PPO coverage. We don’t have to reinvent the entire industry to get decent healthcare for everyone in America, but we do have to accept that someone who is willing to pay premiums totaling $12,000 per year for their health insurance is going to get access to more medical options than someone who whose gross income is $12,000 per year.

Implementing these nine suggestions would bring down the cost of healthcare at the same time as preserving choice and quality. Something that isn’t acknowledged enough is that proponents of healthcare reform all want the same goals – they want America’s healthcare system to remain solvent and continue to offer more quality healthcare to more people. It shouldn’t surprise anyone that the costs of healthcare continue to go up – every year we can cure more ailments! There is a cost to this ongoing improvement. But by properly regulating a free marketplace, we can have the best of all possible worlds.

The most tragic consequence of all this inaction is there isn’t even incremental reform. Any one of these nine suggestions should be on the table. Some of them probably could get voted into law right now, and perhaps should, one at a time. But in the heat of partisan battle, and in the desire to do everything at once, nothing gets done.

The Once & Future Governor Jerry Brown

/by

Yesterday the 71 year old Jerry Brown made his formal entry into the California Governor’s race. In a three minute announcement posted on www.jerrybrown.org, he highlighted his experience as well as took some indirect shots at his opponents. What kind of a Governor Jerry Brown was, and what kind of a Governor he would make, are an interesting topic for discussion.

Jerry Brown first served as Governor of California in the years 1975 to 1983. Elected when he was only 36 years old, Brown inherited a State that was experiencing one of the best economies in its history. The first efflorescence of the high-tech boom happened during Brown’s years as Governor, it was also the heyday of the west-coast aerospace boom. Other sectors of the State’s economy, from housing to agriculture, and everything in between, had not yet fallen prey to the plague of over-regulation and environmentalist gridlock that has since diminished opportunities in the Golden State. Brown presided over some very good years for California.

Brown is still criticized by mainstream journalists for being Governor when Proposition 13 was passed. This is guilt by association at most, he campaigned hard against the initiative. But when Prop. 13 passed, something happened that is instructive about Jerry Brown – he implemented it with a vengeance. He respected the will of the voters. Something the critics ignore, however, is that Prop. 13 didn’t hinder California’s ability to balance its budget, it was something else Jerry Brown did that caused our current fiscal crisis – his decision in 1977 to sign legislation allowing public sector employees to unionize.

The consequences of Prop. 13, which dramatically lowered property tax rates, have not led to insufficient tax revenue to California’s state and local governments. The culprit is public sector unionization, which has created an over-sized public sector workforce where, on average, workers cost about twice what people doing similar work requiring similar skills might cost employers in the private sector (when normalizing for current benefits and the funding requirements for future health and pension benefits). While this point is open to debate, it is relevant to note that Jerry Brown himself, in a very recent private appearance before a group of California business leaders, admitted the single greatest mistake he made as Governor back in the 1970’s was his decision to sign legislation allowing public sector workers to unionize. This fact – that Jerry Brown understands how the government bureaucrats, through their unions, have themselves taken over California’s the government, buying our elections, controlling legislation, determining their own compensation – is perhaps the most encouraging thing about Jerry Brown. At age 71, Brown isn’t thinking about his next career move. He may decide to take these guys on, and fix what he helped break so many years ago – our democracy.

Brown is rightly praised for having been a tight-fisted Governor, reining in spending even before Prop. 13 was enacted. He is also proven to be tough on crime, not only as Governor but also as Mayor of Oakland. These are formidable credentials for any Democrat running for office against moderate Republicans. But it should be noted that one of the reasons Governor Jerry Brown was able to rein in spending was because he canceled many infrastructure projects that California now desperately needs. California has a system of freeways, dams, aqueducts and power plants that is designed for a state with 20 million people, as the population edges towards twice that. If you are wondering why you are stuck in traffic, enjoying gridlock five days a week, Jerry Brown is part of the reason why.

This brings us to the biggest potential problem with Jerry Brown. Like his contemporary in high California office these days, Governor Schwarzenegger, Brown has bought the entire package of environmentalist extremism. In the name of fighting global warming, along with all the assorted environmentalist imperatives, Jerry Brown is one of the architects of artificial scarcity. This, too, is an assertion that invites in-depth debate, but Jerry Brown has aggressively and consistently supported environmentalist legislation. Here’s the problem with environmentalism when it gets out of balance and goes too far, as it has: It should be the goal of regulated public utilities, and public policy in general, to make resources cheaper, not more expensive. Contrived scarcity is an invention of misguided environmentalists, and it is championed by the rest of the Democratic machine because the funds that are gathered through taxation for “mitigation,” and additionally saved through deferred investment (since every infrastructure improvement is a crime against the planet), flow instead into the pockets of overpaid unionized public sector and public utility employees, who control our government. This connectivity eludes Jerry Brown, at least for now, and for this reason, he is potentially a very dangerous man.

What makes Jerry Brown intriguing is he is a wild card. He is independent-minded, he is intelligent, he is flexible, he is courageous, and he knows the system backwards and forwards. Journalists used to make fun of Jerry Brown for once recommending California start up its own space program. What is so bad about that? It would be a spectacularly better use of funds than overpaying public sector bureaucrats, or continuing self-perpetuating, corrosive entitlement programs. And it would yield spectacular technological spin-offs. Jerry Brown’s willingness to go out on a limb like this makes him a quintessential Californian, and the kind of visionary who could bring California back from the brink.

If Jerry Brown is elected Governor, the real question is not can he do the job, but who will show up? Will Jerry Brown accede to the reality of public sector union power and quasi-fascist environmentalist extremism – the power centers who currently are breaking California to their will, bankrupting us to line their pockets and salve their ideologies, and turning us, basically, into an occupied State? Or will Jerry Brown empathize with the seismic wave of populist sentiment that knows something is wrong, but can’t find coherent expression or clear solutions? Will Jerry Brown provide these answers – by reforming public sector unions, and developing infrastructure designed to reduce the price of resources instead of raising them? Jerry Brown has the capacity to make either of these scenarios our future. How he campaigns may provide clues to how he may govern, or not.

California’s Union Ballot Initiatives

/by

It isn’t fair to criticize California’s conservatives for failing to back public sector union reform initiatives (ref. “The Conspiricy of Cowardice“) without acknowledging the power of the opposition. Earlier this year, commentator George Will called California a “unionocracy,” in an attempt to describe the power wielded by public sector unions over California’s government. Republican lawmakers in California, off the record, have stated the public sector unions exercise “absolute power” over California’s legislators. And why wouldn’t they? Every month, well over a million unionized public sector workers in California have a portion of their paycheck automatically deducted for union dues, and significant portions of these funds are used for political lobbying and independent expenditure campaigns. In aggregate, the amount of money available to these unions, who don’t have to ask anyone for a cent, overwhelms any candidate who won’t play ball.

There are far reaching consequences to politicians not standing up to California’s public sector unions because they will lose access to their campaign donations or become targeted by them. By controlling the politicians, public sector unions control legislation and they control the agencies. Businesses who do business with California’s state and local governments are understandably wary of antagonizing the public sector unions, since they make or break the politicians who supposedly oversee the agencies. Would anyone risk angering officials are all members of these powerful unions, people who can shut down their business or deny them a contract? One businessperson told me that the unions “were his clients.” When I asked him if he meant the agency, who his company had a contract with, was his client, he responded “who do you think runs the agency?”

With respect to initiatives that would begin to correct this abuse, this virtual take-over of our state and local governments by unions, there is yet another weapon the unions can wield, which is to launch initiatives of their own. Often all the public sector unions have to do is threaten to launch an initiative – imagine the chilling effect this can have on efforts to get union reform initiatives onto the ballot.

Want to support a Voluntary Political Contributions Initiative, a reform that would require public sector unions to acquire permission from each unionized public employee before confiscating a portion of their wages to use for political activity, or a Pension Reform Initiative, a reform that would scale back the totally unsustainable and unwarranted retirement benefits currently granted to public employees? Then don’t be surprised by what happens next.

It is important to note that unions do not necessarily file their own initiatives in direct retaliation to pending reform initiatives. That is merely the reason businesspeople and Republican lawmakers are afraid to back reform initiatives – because they hope these counter-initiatives won’t end up on the ballot in retaliation. The reality is worse – these union-sponsored initiatives are quite likely to be filed and qualified for the ballot no matter what the business community does. Apparently all California’s conservative leadership and business community wish to do is play defense.

Here are three proposed initiatives that have the support of one of California’s most powerful public sector unions, the California Teacher’s Association (CTA):

1438. (09-0088) –  The complete title and summary for all initiatives qualified for circulation to-date can be found on the California Secretary of State’s website on the page “ballot measures cleared for circulation.”

Imposes Political Contribution and Expenditure Restrictions on Corporations. Initiative Statute (full text):
Prohibits corporations or other business entities as defined from making contributions or expenditures related to any elective office, ballot measure, or for issue advocacy, unless approved by resolution of the shareholders. Requires that authorizing resolutions specify the recipient, amount, and purpose of the contribution or expenditure, and time period the authorization is valid. Prohibits corporate officers and directors from consenting to prohibited contributions. Prohibits candidates, political committees, and persons from knowingly receiving prohibited contributions or expenditures...

This initiative, supported by the CTA as documented in a press release of February 5th, is truly diabolical, because to the average voter, this would appear a reasonable counter to the Paycheck Protection Initiative. After all, if the unions have to ask their members for permission to donate to political activity, why shouldn’t corporations ask their shareholders for similar permission? Try to construct a soundbite that will refute that logic. Then go out and raise $20M to promote it on the airwaves – remember, you’ll have to ask for every penny.

The idea that corporations are ready and willing to make any political contributions is the first fallacy in this supposed symmetry. Many large corporations are in détente with public sector unions, working with them to secure more public (taxpayer) subsidies or drive out emerging smaller non-union competitors, and those who aren’t yet corrupted in this manner are scared witless of the unions. Convincing corporate management to donate to political causes is already difficult, let alone if they then have to go to their shareholders and ask them.

The non-symmetry goes well beyond this. The CTA’s initiative requires every single corporate political contribution to first secure a shareholder resolution – recipient, amount, purpose, and time period. Acquiring shareholder resolutions, particularly in public companies, is never a trivial task. Compare this to the mechanics of securing a consent from a public sector worker under the Paycheck Protection Initiative – they sign an annual consent, distributed efficiently in the workplace, specifying how much they are willing to pay to a union-controlled PAC, and this PAC may use the money however and whenever they please.

There’s more. Public sector workers are not being paid with money earned through profits, which are earned through selling goods to willing, voluntary consumers in the free market. Public sector workers collect wages that are confiscated from taxpayers whether they want to pay or not, under threat of imprisonment, and this money is then used to fund political campaigns to manipulate the very same voters who paid the taxes. This closed loop, where the employee unions elect the politicians who control their compensation is the primary reason California’s state and local governments are bloated and nearly bankrupt.

Here’s another gem, an initiative to “Close Corporate Loopholes,” also supported by the CTA:

1412. (09-0058, #1NS)
Repeals Recent Legislation That Would Allow Businesses to Carry Back Losses, Share Tax Credits, and Use a Sales-Based Income Calculation to Lower Taxable Income. Initiative Statute (full text):
Repeals recent legislation that would allow businesses to shift operating losses to prior tax years and that would extend the period permitted to shift operating losses to future tax years. Repeals recent legislation that would allow corporations to share tax credits with affiliated corporations. Repeals recent legislation that would allow multistate businesses to use a sales-based income calculation, rather than a combination property-, payroll- and sales-based income calculation…

This initiative, also supported by the CTA (ref. the same press release), is supposedly to ensure that “in these tough times everybody must be paying their fair share,” and because “lawmakers approved the $2.0 billion in tax cuts for large corporations and oil companies without any requirements for these companies to create new jobs.” Notwithstanding the fact that comments like this reveal a world view diametrically opposed to free-market capitalism – i.e., the government can’t “require” companies to “create jobs,” this press release ignores facts that, again, defy easy packaging into sound-bites. These “loopholes” were actually reforms, designed to stop California-based corporations who do business outside of California from enduring double-taxation, since companies selling goods in other states were already paying taxes in those states, yet had their in-state taxes calculated on factors partially unrelated to in-state sales. Other reforms provided for in this “loophole” legislation were designed to move California closer to corporate taxation law that applies in other states – why shouldn’t a corporation be able to allocate a tax credit to an affiliated company, isn’t it their credit? Why shouldn’t a corporation allocate operating losses to future years? Corporations don’t get money back from the government in years they lose money. It is unfair to tax one year of profits when those profits aren’t normalized for the losses of prior years. But the rhetoric of the CTA reveals their true intentions – they don’t like corporations, they don’t like the private sector, and they don’t like profits or private wealth – despite the fact that without profits there would be no tax revenue. The irony is profound.

Equally disappointing, if not outright sinister, is the fact that the corporate tax reforms that the CTA wants to roll back via this initiative were negotiated in exchange for a state budget deal. But unlike the budget, which is sealed and final, the reforms (“loopholes”) that were enacted as part of the budget package can be rescinded.

To complete our trio of initiatives that will further consolidate the power of public sector unions and expand government beyond its unsustainable present size – probably coming no matter what – and apparently also courtesy of the CTA (ref. “Will CTA Put A Split-Roll Initiative on the 2010 Ballot?“), is this nugget:

1424. (09-0077)
Requires Assessment of Most Commercial Property at Least Once Every Three Years and Increases Homeowners’ Tax Exemption. Initiative Constitutional Amendment and Statute (full text).
Changes existing law to require that commercial property be assessed at fair market value at least once every three years. Excludes residential and agricultural property. Doubles homeowners’ tax exemption from $7,000 to $14,000 on residential property. Creates small business tax exemption for first $1,000,000 in personal property. Permits county governments to offset reassessment costs; transfers ninety percent of remaining revenues to state’s General Fund to support all General Fund programs, including education, public safety, and health care…

What on earth is the CTA thinking? What do they think is going to happen if these three initiatives actually pass? Everything these bills accomplish will harm ordinary people, not help them, because ultimately, businesses don’t pay taxes, ordinary people do. If a business is to remain in business, they have to pass tax increases on to their customers in the form of higher prices. These hidden taxes are crippling California as much as overt taxation. And why should any corporation stay in California, already one of the most business-unfriendly states in the nation, if on top of all that, they are excluded completely from the political process, remain subject to double-taxation and unable to allocate tax credits or carry forward losses, and lose protection from confiscatory property tax rates? Can’t the CTA – and the other public sector union leaders – understand that a healthy private sector is an inviolable prerequisite to robust tax revenues? Once they kill the private sector, they also die. It’s that simple.

California’s Republican leadership, movement conservatives, and uncorrupted business leaders need to understand something very clearly: They are in a war with public sector unions whether they want to be or not, whether they practice appeasement or not. They can make deals that delay their own demise at the expense of others. They can descend into the fascistic mire of corporatism, and enter into joint ventures with government unions, to their own gain, but at the expense of competitive markets, property rights, and optimal economic growth. Or they can defend their principles and do what they know is the right thing to do. The irony is that by fighting this tyranny, they will actually be doing the membership of public sector unions a favor as well, because restoring fiscal solvency to California’s governments and renewing economic growth depends on rolling back the wages and benefits paid to public employees, and restoring the agenda of California’s state and local governments to the people. This requires fighting the public sector unions without reservations.

Ayn Rand’s Atlas Shrugged

/by

The thought of actually reading Rand’s gargantuan tome, Atlas Shrugged, a book you could use as a cornerstone, filled me with apprehension. And while the novel resonated with me far more than expected, it is fair to wonder if someone who didn’t agree with anything Rand was trying to say – she is not subtle – might find it tough to get past the first couple of hundred pages. But by that point I was hooked on the story, which chronicles the final decade of the descent of the United States from capitalism to communism. To discuss everything noteworthy about Rand’s novel would go well beyond the scope of any brief review. For example, Rand exposes the hypocrisy and futility of communist ideology quite well, but doesn’t bother to dilute the purity of her alternative vision by explaining that its consequences are genuinely altruistic. Rand never explicitly acknowledges that encouraging people to pursue their individual self-interest, through lower taxes and limited government, enables more wealth creation and hence more prosperity for everyone. One key admonition Rand makes is of concern here, however, because it has immediate and urgent relevance to California’s citizen’s initiative political season, a fight being waged right now, that hangs in the balance.

The biggest sin of Rand’s good guys in Atlas Shrugged – the businessmen – was that these businessmen never defended themselves, much less took the offense. They practiced appeasement with the “peoples” interests, and acceded to big government regulations, apparently hoping they would be the last to be eaten.  A central point in Atlas Shrugged is that society cannot be based on rules wherein people give according to their ability, and receive according to their needs. Such a society, imagined by Karl Marx as a communist utopia, and envisioned very differently by Ayn Rand in Atlas Shrugged, collapses because people of ability either withdraw from the system or are corrupted by it. In such as society, all of the extra creative and unique value created by people of ability, if indeed the people of ability still bother to work, is confiscated by government agents, at the point of a gun, and redistributed to everyone according to their needs.

If communism adheres to Marx’s maxim, “from each according to his ability, to each according to his needs,” then the countervailing libertarian maxim might be “from each according to his needs, to each according to his ability.” The more you explore this inversion, the more you may come to like it. In Marx’s communist utopia, ability is secondary to need, since simply declaring a “need” will be sufficient to receive whatever anyone wants. Only when these essential needs are not automatically forthcoming simply because someone “needs” them, will someone work to the best of their ability, objectively exchanging value, to fulfill their needs. From each according to their needs is a premise of libertarian society, because need is the incentive that impels people to work and innovate.

Similarly, in a libertarian society, one should receive, not according to their needs, but according to their ability. When one wants to ensure they secure the essentials, much less the extras in life, they choose to work, and when they work, they receive whatever they can earn according to their ability. And their ability is measured by the contributions of their mind, their unfettered reason, their inventiveness, their innovation, applied through hard work, then offered and purchased voluntarily in the free market.

To not actively challenge government redistribution based on needs, and defend market redistribution based on abilities, is to simply try to be the last to be eaten. Because the arbitrary redistribution that ensues when government bureaucrats confiscate the wealth produced by people of extraordinary ability, and allocate it based on wherever they identify “needs,” takes away the incentive to work hard from both the givers and the recipients – it is a recipe for economic stagnation. Unchecked, it is a recipe for economic collapse. If America slides into the nightmare Rand imagines in Atlas Shrugged, it will be because businessmen didn’t stand up for these principles of capitalism that have made America the wealthiest, most creative nation in the world.

Which brings us back to California’s 2010 election season, where there are at least four initiatives attempting to gather enough signatures to make it onto the November ballot, that deserve the unqualified, unabashed, if not unlimited support of California’s business community. All of them, if enacted, would decisively shrink the size of California’s government and revitalize California’s economy. But instead of fighting for these initiatives – which ultimately, will help ensure their survival as free enterprises – California’s businesses are running for the hills. Among these worthy but spurned initiatives are two public sector union reform measures, one an Initiative Constitutional Amendment that would prohibit public sector unions from automatically deducting dues that would be used for political activities, and would curtail their ability to use money for any political activity, and another one, a statute, the Public Employee Paycheck Protection Act, that would require public sector unions to obtain a signed authorization, renewed every year, in order for them to be able to use member dues for political activity. These two initiatives are proceeding fitfully towards oblivion, thanks to virtually no support from California’s business community. Another initiative, the New Public Employees Benefits Reform Act, will right-size public sector worker pensions, where currently, many government workers retire in their early 50’s with a salary often set at 90% or more of their final year’s pay – and this initiative as well, is going nowhere. Public sector union reform and public employee pension reform, key solutions to California’s economic malaise, are not supported by businessmen or property owners.

Equally uninteresting to California’s business community is the California Jobs Initiative,” that will defer implementation of California’s 2006 “Global Warming Act.” Set to become law in 2012, California’s Global Warming Act will constitute arguably the most dramatic encroachment on private property rights and expansion of government in history. In the name of fighting “global warming,” and in a dubious and convoluted attempt to curtail anthropogenic CO2 emissions, this law will regulate where you live, the size of your yard, how far you can drive, what you can eat, how you can build your home, use energy, water, land – your entire life.  It is understandable, if not excusable, that California’s entertainment and high-tech industries endorse California’s Global Warming Act – for the most part, these industries produce nothing tangible, so they escape the impact of draconian environmental regulation. There is no similar justification for the inexplicable silence of California’s agricultural and timber and energy industries, however. Also quiescent in the face of environmentalist dictated economic stagnation are California’s private sector construction unions, who ought to have had enough with environmental extremism by now.

Ayn Rand didn’t anticipate environmental extremism, but as an excuse for confiscatory, socialist measures in the name of not only the “people,” but now the planet as well, it defines the mentality Rand decries and warns us about in Atlas Shrugged. With respect to the obvious abuse of power that ensues when labor unions take over government bureaucracies, Rand may not have explicitly anticipated our current predicament, but her examples of how government becomes its own special interest were clear enough. And once again, nothing could have been more clear in Atlas Shrugged than Rand’s indictment of the businessmen and property owners who, facing communist ideology, practiced cowardly appeasement, instead of articulating the moral worth of their lives, their work, and their ability.

The Conspiracy of Cowardice

/by

One may search for the answer to the Republican riddle across America – how to attract all those suddenly disaffected independents and moderate Democrats. After all, the political pendulum only seems to be impelled by repellent forces, never by attractive ones. And what might attract anyone to the Republicans, simply because the Democrats have become repellent?

Closer to home, in lovely California, a state so beautiful that even native sons who ought to know better can’t seem to leave, the Republican failure is easy to grasp. Republicans, nationally and in California, never fought more than half the war – they did, at the least, a defensible job fighting taxes, but never effectively fought spending. The result is deficits – and borrowing is spending, as underwater homeowners along with bankrupt municipal governments are painfully discovering.

A tragic example of just how far from leadership, legitimate populism, or genuine convictions the conservative leadership in California has sunk is the plight of the public sector union reform initiative that still needs signatures to qualify for California’s November 2010 ballot.

There is not one conservative political insider who doesn’t believe the “Voluntary Political Contribution Initiative” is a long overdue reform to California’s political system. Nobody. This initiative will dramatically curtail the ability of California’s public sector unions to use member dues to engage in political activity. Currently California’s public sector unions collect nearly 1.0 billion dollars per year in member dues, and they use a significant percentage of these funds to back the politicians and initiatives they favor. And what do they favor? Higher wages for public employees, better benefits for public employees, bigger government, no matter what the cost, so the public employee payroll continues to grow. To fight government spending is to fight government unions. Period. There is no way around this fact.

You could spend hundreds of paragraphs and thousands of words describing the despicable abuse that union control of California’s government has spawned. Firefighters who make more than brain surgeons, yet barely work full-time. Former police officers in their early 50’s who make more in retirement than successful working businessmen who put in 70 hour weeks and have bet their fortunes and their lives on creating and maintaining jobs for hundreds of workers. City managers who make more than the President of the United States. As quoted in an earlier post, one of the kings of big government, Willie Brown, is now saying “The deal used to be that civil servants were paid less than private sector workers in exchange for an understanding that they had job security for life… but we politicians — pushed by our friends in labor — gradually expanded pay and benefits . . . while keeping the job protections and layering on incredibly generous retirement packages.”

You don’t have to rely on Willie Brown, or the anecdotes here. Go to the best source for information on public sector union abuse available online today, www.pensiontsunami.com, and read the links to the many stories they post every day on this topic. Make sure you bring a cast-iron stomach, because if you don’t, you’re going to puke.

The conspiracy of cowardice doesn’t begin with the failure of Republican leadership to fight (union) spending along with fighting taxes, however, it only begins there. Today’s pending ballot initiative that would begin to fix this obscene mess has a slim-to-zero chance of getting onto the ballot in November – because it is being sabotaged by the conservative leadership who ought to be supporting it.

The leadership representing California’s associations of business interests, who already play an impossible game of appeasement with union interests, are urging wealthy conservative individuals and organizations to refrain from supporting this public sector union reform initiative. It doesn’t end there – people who claim to speak for Republican aspirants for high office in California are doing the same thing – apparently they are afraid having a genuine union reform initiative on the ballot will bring out more union voters, and diminish their chances.

This reasoning is not only sacrificing what is right for what is pragmatic – which is reason enough to write off California’s Republican leadership – it also reflects an inaccurate assessment of where California’s voters really are today. Because California’s voters get it. Not just TEA party activists or hard-core conservative activists, but everyone. It is now obvious to everyone that our civic entities are bankrupt because we are paying unionized public employees roughly (when you include the annual costs of funding their current and future benefits) two to three times what the rest of us make for work requiring similar skills. But the professionals don’t understand this – or choose not to.

What fiscal conservative voters in California need to bring them to the voting booth in November is an opportunity to vote for genuine statewide reforms. The public sector union voters will already be turned out. Those who weren’t “assisted” by their union operatives into casting absentee ballots will show up on election day, because there are countless grassroots local reform initiatives that they will be urgently and relentlessly enjoined to vote against. But conservative voters still need a reason to show up on the first Tuesday.

A sure thing that will bring out fiscal conservative voters is the Voluntary Political Contribution Initiative, because it will save California’s failed finances by standing up to our insatiable public sector unions. While there, conservative voters would also vote for those candidates who displayed the courage and conviction to back this initiative with their reputation and their treasure. What we are seeing instead from California’s supposed fiscal conservative leadership is political opportunism, careerism, political calculation, and appeasement; yet another betrayal of everything they supposedly believe in. Is this failure a conspiracy of cowards? Perhaps not. But it might as well be.

Assessing Immigration to America

/by

The economic and social consequences of America’s immigration policies – both deliberate and by default – are among the most hotly debated issues of our time. According to CarryingCapacity.org, the United States “now accepts over one million legal immigrants each year, which is more than all of the other industrialized nations in the world, combined.” Additionally, according to ImmigrationCounters.com, there are nearly 23 million illegal immigrants currently living in the U.S.

Attempting to quantify and project the costs and benefits of immigration into the U.S. is not easy. According to About.com, quoting the Federation for American Immigration Reform, “the costs of education, health care and incarceration of illegal aliens to Californians is $10.5 billion per year.” According to the Center for Immigration Studies, “households headed by illegal aliens imposed more than $26.3 billion in costs on the federal government in 2002 and paid only $16 billion in taxes, creating a net fiscal deficit of almost $10.4 billion.”

Statistics abound – and for every study suggesting that America’s immigration is creating a burden on the economy, there is another that concludes the opposite, that immigrants continue to provide a net economic benefit to the economy. So rather than provide yet another regurgitation of battling statistics, it is important to note some crucial qualitative differences between immigration trends in America today, compared with past centuries in America.

WHY IMMIGRATION TO AMERICA IS DIFFERENT TODAY THAN IT WAS 50+ YEARS AGO:

(1)  Immigrants today are not coming from nations of equal or greater economic achievements to America. In the past, immigrants from Europe, for the most part, were emigrating from nations that were as advanced as the United States was, if not more so. Today the overwhelming volume of immigrants are coming from developing nations.

(2) Immigrants in the past came primarily from European nations which had cultural values – educational, religious, and political – that were, if not nearly identical to American cultural values, were on a shared trajectory towards achieving those values. Immigrants today come from nations that, relatively speaking, have far less cultural similarities to America than past waves of immigrants.

(3) Immigrants today, for the most part, are coming from nations that are rapidly increasing in population and, in aggregate, dwarf the United States in population. Related to this is the fact that in the past, the people already in America were themselves rapidly increasing in population, but this is no longer the case, except among populations of recently arrived immigrants.

(4) Immigrants in the past arrived in an America that had a voracious need for unskilled workers. Today the American economy is relentlessly automating jobs that used to require unskilled labor, and the American population already has a surplus of unskilled workers.

(5) Immigrants today are arriving in a welfare state, where they are assured of food, shelter and medical care that is, in general, orders of magnitude better than anything available to them in their native countries. This creates a completely different incentive to today’s immigrants. In past centuries, immigrants came to America to find freedom and to work. Today they are offered a smorgasbord of taxpayer-funded social services.

(6) Immigrant students today – especially in the coastal urban centers where most of them settle – enter a public education system that teaches them with a reverse-racist, anti-capitalist bias. They are taught in our public schools not to assimilate, but to celebrate diversity, not to earn opportunities through hard work, but through fighting discrimination. They are taught, often in their native language, that they have arrived in a nation dominated by racist and sexist white males, who exploit the world to amass evil profits.

(7) Immigrants today arrive via ten hour hops on an airliner, past waves of immigrants spent ten months traversing land and sea in a journey of staggering expense and significant dangers. While this isn’t universally true, particularly for those who risk America’s southern border, in general it is – coming to America today does not require the commitment it required in the past.

(8) Similarly, in the past, immigrants pretty much renounced the nations of their origin, they made a one-way trip, and they adopted the language and values of America. Today, retaining cultural unity with one’s country of origin is a few clicks on the internet, a cheap telephone call, an affordable airfare. Technology has greatly eroded the forces that used to impel immigrants to become Americans.

The impact of these eight differences between immigration to America today, compared to immigration to America in the past, are clearly social and cultural in nature. The reader is free to determine for themselves whether or not the social and cultural shifts that are occurring due to these eight factors is significant, or desirable. But it is fair to suggest there is also an economic fall-out from these eight factors, which by default constitute America’s immigration policy today.

Clearly an increasing population, all else held equal, does cause overall economic expansion. It isn’t clear at all, however, that this is the optimal way to create economic expansion. First of all, global human population is destined to level off by 2050 anyway, so rather than expanding the population through immigration, economic policy needs to search for the answer as to how to continue to experience economic growth despite a stable, aging population. In Japan, they have already made this policy decision – with zero net immigration and the oldest population on earth, Japan leads the world in the development of androids that will, presumably, become caregivers to the elderly. Economic growth oriented towards improving the quality of life for the elderly is one example of a sustainable growth sector – economic growth dependent on an immigrant-fueled population expansion is not sustainable.

In the short-term, immigration policy reformers might make it a priority to examine points (4) unskilled workers, (5) welfare state, and (6) reverse-racist culture. Immigration itself is not bad, and the other factors differentiating immigration today vs. immigration in the past, points 1-3, 7, and 8, are themselves not nearly as of concern, if the three points relating to job-skills, welfare, and cultural messaging are addressed.

To suggest Americans ought to resist competing with highly skilled immigrants, for example, is not only xenophobic, but it smacks of an entitlement mentality. Allowing immigrants into the United States who are qualified to join our ranks of scientists, engineers, researchers and doctors will only help our economy and overall standard of living. Allowing unskilled immigrants into this country, however, when we already have tens of millions of unskilled workers who are either in our prisons or collecting welfare – who themselves could perform this work – is much more likely to constitute a drain on our economy.

Similarly, allowing immigrants into an America where public school teachers crow about the evils of capitalism and the incorrigible racist, sexist core of our American culture is a recipe for disaster. This is particularly true when accompanying this siren song of corruption is easy access to social services of all kinds, including welfare. If new immigrants are taught the cards are stacked against them, and at the same time they are offered a free ride that provides a standard of living many times greater than what they knew in the countries they came from, why work?

A long time ago, when discussing the demographic trends of modern immigration with a friend of mine who worked in public policy, I asked him how the millions of immigrants arriving in America would assimilate. The question had an urgency then, and even more so now, based on these significant differences between immigration in the past compared to immigration today. His answer was illuminating, albeit cliche – “it depends on how they’re treated,” he said.

This is the crux of the issue – how immigrants are treated when they arrive in America – not who they are or where they come from. If immigrants today arrive in a nation that recovers the values that greeted immigrants in prior centuries, then they will adapt, they will work, they will be successful, they will contribute, and they will appreciate becoming an American. But if they continue to arrive in a nation undermined by leftist educators and self-serving welfare administrators, their increasing numbers will only become increasingly problematic.

California’s Personnel Costs

/by

Over the past twenty years, as wages in the private sector have remained pretty much flat – not even keeping up with inflation – wages in the public sector have risen relentlessly. A generation ago, a public sector worker would sacrifice current pay for job security and a pension that was somewhat better than social security, but today, not only are public employee pension benefits far more generous than they used to be, but public employees generally make more in current pay than their private sector counterparts. While this assertion remains hotly debated, one seeking the truth might consider this comment – made in a guest column in the San Francisco Chronicle earlier this month – by former California Assembly Speaker Willie Brown:

“The deal used to be that civil servants were paid less than private sector workers in exchange for an understanding that they had job security for life,” Brown asserted. “But we politicians — pushed by our friends in labor — gradually expanded pay and benefits . . . while keeping the job protections and layering on incredibly generous retirement packages. . . . This is politically unpopular and potentially even career suicide . . . but at some point, someone is going to have to get honest about the fact.”

If Willie Brown, a friend of big government and big labor if there ever was one, is on record with a comment like this, it’s time to move on. Personnel costs for government employees have grown out of proportion to private sector compensation, and California is perhaps the most extreme example. Another question that requires clarity is exactly what percentage of government budgets are consumed by personnel costs? Clearly this is a figure of vital importance, because if personnel costs represent an insignificant share of California’s budget, there is far less urgency to restore the historic trade-off that is supposed to apply when you join public service, i.e., you receive lower current pay in exchange for higher retirement security.

In the table below, California’s state and local personnel costs are calculated using the most recent data available from the U.S. Census Bureau, and compiled by USGovernmentSpending.com. The first thing that should be readily evident is most of California’s government spending is at the county and city level, since of the $516 billion reported for 2009, only $138 billion of that is state spending, and the other $321 billion is local spending. The implications of this fact are ominous – less than 1/3rd of California’s structural budget deficits are caused at the state level.

In order to determine the percentage of this half-trillion of state and local spending in California that is consumed by payroll, turn to the U.S. Census Bureau’s California statistics directly for 2008 Public Employment Data, Local, and 2008 Public Employment Data, State. These tables, updated in December 2009, yield both the number of state and local government employees in California and their total payroll, not including current benefits or pension funding. Assuming an average cost for current benefits of $5,000 per year per full-time employee (probably grossly understated), the total payroll of state and local governments in California is $188 billion per year, or 23% of total spending. What about pension funding?

In a previous post, Maintaining Pension Solvency, the amount necessary to fund a typical state worker pension is calculated using four sets of assumptions – based on a public safety pension plan (assuming 90% of final pay as the retirement pension) and based on a regular non-safety public employee pension plan (assuming 60% of final pay as the retirement pension), with each of these cases calculated based on an inflation adjusted rate of return on the pension fund investments of 4.75% (CalPERS official rate used for projections), and 3.00% per year (a more conservative rate). The table below uses a rate of return of 4.75% per year, and takes into account census data which indicates 13% of Calfornia’s state and local government employees are in public safety, and the other 87% are not, in order to calculate the percent of payroll that must be allocated to pensions. In this case, 23% of payroll, or 5.0% of total government spending, must be allocated to pension funding each year. In all, using these assumptions, 28% of of California’s total government spending is for personnel costs.

What if pension funds don’t return 4.75% per year, but only average 3.0%? Or what if they do average 4.75%, but since they are so underwater currently, a greater than usual contribution must be made each year from now on anyway? The next table shows the result of calculations using a 3.0% return on pension fund investments. In this case, 37% of payroll, or 8.4% of total government spending, must be allocated to pension funding each year. In all, using these assumptions, 31% of of California’s total government spending is for personnel costs.

There is a lot to chew on here. If you calculate personnel costs as a percent of revenue, instead of as a percent of spending, for example, eliminating the roughly $100 billion dollar annual deficits that state and local budgets combined easily exceed in California, and you use the 3.0% inflation-adjusted return on investment for your pension fund, personnel costs swell to 39% of total state and local budgets. If you also assume the costs of current benefits are not $5,000 per year on average, but $10,000 per year (a figure which may still be on the low side), personnel costs swell to 42% of total state and local budgets. What about the current year funding requirements for future retirement healthcare benefits – a line-item cost only rivaled by pension funding requirements – only beginning to be discussed in the context of total annual costs for government workers. And if you take into account the amount of remaining expenditures that are “pass-throughs” to quasi-governmental agencies and contractors, many of whom constitute the last entities outside of government to have enjoyed regular cost-of-living increases over the past 20 years along with pension plans that dwarf social security in their generosity, the percentage of state and local spending that is represented by personnel costs probably doubles – pick a number. Better yet, let’s hear from Willie Brown again – quote:

“Talking about this is politically unpopular and potentially even career suicide for most officeholders. But at some point, someone is going to have to get honest about the fact that 80 percent of the state, county and city budget deficits are due to employee costs.”

If 80% of California’s government expenditures go to personnel costs (probably accurate if you include pass-throughs to contractors who also enjoy swollen pay and benefit packages), and the combined annual state and local budget deficits in California are $100 billion, then basic algebra might suggest the following solution: Reduce the $400 billion that California’s state and local governments spend annually on compensation – including all government-funded project labor agreements for infrastructure, and, for that matter, as a prerequisite to any organization receiving state and local funds – by 25% across the board, and you balance the budgets without compromising programs or raising taxes. How many workers in the private sector would love to have a job that paid them 75% of what they made during the bubble booms?

No matter how you fine-tune an analysis like this, some conclusions are unavoidable. There is a tremendous consequence to the fact that California’s state and local government expenditures for employee compensation, per employee, have grown dramatically over the past twenty years at the same time as private sector compensation has remained relatively flat. When reform advocates suggest rolling back the pay, benefits, and pension packages for public employees in order to eliminate deficits and preserve worthy government programs, they are not making spurious arguments based on anti-government bias, or anti-government employee bias. They have simply run the numbers, and recognized reality.