March 25, 2016

I really believe it’s all about inequality. If we had managed to retain the substantially lesser inequality of the 60’s, things would be very different–and so much better for all–the poor, the middle class, and the wealthy, too. That was a time when we had far better opportunity for all, a better social support program, reasonable tax rates, and plenty of opportunity for the best to get rich.

But across the last 35 years, we have steadily moved to the economic Right in laws and policies, now giving much more freedom to the private sector and far fewer protections to the workers. We have steadily decreased taxes and reduced government. Our economic inequality has now risen to the level of the “robber baron” era of the 1920s. The wealth of the Walton (Walmart) heirs is now equal to that of the lowest 132 million Americans. Both political parties have been forced to acknowledge the problem, but that has not resulted in any political agreement as to how to fix it. In fact, it seems we are increasingly polarized over solutions, and each side is making it worse.

I count myself among the liberals or “Progressives,” those who want a greater share of income and opportunity for the middle and lower classes. Some of us are reacting to the above situation in ways that only make matters worse. For example, some Progressives think the solution to rising cost of housing is in more and more regulations and restrictions on landlords. Restrictions that will further limit the rights of landlords to evict tenants or to resolve the grievances or damages they experience with certain tenants. Such measures give some short term protection to certain tenants. They also want to raise the demands on developers for the percentage of new units which must be priced for the lower levels of income

When viewed from the broader perspective, these additive restrictions (on top of a long list which already exists) only further constrain investors in buying and building new rental housing. Those who already own are more and more motivated to use the few remaining escape clauses to take the property out of the rental inventory–owner or family move in, or Ellis Act, as examples. And, such restrictions end up benefitting bad tenants as well as good ones.

Meanwhile, Right wing politicians argue that more freedom for the private sector and reduced taxes on the wealthy, will somehow stimulate economic growth to levels never experienced, and that this alone will solve the problem. They add that getting tough with our trading partners will enhance the US economy, and that further expanding the largest military presence in the world will be a good way to spend a greater percentage of the reduced income we will have after more tax cuts.

One can’t blame the Progressives for wanting tenants to have decent rents and opportunity to stay in the city and live a decent life. Progressives see that on a national level they have little chance against the Right and its lawyers and lobbyists, little chance to promote a comprehensive plan which would ratchet back the decades of laws, rules, contracts,  and interpretations, such as to establish a more fair playing field for all. So, they work to chip away at what they can. But in the long run, this doesn’t add to affordable housing. In fact, to the contrary.

And neither can one blame those on the Right (if you stipulate to their beliefs, as in supply side economics and Horatio Alger views of the nature of man). They can’t see that there is any form of redistribution which would be acceptable. Not any. Not even raising taxes on the wealthy a little and using the money to improve roads, bridges, airports and our internet.

It’s as if both sides are frantically fighting to take their respective beliefs further to the extreme, when what we really need is a meeting in the middle: Reasonable (modest) increase in progressive tax rates; restoring some worker rights; less investment in military, more in infrastructure, is a short list of adjustments we should all be able to agree on.

The current state of affairs is not entirely the fault of the political Right. Democratic administrations across the last 35  years have also failed. And, the challenge has been exacerbated by dramatic advances in both technology and in globalization across that period. But there can be no doubt that the increasingly predominant economic policies across that period have been “neoliberal,” meaning Conservative, meaning Republican and Right Wing. How the economy has been managed and how all the rules of engagement in economic transactions have been adjusted has everything to do with the state of affairs we find ourselves in today.

The anger reflected in the voices of millions supporting Donald Trump means that even Republicans are aware that what “establishment” Republicans have been doing for 35 years is not working and is not acceptable. That’s a good thing. It’s only regrettable (highly) that the Republicans could not have found a single candidate (except John Kasich, who seems unlikely to win) who has a clue as to how to fix the problem.

March 11, 2016

As I wrestle with the radically opposed views our people have come to so strongly hold, I increasingly feel that it comes down to a very few basic principles, which may be illustrated in the form of questions.

Regarding opportunity: (A) Do you believe many people need and deserve a helping hand, and with that, will contribute to society; or (B) that everyone can and should make it on her/his own if she/he only tries hard enough?

Regarding social services: Do you believe (A) that the majority of those in need are decent law abiding people who want to work and keep trying to find jobs: or (B) that the majority of those in need are happy to live off welfare and other social benefits?

Regarding immigrants: (A) Do you believe that most trying to get into our country (whether legally or illegally) are good people, just like you and me, and that they will contribute to our betterment, just as our immigrant forefathers did; or, (B) that far too many of them bring crime, terrorism, and steal jobs Americans need and want and we need to severely restrict immigration?

Regarding economics, which is most needed at this time: (A) Getting money into the hands of the people who will spend it and thus drive demand and motivate the wealthy to expand businesses and jobs; or (B) reducing taxes on businesses and the wealthy who will then invest in businesses and create jobs?

Regarding our federal government: (A) Do you believe a strong federal government is needed to assure safety, rules and regulations, health care, education and other basic services on a basis consistent across all states; or (B) do you believe the federal government is simply impossible to manage and we should turn most of these powers over to the states?

Regarding incentives: (A) Do you believe that those who succeed, regardless of whether by luck or genius, should share a portion of their wealth with others; or (B) that those who honestly become wealthy deserve to keep all of it and do with it as they will?

Regarding foreign conflict: (B) Do you believe the US should take the lead and intervene in foreign countries where human rights are at risk; or (A) do you believe the US should only do so as a last resort after negotiation and engaging agreement from other nations?

Regarding globalization: (A) do you believe we should work to extend foreign trade: or (B) that foreign trade only results in lost US jobs and we will be just fine without it?

Regarding taxes: (B) Do you believe that reducing taxes will stimulate the economy and create sufficient new jobs; or (A) that government intervention is some form of redistribution is needed to accomplish that?

My apologies if I have insufficiently disguised my own bias, which is now A in all cases. And a reader may rightfully observe that stating the above as A and B choices is far too simplistic. There are complexities. There are nuances. And those who are more liberal may nevertheless sometimes choose B over A, and vice versa, depending on their values. Some liberals who greatly fear for safety may oppose immigration just because there cannot be 100% assurance that not a single terrorist will slip in.

As I’ve tried to make my case for A with friends, I can’t see that I have changed anyone’s position. I have come to the conclusion that our biases are very deep seated. The Trump and Sanders campaigns seem to illustrate that a leader who speaks to such critical biases immediately garners a loyal following, regardless of the logic to support their proposed solutions. And once a strong public stance is taken by supporters, it’s near impossible to persuade one person to change. Facts don’t seem to matter. The bias trumps facts.

Our biases may come from parents, from environment, from education, or from personal experience. In my own case, my positions previously tended toward B on some points. I wasn’t influenced to change by arguments with friends, or from speeches, magazine articles or books. As to reading or TV, I think I gravitated to media which was consistent in bias with mine.

I was influenced deeply by only one thing. It was an extended experience. I went back to school for a year in my late 60s, studied beside 20 somethings, listened to all the lectures, wrote all the papers, took all the tests for credit. I had to study the core data, as opposed to just reading opinions from the Wall St. Journal and The Economist, which I came to see were full of the biases of those publications. I wish everyone had the interest and opportunity to go back to school and really dig into the data and the issues.

Americans are highly polarized. Our major differences begin with how we can better address inequality. How can we produce better jobs, enable better wage growth, while at the same time preserving the opportunity for our best and brightest (could be me, we all think) to strike it rich and not have to give most of it to the government.

Economics is not 100% of the answer, but it is a huge part of it. Would that all candidates for high office were required to take a basic economics course at a major university, and get a passing grade.

Of course, economists disagree over much. But some things are universally agreed among all economists. One of these is that there is ZERO possibility that US economic growth can be raised to the levels (6-10% GDP growth annually) to pay for the tax cut plans and the job growth promises of most of our candidates (e.g., Trump). Zero.

Much as we vilify government, it is the only tool we have by which we can come together to deal with that which is impossible for the private market alone to accomplish.

March 9, 2016

Just today I was walking my little dog Bravo down Washington Street. Two doors from my home, I stopped to talk with a neighbor. I’ll call him Dave. I have lived here 6 years and I’ve seen him many times, often stopped to chat for moment. He’s a nice guy. Others in the neighborhood speak highly of him.

He disclosed to me that he’s moving on Friday. He has been a renter here for 23 years. The woman who owns the home is exercising her rights to return to the home and live in it. He said there is no legal protection for him in this particular situation. He and his wife have found a place further out, but still in the city. Good for them. He raised his kids here, and it’s sad for them and for neighbors to see him forced to leave.

But he’s one of the fortunate. He has an established chandelier business operating out of his home. He is probably a little better off than the average renter in this city. So, I’m glad for Dave.

But what is the solution regarding rent control in San Francisco?

There is a serious problem of insufficient affordable housing in some of our major cities, and many of them have adopted rent control as one of the measures to try to protect lower income citizens who cannot afford to buy, and cannot afford the kind of rent increases which occur sometimes. According to Zillow, rent has increased in San Francisco neighborhoods from 11% to 30% in the past year alone. Rent control is allowing about 1% increase in rents by landlords in rent controlled properties (those built before 1979). Without these protections, many of lower income tenants would not be as fortunate as Dave. They would have to relocate to distant suburbs, the closer of which are also rapidly becoming unaffordable. So, I don’t blame anyone who is taking advantage of rent control for doing so.

But there are big problems with rent control. One is the challenge to landlords. I’m occasionally one of those. When I am, I obey the laws to the letter. But as the restrictions on landlords keep increasing, the challenge of finding landlords who want to own such properties increases. How can an investor estimate her/his likely return when you don’t know whether your tenant will say one year or perhaps 23 years? If the latter, your return on investment is likely to be negative or extraordinarily low.

Is it fair to landlords who own or want to buy buildings built before 1979, to restrain them to annual increases like 1% when market increases range from 11-30%? No, it’s not. I don’t blame Dave, but he has had a huge windfall of protected rent levels for 23 years, and the landlord has had a huge loss. Rent control motivates many landlords to minimize maintenance and/or improvements and service because they are in the red already. Others are forced to seek ways out by moving in themselves or “Ellis acting” the property and selling the units individually to buyers. So, in economic terms, rent control is a “blunt instrument” in the fight to achieve affordable housing solutions in San Francisco. It certainly does not add to the stock of affordable housing. It slowly removes units.

The new conditions being considered to be imposed on developers–that affordable housing up to 25% of the units being built be required–also are a blunt instrument. The measures proposed by some of our “Progressive” Supervisors are supported by many citizens who object to almost any change in our city. Developers cannot make any sizable contributions to housing with that requirement, due to the costs of land and the lengthy, expensive, and risky path to declination or approval. Affordable units are sold at a loss to developers, so market rate unit mix is critical in estimating the chance for a profit.

These proposals dictate to the private market (developers) impossibly high economic hurdles. These proposals will simply slow development to a near halt. One thing Progressives fail to understand about developers–development is a very high risk business. It’s not a license to coin money. Many projects are stopped, many fail, many lose money, and it’s hard work and high risk to get one done and make money on it. Which of us would invest in something that has only a chance to succeed, takes money along the way, and if successful, the returns are 10 years out?

Often when success does happen, it’s primarily due to the Progressives making it so hard that there is little supply of new homes when the project finally is finished. Increasing demand and little supply drives the price at the end of 10 years to levels that neither developers nor Progressives could have imagined–but only for the very few projects which can make it through the gauntlet.

If rent control is not the answer and additional demands imposed on developers are not the answer, what is?

Regrettably, with all the complications of it, this is a problem perfect for government. It’s not an acceptable excuse that attempts by government in the past failed in some cases. The attempt to force the solution onto the private market has had a long run now, and it is failing miserably.

We need affordable housing, a lot of it. We’ve been trying to turn it over to the private sector but simultaneously over-regulate it.  We fall farther and farther behind as we try harder to force developers to do what they cannot economically justify. People like Dave are increasingly forced out. Their departure is bad for all–bad for restaurants, bad for retailers, and ultimately also bad for all the capitalists who rely on the labor of our lower paid workers who need and deserve to live in our cities.

I’m a huge advocate of more affordable housing. I welcome it here in my Pacific Heights neighborhood, and on my block. All we need is a property, a developer, and sufficient City financial assistance.

What can government do? More on that in a future post, but when the private market simply cannot do the job based on its essential motive–profit to owners, when risk is high and profits are insufficient to motivate, we have to look to government to step in and partner with the private market. We have to fix the problem of government and enable our government to take the right actions–that’s going to mean money and investment. But there is a return on government’s investment. Returns come in the form of a better city for all, enhanced attraction to investment and jobs, and increased tax revenues from increased economic growth.

As David Prowling explains, the unique San Francisco resistance to change fuels the Progressive movement. Progressives add regulations and demands.Regulations are not going to contribute to the solution, unless in the form of less, not more.  Meanwhile, the Right is obsessed to constantly reduce taxes (revenues to government) and shrink government, thus denying the economic ability of the right partner to help solve the problem.

Thus, in our beautiful and (to date) successful City by the Bay, we have come to represent the extreme in standoff and gridlock, which is also paralyzing our nation. We need to find the avenue to being an example of the solution.

March 3, 2016

This post focuses on one significant upcoming additive advance to inequality. There are many other advances also moving in the same direction. It takes time and hard work to reach agreement on fair solutions and to implement them.  We are way behind. The dangers are rising.

The near certain example is in transportation.

Experts estimate that we will have abundant self driving cars within 20 years, you’ll see some of it on your streets much sooner–like right now on Highway 280 between here and Google in Silicon Valley. Self driving cars will be made available via an app on your phone. The car will drive itself from a nearby lot to your home, take you to your destination, and then take another passenger or wait on the outskirts of downtown until end of the workday. You won’t need a particular car–you’ll probably use a service where a small fleet of cars serves a population X times the number of drivers.

There will certainly be some initial distrust, reluctance to go to a self driven car. Some will will be attached to the enjoyment of the driving experience–at least when (rarely) not in traffic. But, considering the comfort and convenience cars that drive themselves will bring, it’s likely a lot of us will be won over. Brookings says 90% of Americans drive to work.

If that’s not enough motivation, consider the savings. The cost of a membership in shared self driving cars will be a fraction of what it costs now for everyone to have 1, 2, or more cars. Your garage, if you have one, can be turned into whatever you want, maybe air bnb. Drivers will have the opportunity for big savings–the car, the maintenance, the garaging, the gas, and the insurance. Consumer reports estimates that the annual median cost of car ownership is $9,100. Half of the cost is depreciation, which for those who go to self driven cars can be spread among many users, as is maintenance, insurance, etc.

Ancillary societal benefits are major. Experts estimate that 30% of real estate in many large cities is dedicated to parking. Most of this won’t be needed in the future.   Then there are gas stations, repair shops, auto parts distributorships, car washes, etc., which can relocate to the edges of the cities. All the freed space can be recycled into housing, shops, parks, etc. The growing complaints in many major cities around traffic will be significantly resolved because a high percentage of traffic congestion in downtowns is due to drivers looking for parking. Cars will unload their passenger at the door of their office building and zip off to the suburbs to wait until needed again.

There will be parallel change in all other vehicles currently driven by people.Trucks and busses will be self driving as well. A few facts:  There are 3.5 million truck drivers in the US. There are 234,000 taxi drivers and chauffeurs. There are 665,000 bus drivers in the US. There are 162,000 Uber drivers. There are millions of support jobs partially at risk as well. For example, in addition to the 3.5 million truck drivers, there is another 3.5 million who do work in support of trucking. Some of those will also be at risk as a result of automation advancing. Amazon and Google are considering delivering our packages in self driving cars or with drones. Add in farming vehicles and forklifts.

The preponderance of these hard working drivers are only high school educated, and highly at risk to this rapidly approaching advancement in technology. With electricity expected to be the bulk of future vehicle power, displaced drivers will be increased by displaced gas station operators, and likely reduced manpower needs in human resource departments of trucking companies and bus and taxi companies, reduced need for manpower in vehicle insurance sales and service, and many other affiliated work areas associated with transportation.

There are technological issues yet to be resolved. There are risks to self driven vehicles having to do with weather, reliability of technology, rescue in event of emergency, and cyber crime. But there is little doubt that this future will arrive–the only question being when and how rapidly and widely it advances. All auto manufacturers are aggressively preparing for it, as is Uber and Google, among others. Some say we’ll have 10 million self driving cars within 10 years.

This post has focused on drivers. There are many other jobs at risk to technology. The Huffington Post reports from a study finding that 47% of all the jobs in the US are at risk to computerization within the next 20 years.

Inequality is at record levels in the US and other countries now. It’s going to get worse if we don’t start now to face it and prepare to moderate it. Globalization and technology are driving it. Conservative economics, in force since Reagan, prevent any government intervention to moderate it.

John Maynard Keynes, the famous economist, said in 1930, that within 100 years we would all be working only 15 hours per week, due to forecasted technological advances. Those advances have come. Keynes did not consider to whom the benefits of technological advance would go. They have gone to the inventors and capitalists who created and funded them. That would be OK, the essence of the American dream, if it were not for the fact that the advancement of technology is steadily removing the need for human workers, while we are doing nothing to compensate for that.

Thee are so many things we could do.  We could invest in modernizing our rusting and failing infrastructure. This would provide replacement jobs to many and would be good for all Americans, increasing the income and wealth of the 1% also. We could  find ways to assure equal education to all. Better educated workers would benefit the 1% also. We could create training programs for apprenticeships in plumbing, electrical and all manner of personal services which are not rapidly being replaced by technology. We could help displaced workers re-locate to where employment is available. And, we can and should strengthen our social support programs. See my previous post regarding prescriptions. All of this costs money, but all of it will save us money in the long run.

The alternative is not appealing, a growing danger for my children and grandchildren. And the threat of a revolution is growing. In my view, the response of Americans to both Trump and Sanders evidences the seeds of revolution unless something is done.