The Economic (And Employment) State Of San Francisco: Not Good

Shhh, do you hear that? … That, my friends, is the rare, but undeniable, sound of falling rents.

It will take a little while for rents to adjust but I’m already seeing some movement. Large houses are trending downward in rents or taking forever to rent.

As Rahm Emmanuel recently pointed out, a crisis is a terrible thing to waste. Hopefully this will serve as an opportunity to thin the ranks of SF’s 28,000 generously compensated city workers. It’s indefensible that SF has such a bloated city workforce.

From the Controllers Office:
October marks the first indication of declining rental prices: citywide average 1BR asking prices on Craigslist slid 2.4% since September.

invented, you made me laugh. The piece they are reporting on can be found here: http://co.sfgov.org/webreports/details.aspx?id=772
but to summarize, basically everythings going to hell except hotels which are still projected to decline in terms of average daily rates and occupancy next year.

@ San FronziScheme
Great job. Here’s another feedback loop, one I hope we avoid:
Financial crisis at fed, state and local government level = higher taxes
Higher taxes = less consumption
Less consumption = higher unemployment (for private, not public sector)
Higher unemployment (private) = lower real estate prices
Lower real estate prices = less property tax
Less property tax = Financial crisis for government
Eventually, all employees that were once employed by private companies will lose their jobs and either collect unemployment benefits in perpetuity or work for the government. Just like in France.
I am being facetious, of course, but to the extent Barry, Arni and Gavin want to raise taxes–fed/state income, car registration, parking meter fees, sales, etc.–we will only add fuel to this vicious cycle.

My non-scientific research consisting of idly staring out the bus window on the way into work in the morning (to the job I still have) notes that rarest of rare SF sightings: For Rent signs in windows.
If you actually have to market your available apartments in this town the sky really is falling.

“Since when did higher deficits mean higher taxes? Even Obama promised lower taxes for the middle class!”
The bottom half of taxpayers only pay 3% of total taxes, so not much more cutting can be done, but Obama can always send them more stimulus checks to reallocate wealth. And the top 1% pay about 39% of total taxes and Obama wants them to pay more.
Yes, he can lower taxes for the other 49%, but I wouldn’t call that a “middle class tax cut,” more like a upper-middle and upper class tax cut. And if these folks are already unemployed, a tax cut won’t help.
Arni has said he might raise the CA sales tax. Gavin has talked about increasing the number of city parking meters. So there’s plenty of talk out there that for certain people, taxes are going up.
And if disinflation morphs into hyper-inflation, as some here have predicted, that’s a tax on everyone: savers, workers with wages that don’t adjust up as quickly, seniors living on fixed incomes.
I agree with you, a better solution is to cut government head count, but that will only increase unemployment, and fuel your vicious feedback loop.

The negative treasury yield could be tied to the expiration on 12/19 of the money market insurance program offered by Treasury. Meaning investors fear that money markets will soon start to break the buck because of defaults on commercial paper.
Does anybody know if the treasury plans to extend the money market insurance program?
A negative t-bill also signals disinflation…
Bad times, indeed. How are people coping with the stress (other than gluing themselves to SocketSite)? I noticed BUD shares seem to be inversely correlated to the market as a whole, but that’s not a surprise.

For some reason, 28,000 city workers doesn’t bother as much as 8,180 of them “earning” greater than $100,000 each.
That’s right, one worker making $100K or more (some lots more) for every 99 residents; the overall City budget is greater than $8,000 per resident.
For that, they should at least run the schools and Muni as if we’re not in some third world city. They should be coming over every week to sort our trash and mail, wash our cars and clean up the sidewalks.
Sadly, the City of SF government is simply a high-end welfare program.
http://www.sfgate.com/webdb/sfpay/index.shtml

I agree that while the number of employees may seem high, a $100,000 salary in this city doesn’t seem extravagant to me. I mean, bringing it back to real estate, if they wanted to buy what could they get with that?

Don’t forget the benefits, like lifetime health insurance after relatively short periods of employement. Or the ridiculous rates of absenteeism and disability. Or the restrictive work rules which limit the productivity of individual workers and force the City to hire still more.
I agree with SFJack’s comment: the city of SF is little more than a high end welfare program. And the worst part is that no one really seems to care.

I hope this will help thin out a bunch of the overpaid, under-worked SF city workers too.
You know I watch 3-4 meter maids in those stupid little scooters on street sweeping day in front of my house. They all bunch up together, get out of their scooters and chit chat, have coffee and bullshit for about 25 minutes UNTIL the street cleaning truck actually shows up.
Seriously, they should be fired. The least they could do would sweep my damn sidewalk.

Rent control should prevent the rental market from getting flooded with people looking for a deal. The longer a tenant has been in place, the less likely they will be able to find a deal someplace else.
The last bill people stop paying is rent.

the Fed’s recent shift to unsterilized reserve increases
Unsterilized? That’s a hefty accusation. Could you explain some more for those of us keeping score at home.

About city workers, one of my brothers is a cop in a county just outside of NYC. It’s not SF, but I bet the situation is the same. The benefits are astounding. $140K base salary + overtime (which is really easy to game – anytime you need additional $$, just make an arrest close to the end of your shift). (Salary goes to over $95K after 2 years on the job.)
He’ll retire in 5 years (at age 44 or so), with a termination check of $200K+ (reflecting accrued but unused sick time, vacation pay, etc. + final union negotiated payout on retirement) and receive 75% of base pay for the rest of his life + full health benefits. The “base pay” will be calculated based on a blend of the final 3 years’ pay including overtime – which is easy to rack up so long as the sergeant likes you – guess who’s the cop with all the “juice” around there?
Recently, the union negotiated base pay increases of 4% for each of the next 5 years. Because of “budget constraints”, they cancelled the incoming class of cadets, which was applauded by all the veterans like my brother – “no new recruits, that’s more overtime for us because the people still want their services”.
Some of the cops have made a pledge to get custom license plates reading “IGM” followed by digits (001, 002, etc.) upon retirement. “IGM” is a very popular saying around the precinct – it means “I got mine”.
Not bad for someone who never went to college, I have to admit….
Some of the guys were starting to worry about the security of the county’s finances, but they are happy that Obama is talking about devolving $$ down to the states under the “medicaid reimbursement” and “infrastructure” rubrics. They understand the basics that the governmental pinheads don’t: money is fungible, and once in the state’s hands, it will be used to pay off pensions and salary obligations. Although most of the cops were anti-Obama on most of his policies, “IGM” ruled the day and many said they were voting for him because he’d put more money in their pockets.
The rot in the system extends everywhere. As just one example, my brother busted an illegal alien a few months ago for shoplifting. When they inventoried her possessions, she had $6000 in cash and six different New York State benefit cards under various iterations of her married and maiden names, each of which entitled her to some benefit like food stamps, welfare benefits or NYS housing assistance vouchers. They actually had to give her all the cash back, as well as the benefit cards, and they were prevented by state policy from reporting her to INS. She was issued a desk citation and ordered to appear before a county magistrate, which she ignored (my brother enjoyed the overtime pay for showing up at the preliminary hearing, which was continued of course because she never showed).
All true observations. Good luck America!
Oh, what did the current governor of Illinois say on tape about the open senate seat just vacated by Barack – “that’s a f*cking valuable thing and I’m not going to f*cking give it away”? (or words sustantially identical) And people are cheering giving the government even more resources and control?

The bottom half of taxpayers only pay 3% of total taxes
This isn’t even close to true DataDude, where do you hear stuff like this, on the Rush Limbaugh show?
About city workers, one of my brothers is a cop in a county just outside of NYC. It’s not SF, but I bet the situation is the same. The benefits are astounding. $140K base salary
I don’t believe you. Salaries of public workers are public info, show us the proof that this is his salary. Cops in SF make about $92 base pay at Detective, show me the pay scale for a city where they make “$140k base pay.”

Yeah, I still don’t believe any police force in the US has as a base salary of $140k for a beat cop with 15 years seniority. With enough overtime, sure. If you work the job of two men, you deserve to get paid that much.
I don’t believe I ever published my net worth. What do you think that it is? If you get enough of a boost from your parents early on anything is possible. Remember, I started from the bottom.

I don’t believe I ever published my net worth.
I thought I recalled seeing that you said $250K HH income and a bit more than $1MM net worth (I assume that includes real estate equity). If I am wrong, my sincere apologies!
If you get enough of a boost from your parents early on anything is possible. Remember, I started from the bottom.
I grew up in a single parent home (mostly), was on welfare for a time, never had household income of more than $12K per year after I was 6 years old (until after I was up and out anyway) in a fairly dangerous part of the Bronx during a very dangerous time (1970s). Neither of my parents graduated high school. I worked 30+ hours per week throughout most of high school in a butcher shop, starting at age 13. I started college at 16 without one single cent of support from family – not one cent. I got degrees from two Ivies (the “real” ones) and picked up another advanced degree after I stopped working in 1999 at one of the Bay Area “shiny” universities (neither of which was very impressive BTW compared with my earlier experiences). Maybe that’s why I have a chip on my shoulder 🙂
You can believe me or not – it really doesn’t matter. I almost never question people’s personal motives for posting, or question who they are, etc., as so many do. I prefer to just look at arguments and ideas.
I’ll still check with my brother tomorrow, but one more quote from him, “I joked with the sergeant that the ‘only crime around here is that they pay me'” when he was patrolling Manhasset for a few years (roughly equivalent I guess to Hillsborough). Perhaps his base is $125K. Like I said, I’ll check 🙂

poor owner,
I’m sure that NVJ will have his own response, but I’ll offer one of my own as well:
Government can be good. Our government by and large is not, in large part (IMO) because we’ve been taught for decades that government is bad, wasteful, less productive, etc. Isn’t it slightly weird that government agencies in like-developed countries around the world (western Europe, the UK, northern Europe ESPECIALLY, Australia, Japan, etc, etc) have efficient, well run public sectors?
The trains run on time, the streets are clean, the populaces are happier and healthier, etc, etc – makes you wonder what we could do here if a large portion of our country wasn’t always demonizing government (IMO leading to many of our best and brightest NOT pursuing public sector employment AND any scamsters out there looking for ways to game the system, because hey, no one will be surprised)

Here is what we did in 1935 when we set up the WPA.
http://www.nytimes.com/2008/12/09/opinion/09taylor.html?_r=1&ref=opinion
I certainly hope that the Federal government doesn’t just dole out block grants to States. I am actually pretty sure that the details are still being worked out, so I am kind of curious how you are so sure that the governors will control the purse strings, polip.

Government is a religion. As such, no evidence can convince the believers.
What would Europe look like today had it not enjoyed the protective defensive umbrella provided by the United States? What would WWII have been like had the US not joined the fight? How would the wonderful trains look had the Europeans not enjoyed the subsidy provided by a country (the US) which was willing to devote in excess of 10% of its GDP to defense and maintain some deterrence to Eastern ambitions through balance of terror? I hear tanks rollin’ and I’ve got images of Prague springs getting jackbooted…..
Europe had six centuries (at least) of accumulated wealth and social and physical infrastructure to draw down, and by 1945 they had done a pretty good job of squandering most of it. The US has nothing to be embarassed about, and can learn little from the cradle of socialism, communism, totalitarianism, and fascism IMHO.
And let’s not overlook the magnificent rise of the United States in the 19th century, all accomplished under the auspices of a very limited government. From my reading of history, I don’t recall seeing any great exoduses of Americans leaving for the welcoming shores and shining opportunities of Europe during that period. Just the opposite, in fact, and that’s still largely true today.

If the last decade of bad leadership hasn’t taught you the foolishness of your ideas, nothing that I can say will do anything to change your mind.
Perhaps you think i’m a repub? That would be wrong. Perhaps you think I hate dems? That would also be wrong.
I’m in my mid 30’s. I have not seen a significant stretch of federal good government in my lifetime.
Oh, and just so you know, both myslef and my close family members have had government jobs on the east and left coasts (but like all good immigrant types, they were our second or third jobs). I know about government from the inside. It would be sheer lunacy to think that a moral and just man at the top (I happen to think Obama is a good man, who is about to find out how far that goes in the world of not so good government) can somehow change the culture of the American system of government.
Graft is endemic. The ethos of the government worker is very much what Satchel outlined above. I know, because I got out of that game before it could turn my own marrow against me. I’ve seen enough leukemic crises to know that I wanted no part of one.
Good luck to our country, we will need it.

So your brother made wise investment choices and has prospered for it. Good for him! It doesn’t sound like his profession had anything to do with, or at least I hope it did not. The police have tough jobs and deserve to get paid well for what they do. The alternative tends to be a bunch of cops on the take. As I have said before, SFPD pays well and still begs for candidates. It is not like people are busting down the doors to apply for these jobs.
I was poorer than you Satchel when I was growing up, but it doesn’t sound like by a lot.

“As I have said before, SFPD pays well and still begs for candidates.”
True. If anything they are underpaid for that job
Firefighters on the other hand are obscenely overpaid for what they do. There are few fires these days.

About the interactions between firefighters and cops, “hanging out at the firehouse” is actually a pretty popular way to pass part of the day (until the OT kicks in after an arrest is made at 6:45pm on a shift that ends at 7:00pm) for many cops on the East Coast, I’m told. It’s not just myth – the firefighters have the best food and the best large screen TVs (equipped with Wii). I was astonished how good my brother is at Wii Tennis when we were all together on Thanksgiving and playing 🙂
Being a cop is mostly tough out there because they are prevented from doing their job. From what my brother and other family members and family friends who are cops tell/have told me, many have simply given up. The potential downsides to your employment/pension status from trying to do your job are just too great (claims of “harassment”, statistical measures of “racial bias” when it is patently clear that the actual crime is at least racially correlated (correlation, but not causation, I guess), abuse and distrust from the public, inability to use a baton when necessary for fear of hidden videographers, obstruction by local ‘race racketeer’ and ‘poverty pimp’ pressure groups, etc.). I really can’t blame them for adopting the attitude that seems omnipresent: “keep your head down, collect the check, [x] years, [y] months, and [z] days til retirement, and ‘I got mine'”.
About all these wonderful public works projects that are coming down the road courtesy of the taxpayer. I can’t wait until some genius discovers that there is a statistical underrerpresentation of female and minority candidates among the ranks of structural and civil engineers. I wonder how they’ll deal with that? (my guess? pretend, make work jobs, together with a regulatory overseer class designed to write the voluminous rules, monitor them, collate the stats, and then enforce them, with an entirely separate layer designed to make sure that the activities of the first layer don’t have disparate impact – all on the public dole) And let’s not even get started with the question of how the USG is going to decide which projects actually make sense and get priority in this vast country of ours…

So how does a guy making less than $150k/yr end up with a net worth of over $1M in 15 years?
Here’s one way:
Real Estate Bubble. Like buying in Noe in the mid-90s and riding the wave;)

There is an opening in the SFFD right now:
http://www.jobaps.com/sf/sup/BulPreview.asp?R1=cbt&R2=00H2&R3=053650
We have a lot of firefighters in this city, it is true. But we did burn halfway to the ground a century ago, this has something to do with it. The other thing is that all of our Paramedics and all of the counties EMTs are firefighters. So we have more expensive cross-trained staff than most places.
I know the Paramedic/Firefighters are very busy, but the rest of the force is mostly in reserve. I am not so sure that we need to cut back on the number of them, but they are obviously very richly compensated, perhaps too richly. Note the long lines of people applying right now at Fire HQ.
Isn’t there some kind of residency requirement for firefighters here? I guess they can’t keep you from moving after you get hired though.

Wow, those are some pretty startling numbers for cops you quote LMRiM. Yet although cops (and firefighters it sounds like) might make out like bandits, my guess is that the vast majority of city workers such as the permit processors at DBI, hole diggers at DPW, or local teachers in general get nowhere near the same level of benefits. Of course their benefits are rich by private sector standards (can you say pension) but you aren’t going to retire early or rich. My mom for example worked at one of the richest school districts in SoCal with what is considered a ridiculously generous retirement package: after 20+ years on the job she retired with about 1/2 her regular salary, nice to be sure, but she’s hardly jetting around in her own private plane or buying up distressed OC real estate as a hobby. Question for anyone who knows: how many police and firefighters does SF employ? It would be interesting to see those jobs as a percentage of the overall 28k city jobs.

Ideas need to be bounded by evidence. Much of what people are talking about in this thread is belief not directly supported by observations or logic.
For example, that wonderous pensions with the “lifelong” label are being given out doesn’t really mean that much. It’s a trap, and the pensions will end when the money goes away. Maybe some lesser amount can be negotiated, maybe not. We’ll see. The idea that one of the biggest generations ever can live lavishly supported only by the generation with the weakest middle class ever seems a stretch. The numbers don’t add up.
As far as infrastructure being a ruberick, a realist would look at the numbers for material losses declared whenever the Chicago river floods and closes parts of downtown and find that billions spent now to avoid billions in damages later actually makes sense and even has a kind of inevitability to it. What is the alternative? Move Chicago? Accept huge occasional downtimes for the core of the City? Most big American cities have several billion in deferred infrastructure work. Infrastructure was in fact one of the most important keys to the burst of productivity in the 19th Century.

“…Mayor Gavin Newsom announced Tuesday that 712 city positions will be eliminated, with as many as 399 workers receiving pink slips this Friday.”
http://www.sfexaminer.com/local/Almost_400_city_employees_will_be_laid_off.html

And little bit closer to home from the Berkeley Daily Planet:
Berkeley Police Lieutenant Sherrie Aldinger, who is retiring after 28 years on the job, will receive 84 percent of her highest annual salary from the city for the remainder of her life. The salary for a Berkeley Police Lieutenant ranges from $104,568 to $119,136.
For local police and firefighters the bill meant they could now bargain to retire at age 50 with a pension that equaled three percent times their years of service—75 percent of his or her highest yearly salary, for instance, for an officer who retires at age 50 after spending 25 years on the force.
Subsequently the state passed a law allowing police and firefighters to receive a pension as high as 90 percent of their highest annual salary.
As noted by the SF Chronicle on Dec 8:
The California Public Employees’ Retirement System portfolio has lost 31.1 percent of its value since peaking last fall, a staggering $81.4 billion drop.

NVJ & other skeptics like Rubicon,
Note the “key” statistic in that editorial I linked above:
“Meanwhile, the average officer is scheduled to work the equivalent of about 40 weeks a year.”
That’s the equivalent of three months of sick time, vacation time, personal days, etc. No wonder why every cop expects to hit the max on most of those “accrued but unused” perks 🙂
And you guys don’t even know the half of what really goes on with all these civil service type jobs, at least on the East Coast (I’ve got probably a score of relatives in civil service jobs back there.) The teachers’ union rules are even more unbelievable, if you can believe it 🙂

LMRiM, SF is no different. My wife was an SF city attorney for a number of years. The lawyers in the office were fine and generally hard working. But the staff — the civil service employees — generally did absolutely nothing. I kid you not that 4 out of 5 of the secretaries, mail people, and generic “administrative assistants” did not do a lick of work. The other 20% did it all, and they got zero recognition for it. The slackers just got moved around but never fired. Dennis Herrera could easily fire half the staff and see zero dropoff in productivity.
Rubicon, I’m astounded that you work for so little pay. Our first year associates make more than double that (I recognize that is at the high end for a brand new attorney who knows nothing), but even our secretaries make about 10% more. What agency pays so little?

My main point is, because gov’t worker pay is a small component of gov’t spending, it detracts from the valid argument re. taxpayer outlay for inefficient gov’t/size of gov’t (Reagan’s “gov’t is the prob.”)
To the extent it is not a small component (education is half of CA general fund spending & teachers/prof.s prob. get at least half of that) — the issue is not salaries. That is, public school teachers are not overpaid.
And Trip, re. my salary, I know, my wife is same year, works at a big firm, and makes triple.

Government pay is lousy. Its the main reason I left DC — $85k to be a research scientist with a Ph.D from MIT with no stock options and 10 days of vacation?
I don’t think so…
Shoulda been a cop. At least then I get to drive fast.
Or a firefighter… then I could drive fast AND get all the girls.

“The bottom half of taxpayers only pay 3% of total taxes
This isn’t even close to true DataDude, where do you hear stuff like this, on the Rush Limbaugh show?”
As long as we’re fact-checking here, NVJ, you may have been too quick to dismiss the tax distibution stat quoted earlier–at least in regard to federal income taxes. I found it quoted in a few places, of which I’ll link one: http://american.com/archive/2007/november-december-magazine-contents/guess-who-really-pays-the-taxes
If sales and state taxes are added in, this most likely shifts the burden a little bit, but I betthat the upper 50% still account for 90% of tax receipts.

1. FDR policies actually lengthened the Great Depression
2. Infrastructure investments don’t always work. Just look at Japan in the 1990’s
zzzzzz nails it. It is basically the biggest monopoly in the area it governs. Consequently, with no real competition, this is what we get.
What’s worse is that we have a ton of “useful idiots” that the non-profits and unions are playing like a fiddle here in San Francisco. All a union has to do is scream that something is anti-union, and they get what they want.
SEIU is playing San Francisco for a fool. And guess what, we have a bunch of people who are not as smart as they think they are falling for it. Most educated city? I’m not seeing it. The street smart unions are pants-ing the “book smart” San Franciscans.
In any case — don’t just look at the hourly wage. People are right to look at benefits, but don’t forget to focus on work rules and job titles. The reason why Toyota and Honda are able to beat US carmakers on their own home turf is that they’re able to incorporate efficiencies and flexibility.

ok, to shift the commentary a bit, I don’t understand one part of lasseiz faire (sp?) theory — that is, granted private profit motivated individuals can do any particular thing better than gov’t, don’t we always need gov’t to make the market? That is, there’s no such thing as a market without the government creating it and policing it is there?
I guess that’s correlary to the assumption that our society doesn’t even want everything to be profit motivated — so we’re left with the inefficiencies created thereby — there’s no way around it. And add the assumption that market police are necessary b/c of the “tragedy of the commons” (negative externalities) issue.
(and though finding gov’t waste is like shooting fish in a barrel, Arnold found that there isn’t the “waste, fraud & abuse” in State gov’t that everyone like to think — but as I’ve been told, and see firsthand, that’s not necessarily the case in our municipality)

OMG, noearch, I feel your pain. In my experience, DBI has more attitude, but they at least (sort of) know what they are doing. The Planning counter is a complete joke as:
-50% the time core staff (who do know what they are doing) are doing the aforementioned joking and chit-chatting with each other
– the other 50% of the time you get this horrifed newbie planner who has no idea of what you are talking about and you have to gently hold their hand as point to the drawer where the “approved” stamp is.
I actually feel bad for the inexperienced ones: as I understand it, it is Planning policy to throw them out onto the counter with little to no training and only 1/3 of the department works with the Planning code regularly (the rest are doing long range planning/design or enivronmental work like impact reports on projects). What training they DO receive is, ummm, insufficient to say the least.

Here is the actual pay scale for Nassau County Police, no need to talk to a friend of a friend or anything like that
LOL, NVJ. Sure, I don’t know what I am talking about. Take a close read of that New York Times editorial and the data provided there, and also the earlier 2002 piece I provided initially, and apply some extremely rudimentary mathematical intuition regarding averages and perhaps you’ll realize that the info I gave is 100% accurate and reliable. Or you could choose to believe the “Chief” (house organ of the civil service employee union). As Blake said, “The altering eye, alters all.”
@ Rubicon – Not really picking on government employees per se. It’s just that as the US declines, as a direct consequence of government’s increasing its “depredations” into the private sector on a trend basis (my favorite phrase pioneered by Rothbard), it would be nice to understand why this will have happened.
@ Usually Named – Right on.
@ Robert – you’re right that in SF and in the US generally, the “growth” of the last 15-20 years (at the least) has been increasingly predicated on structural misalignments of the real economy through nonproductive bubble blowing. My contention is that government (and Fed) involvement created the structural misalignments, and going forward will increasingly strangle the US. We’ll see if I am right (I’m not alone in thinking this, of course).
One question for all: if Obama’s vacant Senate seat was being shopped for $1M (my favorite quote from Democrat Governor Blag: “I want to make money”), how much will the car czar position be worth? 🙂 BTW, there are 300 hours of tape, and 3 minutes have been released, so far….. I am looking forward to all the Democrats demanding an independent prosecutor to look into involvement of staff of Obama and into the question of what was known, by whom, and when….
Good luck America!
BTW, NVJ, in writing about my childhood in response to your “I started at the bottom” I think I remember the genesis of my anti-government semi-libertarianism: (1) wholesale destruction of entire neighborhoods by stupid welfare and public housing policies all around me by the mid-1970s in the Bronx; and (2) the public health inspectors who visited the butcher shop I worked at (near the intersection of 204th Street & Valentine Avenue) who never failed to demand (and receive) $100 in cash at their twice-monthly inspections, or else….

CPI inflation (“Congressional Price Index”):
In the early 20th Century a congressman once bragged that he bought his seat for only $20,000.
I will look up the exact quote tonight . . .

What’s wrong with regressive taxes? If payroll taxes are regressive, aren’t the social security benefits wildly progressive?
If regressive sales taxes are so bad and not “liberal”, “enlightened” or what have you, why is California proposing an increase in sales taxes? Isn’t California liberal and progressive?
And BTW, what about a wealth tax for California? I might leave if they try that (horrible public citizen that I am), but I am sure a lot of Californians would be happy to embrace that most progressive of taxes!
Also, why not rescale Prop 13 to levy higher taxes on those whom fortune has favored so much? Is it fair that I can rent our house for next to nothing (partly because the grandfathered tax bill is $1500 per year, but only partly), while the guy across the street in basically the exact same house is paying $17K+ per year because he bought 3 years ago (and is now underwater)?
Ahh, questions, questions…. It’s such a tricky game when government tries to dictate outcomes, rather than just setting a level playing field and let the society evolve as it voluntarily chooses (subject of course to some very very basic safety nets that even I don’t oppose – we’re wealthier than we were in the 19th century thanks to human ingenuity unfettered by central planners – and we can afford to sacrifice a little efficiency for some basics, but just a little 🙂 )

Satchel,
Some of the ideas you mentioned probably would be implemented if government were actually able to decide. Remember, we have a representative government – but not really – since we like to also have direct government through ballot propositions. Nothing like electing someone to govern, then telling them what they HAVE to do and what they CANNOT do. It’s amazing government can get anything done.
If it’s so obvious that your ways are better, why has no country done it? Could it be that your ways are no more politically possible than perfect government? I’m seriously asking.
I am also curious if you really think that the strong growth that the US had during the 9th century had more to do with “lack of government intervention” OR the other ideas mentioned by myself and others (land seized from other peoples and handed out for FREE to our own and new immigrants, land grants to businesses, and free labor through slavery).
Look forward to your thoughts.

Brutus,
In all seriousness, I think the US success in the 19th century had much more to do with the factors that I mentioned, rather than yours (no surprise 🙂 )
South America, for instance, had all the resource advantages that you mentioned, and it was similarly open (especially prior to the 17th century). As you probably know, they also had much more indentured or slave labor, which also lasted much longer throughout most of the countries.
It might surprise some that the slave trade had basically ended so far as the United States (heir to the English colonial trade) was concerned by the very early 19th century (William Wilberforce and all that for those who had a reasonable elementary education unfettered by political correctness). If my memory serves me right (and it ususally does), the US was a destination for approximately 5% of the Sub Saharan African Slave Trade (in aggregate) while Brazil alone accounted for more than 30%. Ever seen the level of development generally for South America (I have travelled extensively there)?
Similarly, if resources primarily were the key, as you also suggest, wouldn’t we see Russia, or perhaps Africa constitute 25% of world GDP (as the US does now)? Why does Canada – with its tremendous resources – have only approximately the same number of people today as the United States had in the 1860s? (don’t hold me to the exact figures – again, just from memory)
You also argue that government “gave” land to railroads, farmers, settlers, etc. This is a typical response of the modern person to history (the availability heuristic, it’s often called). First, government doesn’t “have” anything to give – the land belonged to the people, from which the government derives its rightful place that is limited by consent of the governed (remember the basic rights to “life, liberty and property” as originally proposed in [I can’t remember which Federalist – help?].
Moreover, government’s ability to “give” anything was severely limited in practice, as the land was wild, Washington was thousands of miles away, until the railroads in the 1840s nothing moved faster than a man on horseback, and Federal revenues were miniscule.
I’m not a silly ideologue, and I’ve thought these issues through many times over many years. I also approach the questions with specialized knowledge of law against the backdrop of my amateur understanding of economics and history. I’ve got my ideas on why the US flowered as it did, but I’ll let some others take up the charge 🙂
With all respect, your ideas are typical politically correct answers typically offered by those looking for easy answers without really thinking through the lessons of history. It’s basically: it was all an accident, except for the exploitation. LOL.

DataDude,
BUT, is it fair that people who don’t actually pay taxes get to vote? Inevitably, they vote for politicians who promise to redistribute more wealth their way.
I haven’t read my Constitutional history closely for 15 years at least, but I remember that this was one of the key issues of the debate: namely, should only landed property owners get to vote? (Of course, the Founders being infinitely smarter than we are today intuitively realized that something like an income tax was foolish, preferring limited excise and property taxes, and tariffs.)
The conceptual framework developed was the idea that voting would be universal (within the limits of convention at the time – no women and no blacks, which was necessary unfottunately to get the Union off the ground in a very unsettled world as regards the Great Powers – looking at the scams we are undertaking today to prevent some fools from feeling the effects of their economic idiocy, can we really say we are that much more idealistic). However, government’s influence into the economy would be extraordinarily limited, under the Founders’ view. Especially at the Federal level, which was less accontable to the people, and more apt to be steered towards dispensation of largesse to voting groups at the expense of the public treasury.
We’ve forgotten that basic check and balance, as we expanded the franchise to people who pay nothing (practically) in taxes but who demand everything in services from those who do. We don’t even care whether they can speak the language of givernment, because the interest groups have no interest in the people understanding the workings of government. If you compare the Lincoln-Douglass debates, for instance, to the scholarly tours de force of Messrs Obama and McCain, you’d be hard pressed to think we’d advanced at all (quite the opposite).
Most SF-ers think that the Constitution isthe source of our rights in our system (it makes it easier for them to ignore the role of God or “natural law” – the Founders used both concepts – in our system of rights.
You’ve probably seen this quote that identifies the very tension you describe:
A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship. The average age of the world’s greatest civilizations has been 200 years.
Great nations rise and fall. The people go from bondage to spiritual truth, to great courage, from courage to liberty, from liberty to abundance, from abundance to selfishness, from selfishness to complacency, from complacency to apathy, from apathy to dependence, from dependence back again to bondage.
It’s worth reading the backstory on who said this and when, whether it was more than 1 speaker, etc.
http://www.lorencollins.net/tytler.html
I hope all that helps spur discussion!

Rubicon,
What percent of GDP was doled out by the politicians back in 1867? What were Federal revenues back then? How many pages was the Federal Register? Get the picture?
Your intuition about price inflation is a little off. $200K in 1867 is worth about $3M in 2008 dollars, according to the Fed’s own calculator:
http://www.minneapolisfed.org/community_education/teacher/calc/hist1800.cfm
Sounds like Roscoe overpaid 🙂
In fact, $200K in 1867 was only worth $141K by 1913 when the Fed was introduced. Deflation of course is the natural order of things (human productivity expands and so prices go down), and served as no impediment to the breakneck speed with which the United States grew throughout the entire post-Civil War period until WWI. Why do they fear it so today? (The answer of course is that it is a secret tax and allows government to steal the welath of the population without the foolish people noticing).

LMRiM – that’s fascinating. Thanks. I’ve seen somthing similar, but not quite laid out like this.
So we’re headed for collapse, followed by a dictator. Hmm… The sad truth about today’s world is I’m not sure the public would know a dictator if they saw one…until it was too late.
What are the characteristics of dictators? One is superior oratory skills. (That rules out Bush) Two, during their rise to power, legitimate criticisms about the dictator aren’t properly aired or debated. Perhaps because the media has a bias or to do so would be considered politically incorrect. Three, the dictator plays on fear to assume power and relevance. Four, there’s usually a scapegoat…
I don’t know how far along we are on this inevitable destruction-of-great-nation curve.
Do we know the dictator, or is (s)he yet to be identified and rise to power?

Here is the CBO breakdown of overall federal tax burden by decile:
http://tinyurl.com/63b7xk
They don’t have the bottom 50%, but to make it easy I am just going to add up the bottom two deciles and add half of the middle decile, I hope that is okay.
The bottom 50% makes 20.45% of the overall income (this includes things like Social Security) and pays 10.5% of the overall federal tax burden.
I have seen studies done on overall tax burden, which includes estimates for things like sales tax, but I don’t have them handy. I will try to dig them up for you.

But who are you going to believe, the lying media or your own freakin’ brother! 🙂
My brother used to tell me stories about how money he was making in real estate in Idaho. For some reason, he doesn’t want to talk about that any more at family gatherings.
LOL, NVJ, we spend some time once in a while in Idaho skiing, and we ran into a guy who mentioned that he had a brother in SF who used to brag about how smart he was for buying a place in NV (I think it was one of those crappy duplexes that were built with the working poor in mind when SF was a real city), but that conversation seems to have “gone dark”….. Something about living in half a house with no cars and how rents and prices were going to keep rising…. Your brother doesn’t happen to live in Sun Valley, does he? 🙂

@ NVJ, you’re right about income taxes
If you go way back in thread, San FronziScheme said:
Since when did higher deficits mean higher taxes? Even Obama promised lower taxes for the middle class!
I was referring to the taxes from this thread: income taxes.
Even if you add in other taxes paid, and subtract out government benefits, the lower 50% of tax payers probably contribute in the single digits to overall government revenue, if at all.
I’ve said this in another thread on anther day, but the problem with this lopsided distribution of costs and benefits, as Thatcher said, is: “The problem with socialism is eventually you run out of other peoples’ money.”
Government employees who receive benefits and part salary for life is an example of an economic contract that simply isn’t sustainable.

NVJ. points all taken about most of that.
LOL about food stamps. I know you used them for a time when you were a kid, and so did we (in conjunction with AFDC program). (I hope I’m not embarassing either of us 🙂 )
There was a thriving black market in food stamps in the Bronx, back when they were actual physical notes. Now – in order to make the poor dears not feel self conscious while sucking off the government teat, they have gone to electronic swipe cards (I assume that’s the same here in SF as well?) In NYS, they could almost be mistaken for a high end Amex card. I know that because the illegal that my brother busted had two of them (one under maiden name, one under married name). I suppose you don’t believe that story either. I’m starting to wonder just what you did see when you were growing up! Were your eyes open?
I think society as rich as ours would find a way to avoid malnutrition through private means if the food stamp program is eliminated. I also think private charitable and community groups like churches and fraternal orders (there seemed to be more of that when I was a kid – I wonder why?) would step in, and in the process find additional purpose in tying individual communities together, rather than encouraging faceless unaccountable bureaucracies. For the truly destitute, as I’ve said, I support a very basic government safety net (think dormitory cots and MREs – you were military, weren’t you?). Return the dollars to the people, and watch what happens. That’s just my ideology :), partly based on what I witnessed first hand growing up.
BTW, I actually think prop 13 smooths revenue a tiny bit for places like SF and Tiburon (just to pick some example). That’s because a portion of turnover will always reliably result in large increases in taxes on the older houses sold, as tax bases from 30 years ago are so much below current market value (partly reflecting the subsidy granted to those early owners who voed themselves the gift). These “legacy” sales would probably help balance property tax decreases as a result of assessments down, which would only affect the relatively small percentage of houses that have changed hands for tax roll purposes over the least 5-7 years.
My big ideological beef with Prop 13 (in addition perhaps a bit too the fairness issue that you raise) is that it centralizes control in Sacramento by removing practically all of the local control over the setting of property tax rates. In this sense, it contributes to the increasing infantilization of the California voter, who of course only votes now on the basis of emotion and marketing slogans (“that’s not fair”, “I don’t want to take away anyone’s rights”, “those neanderthal gun nuts don’t understand our way of life”, etc). After all, to pick just one example, if a locality does not control the purse strings of the local school board, there is no real reason for that board to pay attention to the preferences of the population of that locality, especially if you are a union protected teacher caste answerable to the bureaucracy in Sacramento. 🙂

@ SFS, NVJ, & LMRiM
This is a great thread, and I applaud all of you for your hard core enthusiasm. I’m learning a lot (yes, even from NVJ 🙂
A few random comments to the last 10 comments or so:
1) The US is a republic, not a democracy. Right? The founding fathers knew the dangers of monarchy-run governments, just as they could foresee the dangers of mass rule. That’s why we have elected officials. Technically, maybe we’re a democratic republic. Help me out, you lawyers, for I’m only an MBA (and as long as we’re throwing out Ivies, think “Charles River”)
2) Another pitfall of Prop 13 is it effectively limits the housing inventory, thus driving prices up. Old people with low cost basis don’t move. Here’s an example. My grandparents bought a house in Los Altos Hills back in the 1970s. 5 bedrooms, pool, and over an acre of land with stables. In 2000, their property taxes were about $1,500 per year, even though their house was worth more than $2.5 million. They wanted to move closer to family in the Santa Rosa area, but resisted for about ten years because they knew their property taxes would go up hugely. Finally, once their health started to fail, they moved. Without Prop 13 in place, their LAH home would have entered the housing inventory 10 years sooner.
3) The CA sales tax does not include unprepared food items (apples, milk, beef), so in that way, it’s not unfair to poor people. I’ve lived in the UK, where the “value added tax” (talk about oxymoron) is 17.5%. Part of the rationale is it encourages saving. If the bottom half of income earners want to buy DVDs and Nike Air shoes and other goodies, I’m OK that they pay the same sales tax rate that applies to me.
4) Our tax code is way too complicated, which makes calculating actual net taxes paid by decile nearly impossible. By “net,” I mean net of all benefits and subsidies. I’m in favor of a minimum safety net as well, especially where kids are involved. One of the unfortunate things about our huge welfare system is it causes a mentality in middle and upper class people, “I pay taxes, so I don’t need to spend my time or money contributing to charity.” What’s lost is the social networks where those who have can benefit those who have not on a personal level by finding them jobs, tutoring their kids in math, etc. I hate that politicians would rather have the poor be dependent on government for “solutions” then on private charities. The poor continue to be a faceless mass to the middle and upper classes for this reason.
5) Part of the problem with income tax deciles is they don’t track progress over time. In my first job as pizza counter girl (yes, Data “Dude” is XX) I was probably in the lowest decile. Now I’m on the other side of the income distribution curve. It would be interesting to break out these deciles by age and see progression over time. The same is true for resourceful immigrants who start out as janitors, dishwashers or taxi cab drivers, and then as their language skills, education and social network improves, so do their job prospects and income.

@ Rubicon – sorry I forgot to mention you in the kudos; you really add a lot to this site
Yes, you’re right about Seniors taking their tax basis with them, but I think that’s only if they stay in the same county, and not every county recognizes this. Didn’t work for my grandmother. Didn’t work for my husband’s mom, either.

Thanks Dudette
I looked it up: it’s Prop 60 & Prop 90
Prop 60 allows those 55+ to move within same county (all 58 in CA) and transfer their Prop.13 tax basis. Limitations: must downsize & only 1X per lifetime (discriminates against non-cats/buddhists)
Prop 90 allows grandma to move between 7 counties that accept it/reciprocate: L.A., S.D., Orange, Ventura, Alameda, San Mateo, & Santa Clara

@ Rubicon
Counties that host the large “active adult” (55+) residential communities like Trilogy and DelWebb seem not to accept cross-county transfers, for obvious reasons; they want the tax revenue. For my mother-in-law, she downsized and pocketed a nice chunk of change, although her property taxes are now 3x higher, an acceptable tradeoff to her given her net gain.
LOL: cats and Buddhists

Robert,
I can’t resist either. I really like your stuff.
There’s so much in your last posting, so please accept just some quick noncomprehensive jottings!
About “inflationary bias” throughout history, well yes. That’s because governments turn to debasement to take the wealth of the population without their realizing it. This does not contradict the fact that the real value of consumption goods (and likely almost all necessities) must fall during periods of human productivity growth. As just the most egregious example, it once took 90% of the “labor-hours” of the population of America to feed 100% of the population (obviously just rough numbers and ignoring the substantial export/import issues even in the 19th Century). Today it takes 3%. The “real value” of food has declined dramatically. In the absence of monetary inflation, the price similarly would have fallen. In fact, there were periods of time (very anamolous, I’ll admit) when food items cost more 150 years ago than today, in nominal dollars!. During the gold rush, one egg cost $1, at least that’s whatthe anecdotes tell us! Today, a dozen are $1.39 at Trader Joe’s. 🙂
About the $200K in 1867, I am being sneaky, but just a little. True, there was significant inflation during the Civil War that was unwound by a much harder gold standard following the war, but it is also true that cumulatively from 1800 to 1913, we saw a roughly 40% deflation in the price index (at least as used in the Fed series). Look at the index levels again:
1800 51
1913 29.7
http://www.minneapolisfed.org/community_education/teacher/calc/hist1800.cfm
About whether deflation constricts production and makes investment “impossible” or too difficult to forecast, well, it’s an open question, isn’t it? Price is the wonderful mechanism that equilibrates demand and supply at any given time, and so there should be no a priori reason that consumer and “demand” markets shouldn’t clear. Sure, the economy is a bit unstable, and there are depressions, and panics, as there were throughout the 1860s through 1913 (incidentally, the panics didn’t stop, as 1929-33 showed us, and the others were just deferred until today 🙂 ). But, as you noted, growth was still great; better than today actually!
There were also “weather panics” and life in general was subject to more vicissitudes in the 19th century. These were made much more bearable by technology and know how then when children were freezing out on the prairie in the “Children’s Blizzard” (a very good book of the same totle BTW). I suspect that given a stable monetary unit, producers would have created better forecasting methods to deal with them, and some of the yo-yos could have been taken out of the real growth trajectory. Arguably, inventing the magical inflating currency is the way the banksters did it 🙂 However, the market would have found other methods of coping without systematically distorting people’s time preferences for savings versus consumption today. One such method would have been learned behavior in consumer and producer markets to build in greater reserves of safety (higher NPV opportunities for companies, greater savings rates for individuals), so that the cycles didn’t wash out as many individuals and companies at the troughs. Would that have been so bad?
Last, about debasement of money, and “pre-industrial” times. I wouldn’t call the 19th Century “pre-industrial” at all! (Perhaps prior to 1820, but certainly not after 1840!) So, it is not clear that debasement is required in post-industrial countries…
Also, debasement occurred in pre-industrial countries, and was well understood by the participants. After the fall of the Roman Republic is the most obvious example, and don’t forget Cicero’s “the sinews of war are endless money” (various translations) even during the republic. The Athenians as well resorted to debasement during the Peloponnesian Wars 300+ years prior! (I think – I remember that from Hanson’s “A War Like No Other” and other works I read)
Conversely, the Ottoman Empire maintained a stable gold currency from the fall of Rome until about the early 1800s (again – just going from memory).
So, it’s not clear that either pre- or post-industrial societies actually require one form or another (stable versus debasing) although obviously when push comes to shove and it was time for the sovereign or the banksters to steal the savings of the population, TPTB won out througout history!
Anyway, enough with all this stuff (I’m sure no one on SS cares). Like I said, I really enjoy your stuff and it would be great to see more of it.
BTW, I know you were waiting to see the Z1. It’s a total disaster – no surprise (at least as regards the keys IMO – household wealth and net borrowing). And Q4 will be much worse (stock asset values are down 15-20% since end Q3, and housing didn’t get better).

Thanks for the explanation Robert. A gold based economy sounds very similar to one stuck in a liquidity trap. One good thing about moderate inflation is that it strongly encourages people to put their capital to work productively. In a deflationary environment, you are rewarded for just sticking your money (or gold) under your mattress.
I am of the impression that economic statistics from pre-1928 are pretty iffy, except maybe inflation, since we have pretty good price records. I am not too sure about this, so if you know one way or another, it would be enlightening.

LOL.
Robert is clearly a very intelligent observer of what is happening, and I welcome discussions with him. In this thread, he overlooks a few things that are central to his argument, namely (1) even under a hard gold standard, more gold is mined/extracted, and so the supply grows, and the gold bugs even go so far as to posit a relationship between real GDP growth through productivity and real decreases in the cost of extraction (I’m not a gold bug – just offering a perspective here); (2) even 0% interest rates in a world of generalized low price deflation do not imply no returns to saved money generally, as more goods can be purchased with the saved dollars in the future, implying a real return; and (3) even 0% nominal returns in aggregate does not imply that no positive NPV opportunities present themselves (therefore, all investment doesn’t stop), although Robert’s implication that 0 aggregate porfits for an extended period of time might shut down the investment market (that’s why even the hard money guys through gold extraction – and Robert as well with his suggestion that leverage might appropriately be limited as a percent of GDP – envision a growing money supply).
Additionally, the argument that “skilled labor” is idle in periods of demand slack and hence unproductive is similar to the argument that wasn’t made when the skilled manufacturers of buggy whips lost their job due to demand slack from the brugeoning autombile industry. Sometimes, being idle is good, as it lowers real wages for the affected employees and allows them to be reallocated to other parts of the economy that productivity growth has made more attractive.
(Robert, the other car is bought by the farmer who has figured out how to grow twice as many crops as the farmer who was planting at the time the production of the cars was begun, in our HIGHLY stylized two-good economy!)
Nevertheless, I like these sorts of discussions, and could continue them indefinitely, but it really is too far afield, even for SS. Like I said, I hope to see more posts by Robert, as his insights and understanding are challenging and thought-provoking.
Perhaps, TheRef, you would like to add your pearls of wisdom to the economic debate?
It’s not a contest. We’re all trying to understand what is happening, how it could have been avoided, and what systems might be more rational going forward. My forecasting record stands on its own merits. The central planning apologists never saw this wipeout coming, and they still think that control over liquidity and forced lending is going to avoid what is unavoidable. We’ll see who’s right.

Thanks, Brutus.
My view of regulatory failure is a lot more nuanced. I take the Hayek view, that a mixed economy (planned versus market) ultimately has to go all the way towards total government control, which by force will always be dominated by an elite. In other words, the end of representative democracy or any other form of democratic system.
I don’t think one can separate politics from economics at all, unless perhaps the government only has very limited and clearly defined influence over the economy. I think the seeds of our current situation were sown in the 1930s, and the Fed system of money and/or credit inflation has known no political boudaries (democratic v republican). Nothing done in the last 8 years could have stopped this mess – it was a mathematical certainty. However, different decisions could either have speeded up the timing of the crisis or delayed it a few more years. Who knows, and from my point of view it’s not too important.
Going forward, the entitlements crisis is going to be even worse, and it doesn’t matter who is in office. The die has been cast. But again, the timing may be delayed or sped up a bit depending on the specific policies that are undertaken (but the crisis will not be avoided, guaranteed). Not the most sanguine of forecasts for those who think the boob in the White House makes a difference, but that’s my view.
Take a read of this brief survey. This guy is a polemicist, and he is not general enough in his survey of where exactly we went wrong, but what he does cover is right IMO, and he accurately describes the current dilemma. Worth reading:
http://market-ticker.denninger.net/archives/P6.html
Also, here is a nontechnical discussion of what is happening today versus what happened in the 1930s:
http://acting-man.com/
(Article entitled, “Hoover’s heirs at work”).
The accepted wisdom of what went wrong during the Depression (a liquidity “mistake” caused by the then incompetent Fed that is so much smarter now), as well as the commonly perceived wisdom of FDR’s policies (“he got us out of the Depression with his New Deal”) are very flawed rewritings of what seems to have actually happened. But a very convenient one for people who want to grow government even larger. Again, really worth reading if you don’t want to read Rothbard’s “America’s Great Depression” and Shlaes’ “The Forgotten Man” in their entireties.
Whew, I think I wrote more words on this one thread than Obama published the entire time he was a “law professor” (don’t professors have to publish stuff? Where is it?) 🙂 I’ll sign off here!