CFAH

From the Examiner with regard to the economic state of San Francisco:

The City is facing a fiscal “crisis,” with one of the largest deficits in San Francisco history expected in the next year, Mayor Gavin Newsom said Monday, adding that hundreds of layoffs could be announced as soon as Tuesday.

And with respect to employment (or lack thereof):

Unemployment in The City hit the 6 percent mark for the first time since June 2004, according to the [Controller’s Office October economic barometer report], which stated that “most indicators continue to show accelerating weakness in San Francisco’s economy.”

Stating the obvious as some like to say (but yet somehow seem to be missing), the economy, employment and real estate prices tend to be correlated. And it’s not looking good.
Mayor: City’s budget situation ‘legitimately a crisis’ [San Francisco Examiner]
From Underwater To Unemployed (And Sorry, But It’s Just Starting) [SocketSite]

Comments from Plugged-In Readers

  1. Posted by badlydrawnbear

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

  2. Posted by chuckie

    Damn! There go all rent vs. buy calculations.

  3. Posted by eddy

    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.

  4. Posted by San FronziScheme

    An hypothetical rent decrease movement would be another feedback loop of decreasing RE prices feeding on itself.
    Lower RE prices = less fiat money in the economy
    less money = less consumption
    less consumption = higher unemployment
    higher unemployment = lower rents
    lower rents = less incentive to buy
    less incentive to buy = Lower RE prices
    You have also a feedback loop through crashing stock prices (less down payment and all cash deals), on credit availability, on plain and simple market psychology. There are probably a few others. Anyone wants to chip in with their theories?

  5. Posted by zzzzzzz

    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.

  6. Posted by terri

    Looks like the Yahoo layoffs are happening tomorrow. I know a handful of Yahoo’s who bought homes within the past year or so and are sweating bullets. It’s going to be an ugly ’09.

  7. Posted by Jake

    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.

  8. Posted by invented

    The Examiner? Isn’t that like quoting The Onion? (Although The Onion can spell correctly and conjugate verbs….)
    Sorry!

  9. Posted by Jake

    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.

  10. Posted by San FronziScheme

    28,000 generously compensated city workers
    Hey, they need higher salaries because housing is so expensive! That’s a positive feedback loop this time: Higher RE = Higher govt pay = Need for higher taxes = Need for higher RE prices. Of course, I am making this one up. But no wonder all Govts are petrified to see RE-related taxes revenue collapsing. No wonder too they are all screaming for bailout after bailout.
    Talking about tax use, did anyone notice this article in SF Weekly?
    http://www.sfweekly.com/2008-11-19/news/business-conductor/
    Our tax money at work.

  11. Posted by DataDude

    @ 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.

  12. Posted by San FronziScheme

    DataDude,
    Since when did higher deficits mean higher taxes? Even Obama promised lower taxes for the middle class!
    Deficits don’t matter. Foreigners will always buy our debt 😉

  13. Posted by redseca2

    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.

  14. Posted by tipster

    I have two service businesses that cater to the financial services and tech industry mostly in SF and Silicon Valley.
    We’re getting one call about every two weeks with the same message: “stop everything”. Some companies have stopped paying at all and so we’re refusing to work for them while the bills are unpaid. Nearly every one of our clients is laying off: when we call, the primary contact is just gone.
    As for rents, I’ve been tracking them for months in District 7 and they have fallen about 10% in the last 3 months. Anything not in perfect shape that isn’t aggressively priced is just sitting.
    And sales in D7 have just fallen off a cliff in the last month. 2200 Sacramento is just sitting and will obviously need at least 10% off. When I was looking in the 3.8M price range in 2005 or 2006, you couldn’t get anything CLOSE to a place like that in that kind of location for 3.8. Sure it’s a duplex and only the front yard is private but wow, what a place!
    As for hotel occupancy rates being the only thing that isn’t going to drop, recognize that if they say that, they can budget in the higher taxes and spend the estimated taxes. Hotels are going to hurt like the rest of the economy. They are just saying that to be able to be “surprised” later after the tax money has been spent.

  15. Posted by DataDude

    “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.

  16. Posted by poor owner living in potrero

    I never thought I would live to see the day:
    Treasuries rose, pushing yields on the three-month bill to minus 0.01 percent, as U.S. stocks declined amid concern that the recession will deepen.
    http://www.bloomberg.com/apps/news?pid=20601087&sid=apHsMiQ2_mAw&refer=home
    we are in really dangerous times. worrying about the price of 2/2’s in pac heights or its evil twin (my hood) seems a bit absurd…

  17. Posted by DataDude

    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.

  18. Posted by LMRiM

    Negative rates have more to do with excess funds in the repo market from what I understand from people who used to do all the repo stuff when I was trading professionally (something technical about custody and transaction cost issues in effect “forcing” dealers to pay to keep the money in the system). It happened on occasion in the Japanese repo markets in the 1990s. Not a good sign, but not anything significantly different than what 0% signifies as far as risk preference/inflation outlook, etc.
    I’d be interested to hear if any SS readers are involved in repos today in the US market and could either confirm that the same issues are at work here, and/or explain what’s going on with more first hand knowledge.

  19. Posted by sf jack

    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

  20. Posted by Jake

    So 28.5% of them (8,000 of 28,000) make more than 100k? Sounds like peanuts to me. It looks like barely 100 make more than 200k with the top city salary at 350k. How is that different from any corporate environment of a similar size (where the top few percent would make waaay more?) Outside of the ridiculous overtime that some of these guys rack up (the top paid city worker is apparently an overtime hoarding nurse) their pay doesn’t bother me as much as the NUMBER of city workers which is absurd.

  21. Posted by location

    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?

  22. Posted by San FronziScheme

    Jake,
    This is not peanuts. Or at least we should expect outstanding service for this money. I could add “pet grooming” to sf Jack’s list of luxuries we should expect. But before that we should expect better roads and on-time Muni, for Pete’s sake! Bloody useless. What a waste!

  23. Posted by zzzzzzz

    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.

  24. Posted by Zig

    Thank you ZZZZ
    Its the Benefits that are insane
    Not sure what the contract is now but my dad has a bunch of buddies who retired on 95% of their top year (which of course they all pad with excessive OT). These guys live 20-30 years after they retire. We will soon have more firefighters retired than working
    They could offer a package at 2/3 of this and still have a line around the block when hiring

  25. Posted by noearch

    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.

  26. Posted by best guess on repos

    to LMRiM:
    my best guess
    negative repo rates are function of massive liquidity being created by the Fed combined w/ a financial system which is terrified of counterparty risk. basically all of the reserves/liquidity created by Fed only have an appetite for riskless assets, t-bills, because virtually every other asset class has performed so poorly this year. concurrently, t-bill investors have no interest taking the counterparty risk that is part of “repo’ing” out your government backed collateral. hence a shortage of t-bills in the repo market, forcing a negative repo rate to overcome the disinclination to counterparty risk.
    my understanding is this is being exacerbated to some extent by the Fed’s recent shift to unsterilized reserve increases in the banking system which itself is widely considered a form of quantitative easing.
    also, some in markets think fed funds rate could be brought down to zero next year, a la Japan in the 90’s.

  27. Posted by Eoral

    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.

  28. Posted by EBGuy

    the Fed’s recent shift to unsterilized reserve increases

  29. Posted by EBGuy

    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.

  30. Posted by spencer

    why do we offer pensions to city or state workers at all? Shouldn’t they just put into a 401K like the private employees and retire on 401K and SS
    In this day and age, it seem ridiculous for anyone to get a pension. Haven’t we learned from the auto and airline industries?
    maybe those over 55 should still qualify, but these should be cancelled for anyone younger

  31. Posted by LMRiM

    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?

  32. Posted by LMRiM

    Sorry, I reread all that, and there is one correction. My cop brother’s retirement pay is for life, but it’s calculated as 50% of final 3 years’ pay. He said it usually works out to about 75% of pay because of the overtime when the cops become short timers. It’s also indexed to a measure of inflation (I think CPI-U), but it will be offset dollar for dollar with any social security benefits when the free government social security cheese starts getting disbursed, but the medical component stays separate (and better) than medicare. Also, the pension benefits are not taxed by New York State under an agreement with the union.
    I’d be curious to know what the details of SF police officers’ packages are like, if anyone has info.

  33. Posted by NoeValleyJim

    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.”

  34. Posted by LMRiM

    NVJ,
    don’t believe you.
    I’ll call him tomorrow and get the exact dollar figure and understand exactly the breakdown between “base pay” and overtime, and exactly how the base evolves. He’s a veteran officer now with 15 years’ seniority.
    In the meantime, perhaps you will satisfy youself with this I found on the web. Note the date – six years ago. Also, note the $220K average “termination payment”:
    “March 15, 2002
    Eugene Albanese made $100,001.44 as a Nassau County police officer last year, but even though he broke the six-figure barrier, he’s below average in a department where officers are among the highest paid in the nation.
    In a year when the average cop’s pay passed $100,000 for the first time, Albanese achieved a distinction that would be possible almost nowhere but Long Island. Though his salary would be the envy of many wage-earners, he ranked only 1,292nd among Nassau police officers.
    According to a Newsday study of Nassau police pay, the average compensation paid to nearly 2,800 officers last year reached $101,935.79. At the same time, average termination pay for retiring officers hit $221,682, nearly double the average of 1996.”
    http://www.911jobforums.com/archive/index.php/t-10248.html
    Also, keep in mind that that $101k+ average (not mean) in 2001 includes the roughly 15% of the force that is at the very bottom of the pay scale (new recruits within forst 2 years of hire) who only earn about $35K ($25K when my brother went through the academy). (You might protest that it’s impossible that 15% of the force that retires after 20 years can’t be within 2 years of hire, but that would just demonstrate that you don’t understand the other scam that is massively popular among police officers and firefighters – the “medically necessary” early retirement that nets you 50% disability pay for life tax free! We have two firefighters in my extended family who were both first responders on 9/11 (so was my brother) and they are currently enjoying that tax free income).
    Do you really still doubt me (keep in mind that the base increases every year and the average 6 years ago was $101K and he is now at almost the top end)?
    BTW, you once published your net worth, and my brother’s is a bit more. Still think tech is the way to go? 🙂
    You would not believe the scams my brother and I witnessed growing up in the Bronx in the 1970s (under circumstances that were probably even worse than your own, not that it really matters).
    Anyway, keep paying those taxes, NVJ. Someone has to 🙂 (Government workers of course don’t actually pay taxes – the gov just takes back a portion of the salary that had its genesis as taxes on the productive private sector.)

  35. Posted by NoeValleyJim

    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.

  36. Posted by poor owner living in potrero

    I forget which thread it was where I mentioned to NVJ that I was disappointed by the fact that he did not expressly mention regulatory capture.
    You stated that it was obvious and did not need to be stated.
    I know you are a liberal Keynesian, and as I said before, I appreciate that you stick up for your views however indefensible they might be :).
    It must be noted, nonetheless, that our new fiscal stimulus nation/bailout nation/command economy will be put in the hands of… guess who?
    Oh yes, the governors of the United states of America (and the Commonwealth of Massachusetts too). And you were right, regulatory capture is so obvious and so pervasive that even the Gov of Illinois has assumed that you can talk about selling Senate seats. Yup, I’m looking forward to giving 1 trillion dollars to government officials so that they may allocate the capital to ‘just’ and ‘efficient’ causes.
    I’m sure you will have a stinging rebuke for me, NVJ, and I am looking forward to it. For your sake, and more importantly, mine, I hope that your government is good worldview turns out to be correct. Otherwise, something tells me our tax dollars are going to be auctioned off to the highest bidder for a few bridges to nowhere…

  37. Posted by LMRiM

    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 🙂

  38. Posted by NoeValleyJim

    No, polp, cynicism is its own reward, you don’t need any stinging rebuke from me. 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.
    I agree that is very important that our tax dollars be spent wisely and I know in the past Americans have risen to the challenge. Look to what FDR did in similar circumstances, or the professional bureaucracy in Germany. If the decisions on how to spend public money are put in the hands of entirely amoral group of self-interested people who don’t even accept the possibility of community and shared responsibility, don’t be too surprised how the decisions turn out. But I am cautiously optimistic that the new Administration won’t be too much like the old, at least for the first few years.
    $600B is a lot of infrastructure spending, I hope they don’t try to spend it all in one year, or there is going to be a lot of waste. I doubt there is more than $200B of “shovel-ready” infrastructure projects in the whole country.
    They have talked about R&D and Internet infrastructure as well. No doubt there will be some waste and hopefully it will be kept to a minimum. Public vigilance is definitely in order.
    No doubt we will get much more for our money than the $2T wasted in Iraq.

  39. Posted by Brutus

    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)

  40. Posted by NoeValleyJim

    So how does a guy making less than $150k/yr end up with a net worth of over $1M in 15 years? He must have made some darn good investments.

  41. Posted by NoeValleyJim

    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.

  42. Posted by LMRiM

    He must have made some darn good investments.
    He had a very good advisor 🙂 And the three acre practically waterfront spread in Suffolk County he was able to finagle for a steal (upon which he built his own house with his own hands – with some help from the compadres at the Home Dumpo parking lot when necessary) didn’t hurt either 🙂

  43. Posted by LMRiM

    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.

  44. Posted by Brutus

    Satchel,
    Let’s not forget a few things about America in the 19th century:
    1. The biggest and most productive, resource-rich piece of real estate in the world, just waiting to be exploited by capital (oops, I mean immigrants) from Europe.
    2. A government willing and able to grant massive subsidies to these folks (individual land grants) and the fancy schmancy new companies of the day like the railroads and oil companies (where did they get all that land?)
    3. MASSIVE tariffs
    Just my thoughts at least.
    I agree that we could do things a lot better with a lot less government if we had another massive, productive, resource-rich piece of land to hand out to new immigrants right and left.

  45. Posted by poor owner living in potrero

    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.

  46. Posted by Brutus

    Government is a religion. As such, no evidence can convince the believers.
    Real world modern examples can be provided for relatively good government. I don’t recall any Austrian-ideology market states – perhaps I’m wrong? Which one was the religion? Right, if only it were tried it would work…just like Communism, no?
    I’m only half-joking

  47. Posted by NoeValleyJim

    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.

  48. Posted by FSBO

    I just caught up to this thread and its many excellent posts. Nothing here is news to me – except the extent that Michael Tilson Thomas is feeding at the trough too. I agree with Rahm Emanuel that this crisis will be a terrible thing to waste – but we’re making all the wrong moves so far and I have no confidence that the decision making will improve after Jan 20. New winners will be selected – but most of us will lose. I know that some here support public sector solutions. I’d love to hear some true stories of dedicated productive govt workers who actually provide a net benefit to the tax-paying society. Maybe they exist – I knew a few myself, but that was back when I lived in the SunBelt and flyover country. I have yet to meet one out here in CA.

  49. Posted by Zig

    “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.

  50. Posted by FSBO

    Good point Zig about firefighters. Are there any stats on how many real fires they actually handle? My sense is that you could reduce their total headcount by 50% (or more) and their average pay by 30%. I disagree that the SFPD is underpaid for the job that they perform. On average, they are way overpaid. Not to pick on just our bravest and finest, I think almost anyone with half a brain could take one look at any city department and find a way to save 30% or more with no reduction in useful output.

  51. Posted by LMRiM

    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…

  52. Posted by asiagoSF

    Satchel,
    I invite you to reflect on your statement “let’s not overlook the magnificent rise of the United States in the 19th century” with a metaphor:
    Wherever you are now (in Marin, I suppose), go and take over your right neighbor’s house, just because, and set up a factory/sweatshop/cotton field/labor-intensive business of your choice in it. Then go to your left neighbor, put him in chain, and bring him over to your newly created business to toil for you for nothing for a lifetime.
    Then go brag about the magnificent rise of your economic conditions.
    Rings a bell?

  53. Posted by San FronziScheme

    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;)

  54. Posted by Brutus

    My feeling is that most fire departments should basically be closed in the way that they operate now. Roll their job responsibilities into each state’s national guard and make it another option for those who would like to give some kind of national service in exchange for access to the GI bill – without risk of being sent into a war zone.

  55. Posted by NoeValleyJim

    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.

  56. Posted by vox

    Why all the hate for the fire fighters?
    On my block in just the last year we had two utility pole fires, one apartment building fire, and the port a potty arsonist struck recently, too! Each time, the FD was on the scene in minutes and did their job.
    None of the above includes all the other types of situations they handle, their education and prevention programs, and etc.
    The cost/benefit is pretty obvious, IMHO.
    One day, SF will get hit with a Big One and then each and every one of the haters on this thread will be thankful, if only we’re able to resist the temptation to cut the FD.
    If you want to pick on useless scum who blow taxpayer money, try hedge fund managers instead.

  57. Posted by Jake

    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.

  58. Posted by Jimmy (Bitter Renter)

    Yeah, what’s up with hating fire fighters? Of all the city workers, I think just about everyone is expendable except for police and firefighters.
    Just outsource the rest of it to India. We’ll replace Gavin Newsom with Gaveen Newsomaramy who will give his 7.5-hr state of the city address via youtube from Bangalore for $5/hr!!

  59. Posted by Mole Man

    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.

  60. Posted by Rubicon

    (Disclosre: I’m a public employee)
    Gov’t failings are not due to executive branch administrator/employee pay. The $$ spent there is basically a rounding error. (at least that’s so for State of CA — see high quality non-biasied publications from the LAO)
    Much like Friedman’s recent article about Detroit bailout, worker pay is scapegoat and is quite obviously NOT why Detroit fails. (and the discussion about the $73/hr. reminded me of the shaky details of LMRiM’s brother’s pay.)
    People usually like to cite the salary of the head investment manager of CalPERS ($500,000 or more?). But the person beats the market and saves the taxpayers billions by avoiding having to kick-in General Fund $$ to fulfill retiree obligations. If they’re good, they usually leave and make millions in private sector.
    Also, the # of state employees in CA (incl. teachers), per capita, is about average. (again, see LAO publications)
    As an atty. I make about $75K/yr. and I think the work I do saves Californians $millions, in fact, I am underpaid.
    Finally, after three years as CA public employee, the attitude described by LMRiM regrarding his brother is far worse than all but one or two public employees I’ve come across (out of hundreds)

  61. Posted by Anna

    “…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

  62. Posted by LMRiM

    Wow, it looks like I’ve gotten a lot of skepticism on the numbers I quoted for police officer pay in Nassau County, New York.
    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.
    *********
    reminded me of the shaky details of LMRiM’s brother’s pay

    Listen up, folks, and learn something in the process.
    I spoke with my brother, and the details of the compensation package are all public info, so I’m not giving any prop info away here.
    Base salary is calculated at an hourly rate * 40 hours per week. At that rate, current base is $125K. However, all police officers are required to spend a portion of their hours at night or on weekends or during holidays – the infamous “differential” and holiday pay. Working no more than 40 hours per week (ZERO overtime, NVJ), it is impossible to earn less than $137K per year at my brother’s seniority level. It could go higher (without overtime) if you can finagle more differential pay by swapping shifts.
    The most recent contract negotiated goes for six years, ending in 2015. Increases are mandated for each year, and final “base pay” (not including differential and holiday) is scheduled at $156K in 2015. The expectation is that average 40-hour week pay will be around $175K then.
    At retirement after 20 years (age 44 in my brother’s case) police officers are eligible for a final termination payment. This is based on the final hourly wage (already negotiated) of approx $70 (after some technical adjustments relating to differential and holdiay pay). This termination pay consists of:
    (1) Up to 50% of accrued but unused sick days (they are alloted 25 sick days per year), up to a maximum of 275 days payable (which most cops hit), but my brother won’t because he plans to retire immediately upon eligibility. $154.0K. (275*8 hour day*$70)
    (2) Up to 90 unused vacation days (I don’t know how many vacation days are alloted, but every cop hits the max). $50.4K.
    (3) Up to 15 unused “personal” days. $8.4K.
    (4) 40 hours for each year served in uniform (including military). $56.0K, assuming 20 years police but no military.
    All in, termination pay is $268.8K (2014 dollars)
    After retirement, 50% of final average pay for life, with COLA-type adjustments (sort of tied to SS benefit inflation, but they have their own negotiated formula). My brother is expecting around $80-90K in 2014 dollars, increasing therafter by COLA for life. This is state tax free in NYS and certain other reciprocal states by agreement with the union and involved states. No setoff for social security payments (I thought there was).
    Lifetime medical benefits for the officer, spouse and his family (including children up to their early 20s I think). This continue even after Medicare eligibility age (I didn’t realize this).
    Here’s a 2006 editorial I found:
    http://www.nytimes.com/2006/10/29/opinion/nyregionopinions/29LI-Suozzi.html?_r=1
    Again, no college required for this position (when my brother joined). $75K for a CA government attorney? It really is the land of fruits and nuts!
    Mole Man, your belief that these pensions may not be paid is sensible. It would seem that these sorts of entitlement ponzi schemes can’t last forever. That’s why many of the cops are anxious to retire as quickly as possible to grab that temination payment and at least legally lock in their pension benefits. They are excited at the prospect of Obama’s apparent willingness to throw money at insoluble problems. Most cops are planning now to get into cash businesses upon retirement (pizza places seem popular, as are personal security services).

  63. Posted by EBGuy

    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.

  64. Posted by Jake

    Damn I shoulda been a cop (or firefighter)….

  65. Posted by LMRiM

    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 🙂

  66. Posted by zzzzzzzz

    What’s key here is the fact that unionized civil servants have a monopoly on the services they provide and help elect the politicians who negotiate their contracts. If that’s not a conflict of interest, I don’t know what is. It is, however, a formula for government workers to demand the most compensation and provide the lowest level of service – why wouldn’t they?
    Bottom line: government should exist to provide services to taxpayers, not as a gravy train for government workers. I would argue that any service that can be found in the yellow pages should be put up for competitive bids, pronto.

  67. Posted by Trip

    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?

  68. Posted by LMRiM

    Saddest thing is, Trip, that you could never have found a more enthusiastic recruit than my brother 17 years ago when he took the test and started the academy process.
    The pressure groups absolutely make the job impossible. He had to pull out his gun on an illegal alien and force him to the ground, and two citizens called 911 to complain that the “officer was scaring everybody” and that “he didn’t need to do that”. No one needs that sort of pressure added to an already tough job. I don’t blame him for his attitude in the least. I saw similar sorts of dynamics play out in the Bronx in the 1970s.

  69. Posted by Rubicon

    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.

  70. Posted by zzzzzzz

    “…My main point is, because gov’t worker pay is a small component of gov’t spending…”
    Correct me if I’m wrong, but my impression is precisely the opposite: labor costs consume the lion’s share of the SF city budget, in the neighborhood of ~2/3 the total. Any links on the matter would be appreciated.
    “…Also, the # of state employees in CA (incl. teachers), per capita, is about average…”
    That is emphatically not the case for the city and county of San Francisco. Even allowing for the combined city/county status, the ratio of SF city workers per capita is absolutely astounding, and I’ll repeat, utterly indefensible.

  71. Posted by Jimmy (Bitter Renter)

    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.

  72. Posted by NoeValleyJim

    Here is the actual pay scale for Nassau County Police, no need to talk to a friend of a friend or anything like that:
    http://www.thechief-leader.com/news/2007/0713/news/003.html
    As you can see the top base pay is $99,974, nowhere near the $140k you originally claimed or the $125 you now claim. And this is *after* arbitration gave them a big pay raise.
    The really disingenuous thing is that you hold this up as a typical example of public service salaries. From your own article:
    Putting it bluntly, Nassau County police officers have a compensation package the likes of which is rarely seen in either the private or public sector.
    This is real “key statistic” here. Your case is strong enough without exaggeration, why do you do it? It just lessens your credibility.

  73. Posted by Mark

    “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.

  74. Posted by NoeValleyJim

    It is true that the top 50% of income distribution pays 97% of total taxes, but they also make 87% of total salary.
    As I am sure you know, “federal income taxes” and “all taxes” are not the same thing. Payroll tax is the one that is really regressive, but sales is as well.
    But hey, what is being off by over a factor of three between friends?

  75. Posted by Usually Named

    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.

  76. Posted by noearch

    wanna see some more local government waste?
    Go down to the Building Dept. and watch the employees behind the counter, especially at Planning; standing around making chit chat, laughing, joking…and giving out major attitude to a public customer who needs information.
    real slackers.

  77. Posted by Rubicon

    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)

  78. Posted by Robert

    Not sure why we are picking on government workers here. From the time of the gold rush, but more so now, the whole culture here is based on unearned income, at least in the sense of acquiring wealth far in disproportion to value added. Tech lottery, housing lottery, stock lottery, entitled trust fund kids and proud trust fund parents. Busy — yes, but productive? — not so much. Narcissism of small differences.

  79. Posted by Jake

    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.

  80. Posted by noearch

    @jake-
    thanks for your comments and yea, you know what I mean. you described planning to the core. mostly, but not all are a bunch of incompetents.
    I have my doubts that anything will change down at DBI and Planning..

  81. Posted by LMRiM

    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….

  82. Posted by fred

    Hey, Oakland needs cops if anyone is gung ho. Actually, with the economy the way it is, more people might be looking at this field who previously never considred it.
    http://www.opdjobs.com/oakland-police-department-salaries-and-benefits.htm
    Police Officer Entry Level current annul salary is $71,832 to $90,540

  83. Posted by Rubicon

    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 . . .

  84. Posted by DataDude

    @ NoeValleyJim
    Sorry I didn’t respond sooner–very tough day on the personal front. I don’t know if this thread is still alive, but you questioned my assertion that the bottom half of tax payers pay only 3% of taxes. You said:
    This isn’t even close to true DataDude, where do you hear stuff like this, on the Rush Limbaugh show?
    My source is ABC News. This statistic comes from George Will during the Round Table discussion on George Stephanopoulos’ Sunday morning show. Yes, George Will is a conservative, but Stephanopoulos, Cookie Roberts and EJ Dionne were also present–all left leaning and in command of these facts–and none of them refuted George Will’s statement. There’s a link below–you’ll need to scroll down and click on “Round Table” in the middle of screen. It’s a 16+ minute segment, but George Will makes his statement within the first minute or so.
    http://abcnews.go.com/ThisWeek
    Just because a statement is outrageous, unintuitive, or unfair doesn’t make it factually wrong. And keep in mind, many of this “bottom half” pay zero taxes.
    What statistics do you base your rebuttal on? I’m always willing to update my understanding of tax burden distribution if you’d kindly provide facts.

  85. Posted by LMRiM

    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 🙂 )

  86. Posted by DataDude

    Great, LMRiM
    I don’t want to open a can of worms, 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.
    Similarly, is it fair that renters in San Francisco get to vote on matters relating to property ownership. Renters outnumber property owners, by what margin I don’t know, so obviously renters will vote for things that benefit them, where costs are borne solely by property owners.

  87. Posted by Brutus

    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.

  88. Posted by Brutus

    ^^^Obviously that was supposed to be 19th century

  89. Posted by LMRiM

    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.

  90. Posted by Brutus

    Satchel,
    I lived in South America for a year, so yes, I’m well aware of the problems there (8 months in Fortaleza, Brazil and four months in Buenos Aires).
    I’m certainly not saying that American growth was entirely because of resources (of which the countries you mention are at least nearly as blessed), but because of a combination of factors:
    1. Resources (other countries were similarly blessed)
    2. Distribution of the newly acquired resources to many different people – something certainly not done by Russia, the colonies and later countries of South America, etc.
    3. The government (or the people, however you want to say it) did GIVE land to its own people that it (or its people) conquered from other peoples. It would be a different story if Europeans were native to North America. We could have stupendous growth again if we conquered Australia and redistributed the wealth of the lands to thousands of our people.

  91. Posted by LMRiM

    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!

  92. Posted by Rubicon

    don’ wanna hijack — jus’ wanna epilogue my previous post
    Roscoe Conkling; Senator from NY boasted to have bought his seat for $200,000 in 1867
    That’s gotta be over $20 million in today’s dollars — Blago was only asking for $1 million
    Then again, NY gotta be worth more than Ill. & it was much easier to cash-in back in the gilded age

  93. Posted by LMRiM

    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).

  94. Posted by Brutus

    Let me clarify a bit on the distribution of land. Distributing productive resources amongst many people is very hard as soon as everything is privately owned – yells of socialism and unfairness come to mind (many of which are founded). Conquering land from others, which then becomes owned collectively, is very easily distributed amongst many people to become privately owned – which can lead to great economic growth and stability in society.
    Almost none of this happened anywhere but the US in the 19th century, because nearly every other place has had vested interests in preventing it from happening. We went from conquer to distribute very quickly, which was key.

  95. Posted by DataDude

    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?

  96. Posted by NoeValleyJim

    LMRIM, I can give you other sources if you like, including the Daily News. 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.

  97. Posted by NoeValleyJim

    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.

  98. Posted by NoeValleyJim

    I just listened to the video DataDude, George Will said “50% of Americans pay 3% of income taxes”. Of course, the wealthy tend to focus on income taxes because those are the most progressive.

  99. Posted by LMRiM

    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? 🙂

  100. Posted by LMRiM

    NVJ,
    That CBO tax data you provided is interesting, especially as it incorporates (mostly) the preferred way that smart observers of the US economy tend to look payroll taxes: namely as imputed pass-through payments.
    Employers don’t pay their “share” of employee payroll taxes. It’s their employees who pay them. From your quoted CBO piece:
    “CBO assumes—as do most economists—that employers’ share of payroll
    taxes is passed on to employees in the form of lower wages than would otherwise
    be paid.”
    This is a point in fact made religiously by Rush Limbaugh and other conservative observers of his ilk. The employer share of payroll taxes is another form of “stealth” tax (that is – like inflation – generally not perceived by the economically ignorant who make up the overwhelming majority of the workforce, especially at the lower income deciles). That is the reason that people like me (and hedge fund managers, business owners who pay themselves through dividend structures, et al.) studiously avoid payroll taxes: why pay our “fair share” when so many others are willing to place the yoke on their shoulders and do the pulling? Seems like the government is encouraging that behavior, doesn’t it? I haven’t paid dime one of those taxes since 1999 (and proud of it).
    Similar observations could be made about other large categories of Federal revenues identified in the CBO analysis.
    The bottom line is that the “wealth generators” (as the Austrians like to use the term) will always change their behavior based on the playing field that the government creates. That’s why Mises for instance starts his entire deductive system of economic thought with the simple observation/principle: “Men act”.
    IMO the government would do much better to adopt simple, flat structures for taxation purposes, focusing on what should be the primary goal of taxation: revenue collection. Not social engineering. Or the goal of “income redistribution”. (If they want to engage in that, they can enact more welfare legislation openly, instead of trying to cynically “trick” the population into accepting their elite preference as to how society should evolve.)
    The smart ones will always be one step ahead of the regulators and central planners anyway (a point I, and Rush Limbaugh as well, are always making), and in any event to the extent that the government “succeeds” in snaring the wealth generators, it still fails. Those most productive (at least potentially) alter their behavior in response to the stimuli created by government, to the detriment of the society as a whole. Men act.
    Nevertheless, arguments such as yours are typically used to increase the “progressive” burden that then falls even harder on the middle to upper middle classes: arguments like the lower scale income deciles really do pay their “fair share” and so income taxes should be raised on the higher income earners – and, and, look at the sales taxes that those poor little dears in the lower deciles have to pay on items that they if fact buy (I guess you think they should enjoy effective subsidization by others here too on items that they in fact actually use).
    Those arguments in effect exhort the middle and upper middle classes to place upon themselves the yoke of ever higher taxation of income under some misplaced sense of morality (IMHO, we should save conceptions of morality for personal interactions with individuals, not interactions with the 10s of thousands of pages of regs dreamed up by little bureaucrats on the public dole. I have a very simple moral compass when dealing with government: I take as much as possible and contribute as little as legally permissible. If that sounds harsh, we are a democracy and go change the laws, but remember, men act. For my part, I choose to make my contributions to “charity” on an individual and voluntary basis, and never seek to force my fellow citizens into redistributive schemes that are designed to increase dependence and hence increase government power and control and decrease liberty.)
    Note that there is never talk of taxation on current wealth, which I guess is the first thing one would consider if the policy makers truly wanted to redistribute it. No, the Obamas and Pelosis (among many others) of the world know where their bread is buttered, and it’s not done by the bottom 50% of wage earners. They are just the tools needed to get elected. Unfortunately for lovers of liberty, they seem to be the very easiest to fool.
    When you come out for a repeal of Prop 13 (and thus reestablish a fair tax on housing wealth), NVJ, then I’ll take your ideas about “fairness” more seriously. (Note that removal of prop 13 would probably hurt me, as that would make it tougher to rent nice houses in Marin for a song, while the recent purchasers bear the lion’s share of the burden for the services – especially public schools – that I and my family are happily consuming effectively for free, so I am not arguing my “interest” here, but rather my “values”. I’d like to see the distortion end, even though it would detrimentally affect me.)

  101. Posted by DataDude

    @ 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.

  102. Posted by NoeValleyJim

    LMRIM don’t put straw man arguments in my mouth. I personally favor a greatly simplified but still redistributive tax system, maybe a flat tax with a very large deductible. We would still need to add additional taxes on things that have large externalities — like tobacco consumption and CO^2 production — but these should be limited as much as possible. Tax reform should not happen this year though, it would throw too many accountants out of work 🙂
    I certainly do not favor Prop 13. In addition to the fairness argument, it makes the State of California too dependent on variable sources of revenue, which means that we have to cut back on spending during recessions, right when we should be trying to stimulate the economy.
    Though I guess you could put that on its head and say that by mostly depending on sales tax, The State allows taxpayers to cut their own taxes in times of economic need, like now.
    You use lots of high sounding phrases like “increase government dependence and decrease liberty” to describe redistributive spending schemes like Food Stamps, which consume a very small part of overall GDP. You want to increase taxes and decrease benefits on the 50% of the population that takes home only 20% of income. I will take you seriously when talk about a way to do that without creating massive malnutrition. “Let them eat cake” is not a serious economic policy.

  103. Posted by LMRiM

    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. 🙂

  104. Posted by San FronziScheme

    DataDude,
    I think you’re right tax revenue is paid disproportionately by the upper income.
    But it’s a very delicate balancing act. For the lower income segment the sales tax is also a disproportionate burden compared to income.
    To some, the sales tax is the great equalizer. To others it is the income tax.
    But this is a democracy and the majority decides where the country should go. At least we cannot blame the American people for being cowards about economical choices. They proved they were not afraid about experiments.
    The voters spoke in 2000 for lower taxes for the highest earners/wealthiest, believing it would trickle down and they’d get their cut through higher income and more opportunity. \
    8 years later and the trickle-down effect so cherished by Reaganomics nutjobs proved to be a huge failure leading on resource hoarding and ad-nauseam borrowing by everyone.
    Salaries have actually gone down, housing is 2X more expensive than in 2000. The middle and lower classes are both screwed with too much debt and decreasing income. This will take some time to fix.
    A big chunk of the tax cuts to the wealthiest went into vanity spending and asset accumulation. A few crumbs were “trickled down” to the populace through the “ownership society”. Borrow, spend, rinse, repeat, default.
    Oops, no bailout for you, the “Trickle Up” people need your help.
    But Democracy is a beautiful thing. Voters swung the other way and will ask something for their hard work, like roads and healthcare. The bew team can’t be worse than the guys before them.

  105. Posted by DataDude

    @ 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.

  106. Posted by Rubicon

    I’ll respond to a couple of those Data “Dude.”
    Re. #1: Perhaps it’s just terminology we’re talkin about, but I think “Democracy” is quite a malleable term.
    To some, as long as there are elections it’s a democracy. But Saddam was routinely “elected” with something like 80% of the vote — same as South American, South Asian, and African thugs.
    For me, not to oversimplify, but free press is a huge part of it, if not basically all of it. (ok, maybe a little overstated, but me likes hyperbole)
    In any case, I think you’re referring to the fact that we’re not a “direct democracy” — notwithstanding California’s (Hiram Johnson’s) now failed expiriment with the initiative process. There are, purposefully, many layers between the swarthy masses and those with their hands on the levers of policy.
    Re. #2 There is a little known Prop. 13 escape clause for seniors. But only a few counties receiprocate. Seniors can take their house tax basis with them when moving between certain counties.

  107. Posted by DataDude

    @ 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.

  108. Posted by LMRiM

    DataDude,
    Totally agree about the economic effects of prop 13 (reduction of supply) – I was just addressing fairness and ideological concerns.
    As an economic matter it is a horrible distortion. In addition to the limitation of supply, it also constitutes an implicit insurance policy against tax increases (those in excess of 2% per year). As the constriction of supply worked its “magic” over a generation, the perceived value of this “insurance policy” increased, as trend appreciation (extrapolated) was perceived as likely to be well in excess of 2% per annum. This has been progressively capitalized in the prevailing price structure.
    The price distortion is worse than just Prop 13. Prop 58 allows properties to be inherited at the old tax basis by a defined class of relatives (children, grandchildren, etc.). This further encourages noneconomic use of properties and warehousing. This is one piece of the puzzle IMO why SFH rents are so far below what equilibrium rent would appear to be in iew of the (distorted) prevailing price level of the asset.
    Prop 58 (1986) was added when the owners discovered that Prop 13 had conferred such a gift of appreciation on them and they wanted to make sure to steal the value of that gift from the next generation as well 🙂 It even applies to non-owner occupied residences (but only up to $1MM – no limit on owner occupied, and of course the non owner occupied limitation is often trivial to get around).
    Most people are led by price signals, and cannot be expected to be able to perform this sort of conceptual analysis prior to purchasing a house to live in. This is why government meddling in asset markets through crazy regs like prop 13 and historically rigged mortage markets is so unjust. One doesn’t have to understand the intricacies of input and factor costs for agriculture to trust the price of a loaf of bread. But you better be pretty sophisticated if you want to play in overvalued asset markets that represent more than a lifetime’s worth of excess savings for most people, as many are finding out to their detriment. IMO they can primarily thank the meddling of the Fed and the USG for that (but they will be encouraged to blame “failure of regulation” and the “free market” so government bureaucrats can increase control and regulation further), but to some degree they have to look to the earlier CA cohorts who enacted Prop 13 and 58 as well.
    The overvaluation generated by this Prop 13/58 distortion will be washed out of the SF property market over the next generation, guaranteed, as the structural overvaluation of real estate here (in real terms) now means that the area cannot function on a sustainable basis as a city. (Perhaps as a Disneyland, but that won’t work for 3M+ people in the Bay Area economic ecosystem). Remember, only a relatively small percentage of housing has changed hands at truly ridiculous levels (since 1998 or so in SF, maybe 1999 elsewhere?), and has given the illusion that SF has structurally become that much more productive.
    Let me know if that scheme makes conceptual sense to you or if I am just way off base. I think it applies everywhere in CA, but the economic effects are likely to be greatest in the older areas (SF, parts of West Side LA, older nicer suburbs, etc), where there are resource constraints against building additional supply in response to the false price signals and where there is likely to be large differences between legacy tax values (effectively frozen in 1978) and current market values.

  109. Posted by Rubicon

    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

  110. Posted by DataDude

    @ LMRiM: that makes total sense, thank you, and I was not even aware of Prop 58. Where are (useful) “death taxes” when ya need them??? 🙂

  111. Posted by DataDude

    @ 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

  112. Posted by Robert

    @LMRIM,
    I can’t resist! These discussions are so fun.
    In fact, $200K in 1867 was only worth $141K by 1913 when the Fed was introduced…
    I think this is a bit sneaky 🙂 There was a massive amount of inflation during the civil war (printing Greenbacks with the Legal Tender Act of 1862), after which, the U.S. returned to a gold standard and began to drain the currency. The result was a rapid inflation from 1860 to 1865, and then a deflation to 1890, where $1 in 1860 was about $1.96 in 1865, and back to $1 in 1890. After which, slight inflation resumed. I.e. total inflation from 1860 to 1913 was 13%. But, I agree it’s a very mild inflation. Also note, a similar spike happened in the war of 1812. Inflations in that time were usually the result of government printing or borrowing to fund wars. Another fun fact is that Greenbacks were legal tender until the 1970s.
    Deflation of course is the natural order of things…
    The beautiful Rogoff paper
    http://www.publicpolicy.umd.edu/news/This_Time_Is_Different_04_16_2008%20REISSUE.pdf
    …has a nice section reviewing global inflation from 1500-2006, concluding a “clear inflationary bias throughout history” (p.43), although there were also many periods of deflation.
    As an aside, they also have a nice graph called “The March to Fiat Money: Europe 1400-1850”, showing the decreasing amount of silver in several currencies, as coins were recalled and re-issued in smaller sizes, etc.
    ..and served as no impediment to the breakneck speed with which the United States grew throughout the entire post-Civil War period until WWI.
    Indeed! Between 1800-1860, The U.S. was in a depression or panic 35% of the time. Between 1860 and 1913, we were in a depression or panic 62% of the time. More on the increase later.
    Back to the global inflation graph of the Rogoff paper (p. 44):
    Note the explosion of inflation starting around 1900 — worldwide!
    The prior economic systems were not heavily money based (e.g. first monarchy + barter with a touch of luxury trade, then the commodity exchange of Adam Smith/Jefforsonian farmers). These are broad strokes. Throughout most of history, “assets” and wealth in general, were primarily in the form of land; The richest men accumulated land. Money was used primarily as a temporary medium of exchange: farmer goes to market, sells goods, walks a few paces over, buys consumptions goods and new plow, and walks home. The money stays at the market! Savings were primarily in the form of land or other tangible goods, not money (crudely, profits were re-invested to purchase additional land or other tangible assets).
    These are broad strokes, of course people had some money savings, but it was miniscule in comparison to the size of the economy. At the same time, there were banks, and the previous transactions could be done with a letter of credit. And even in these times, there were enormous depressions and panics typically caused by asset bubbles leading to bank failures or stock exchange collapses, and, to a lesser extent, embargoes/wars. It is to be noticed that several of these panics originated in England, where the march to industrialization (and the rise of banking) was ahead of that in the U.S.
    The industrial revolution really marked the transition to a money economy, and the ascendancy of money accumulation, that is, capitalism, over the previous economies. Money (financial assets more generally) were accumulated for their own sake, not to be used for exchange. In general, the presence of these accumulations introduces new instabilities into the system, by which an increase in the supply of goods can result in an insufficent increase in purchasing power to buy the goods, resulting in involuntary unemployment and depression. Or, an increase in the supply of goods can result in an excessive increase in purchasing power, leading to inflation. In general, the presence of money savings means that supply and demand, in aggregate, need not match. For the same reason, it is very difficult to predict how much the producer should invest, since the demand curve is not predictable.
    The desirability of credit growth and inflation in this scenario is obvious. With a fixed supply of total money and credit, any real positive returns on accumulated financial assets, in aggregate, will lead to real negative returns, in aggregate — which is why this has never been tried. Now, this is in a closed system, and the united states was a major export power, as was england — but not everyone can be an export power. At some point, a sufficient proportion of the earth is industrialized that the system begins to wobble and is forced into contraction, either by first inflation of credit followed by collapse, or by insufficiency of credit in the first place.
    Therefore it is no wonder that after a vicious string of panics and depressions, and with growing political power, pressure from the bankers created the Federal Reserve. This is not to say that the same bankers have not been inflating things to the point of enriching themselves and bringing on credit collapse. This is also not to say that government regulations don’t distort markets. However, it is not government that is the forcing mechanism for inflation or the fed, but the presence of accumulation in the system. Finally, it is a mistake to point to pre-industrial periods in our history as examples of the beneficial effects of a fixed money supply and limited credit growth.
    There, I said it!

  113. Posted by LMRiM

    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).

  114. Posted by Robert

    LRMIM,
    It is fun. I have to run, but FYI, here is a nice graph of U.S. inflation:
    http://www.measuringworth.org/graphs/graph.php?year_from=1774&year_to=1945&table=US&field=DOLLAR&log=
    In terms of the market clearing, etc., yes it will always clear at some price, but this may well entail chronic involuntary unemployment, because skilled workers are not able to find a market (demand) for their labors, unless the total money is increased. It actually requires a deep contraction.
    The old saw about the car worker not being able to buy the car he produces, which of course is theoretically required if the owner is to turn a money profit — maybe the worker has to create two cars in order to be paid enough to buy one. But in this case, in a closed system, who buys the other car?
    It is no accident that the early industrial powers were export powers — they needed to constantly add to the domestic money supply with net gold inflows (e.g. products which were not consumed at home were transmogrified into money by placing them on a shipping palette, allowing for employment of labor at a profit). Conceptually this type of exporting is no different than requiring a worker build two cars, paying him enough to buy one, and then printing money to buy the second car, and then setting fire to it. Now, the second case may lead to market distortions (e.g. it may reward owners who make the wrong type of products), but the correct observation that money supply growth can distort markets does not conflict with the observation that money supply growth is required if money profits are to be accumulated, in aggregate. Perhaps you are so hardline to be happy with zero net aggregate profits, in which case I am a bit of a softy compared to you.
    Alternatively, the owner can recycle his profit by a loan to the worker, so that the worker can buy both cars– this allows supply and demand to match, but requires a credit bubble to continue. As the loans are rolled over, credit will balloon to the point of collapse. Again, credit growth can distort markets, but it is also required for money accumulation to occur — in aggregate.
    So, in both cases, you need to either constantly increase currency or increase credit just in order to maintain employment. An increase in employment, or an increase in profits requires an acceleration of money supply growth. You can find robust historical relationships for this as well.
    This is a fundamentally different situation from a farmer bringing his crop to market, and leaving the market with no money profit. In this case, by definition, aggregate supply and demand must always match, because there is always zero money profit. All proceeds from sales are immediately recycled into purchases, no money accumulation occurs, and no credit expansion is required for the transaction to complete. I.e. this would be the equivalent of the (aggregate) owner paying 100% of sales to the workers, who are then able to purchase 100% of aggregate output without financing or money printing.
    I really think the root cause of this is the accumulation of money savings (that of course require a money return), and that this state is incompatible with the role of money as a “measuring stick” of value, and with stable employment.
    Didn’t look at Z.1 yet, except briefly. This will be good weekend fodder. Has your baseline changed? I am not good at forecasting — the rapidity of the market drop surprised me.

  115. Posted by NoeValleyJim

    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.

  116. Posted by TheRef

    …upon further review, Robert has administered a spanking upon Satchel. The ball will be placed on the Satchel yard line with a loss of down. Robert will not be charged with a time out.

  117. Posted by LMRiM

    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.

  118. Posted by Brutus

    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.
    I would say many of the “apologists” did see that something bad was coming, we’re just not convinced that it was caused by the same things as you (and props to you – you did very accurately predict some of the exact things that would happen). We think the right regulations were either not in place or not followed, where you believe that the lack of all regulations would have prevented the problem.
    Also – I’ll freely admit that I’m much more versed in political theory than economic theory, but the two are linked much more than you seem to admit. If something isn’t possible politically, it’s not plausible to think that we should have done it “that way”, because it would never have had the chance to happen AND never will have the chance to happen.

  119. Posted by LMRiM

    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!

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