Friday, December 30, 2011

2012 Tax Initiatives Chapter 2:     The Truth and Mythology of Taxing Oil and Gas Well Production

Every recent proposal to institute a state severance tax on oil and gas produced from wells in California, whether in the Legislature or by initiative, has been defeated by the oil and gas industry.

Unfortunately,it is nearly impossible without extensive research to find every proposal made to institute a severance tax in California in the 20th Century plus the past decade. It would not be unreasonable to say that the proposals number in the dozens.

Nothing is ever simple about the subject of taxing oil and gas. California is the only major oil producing state that does not charge a severance tax. In a study done by the Franchise Tax Board and the Board of Equalization, it was determined that the combined tax burden per barrel of oil in California was $4.22 per barrel and in Texas was $14.33 per barrel.

Certainly the oil companies pull out all the stops to confuse the issue, even to the point of convincing California voters that a severance tax would result in an increase in the retail price of gasoline - a myth that would be downright silly except many adult Californians believe it.

Prior to 1978, California effectively used its property tax in lieu of a severance tax to gain revenue from oil and gas. Proposition 13 lowered the tax rate to on average ⅓ of the prior year's tax rate, a tax break not discussed in the debate on the measure.

But the measure's impact was much greater. All oil and gas reserves then identified had an assessed value placed on them. Proposition 13 froze those values, as it did all property values, limiting increases to no more than 2% a year no matter how much the value of the oil and gas increased.

The Kern County Assessor noted this year:
Most of our oil and gas properties are at the Proposition 13 Base Value, and taxes are paid on this base value, even though the market value of these properties is a great deal higher. Kern County remains the largest oil producing county in the State, with an estimated 70% of all of the State’s reserves.
What has happened is that California homeowners typically sell their homes every 7 to 8 years at which time under Proposition 13 the assessed value is increased to the then market value. Typically most homes today are being assessed at close to current market value, and even one that has not sold since 1978 is being assessed at 49% of market value (based on the California home median sales price for 1977 compared to the median sales price as of November 2011).

On the other hand, oil reserves are assessed at about 28% of its market value and that assessed value in some areas is being taxed at about 33% of the tax rate prior to 1978. In essence, those oil producers were awarded as much as a 91% tax reduction in 2011 by the well-informed California voters of 1978 through the adoption of Proposition 13 (not that voters today are any more informed).

Most voters have no idea this happened. Most efforts at an oil and gas severance tax have been an attempt to try to rectify this. While directly modifying Proposition 13 with a split roll as suggested by the measure discussed in my previous post would correct this problem, three severance tax measures have been proposed for the 2012 elections.

The first of these measures filed is what I call The Community College Professor's Oil and Gas Severance Tax to Fund Education Initiative. Rescue Education California founder Professor Peter Mathews is behind this measure which would set a 15% tax on the value at the well head of oil and gas produced in California. There are some rational exemptions for so-called "stripper wells."

It would allocate the approximately $3 billion per year in new tax revenues as follows: 11 percent to University of California; 14 percent to California State University; 38 percent to community colleges; 37 percent to K-12. It also prohibits the reduction of existing education-funding levels based on these additional tax revenues.

This severance tax would put us midway between Alaska's Sarah Palin severance tax rate of 25% and Texas.

This measure is currently being circulated for signatures. See the web site.

The second severance tax measure currently circulating is The Occupy-the-Elections Severance Tax on Oil and Gas Initiative to Create a North-Dakota-Type California State Bank. With the understanding that California is much larger and more diverse than North Dakota, to really understand the model for this bank you should review the Bank of North Dakota web site and the article How the Nation’s Only State-Owned Bank Became the Envy of Wall Street.

The measure would establish a state bank named the Sustainable California State Bank, to initially be funded by $200,000,000 General Fund loan. It imposes a 15% percent minimum tax on value of oil and gas extracted in California for state bank capital which, as noted above, that rate would generate about $3 billion a year. It mandates the deposit of some state funds in the State Bank, and authorizes public and private entities and individuals to establish accounts. The state would guarantee deposits, though the State Bank could be insured by the FDIC. It authorizes the State Bank to borrow money, invest funds, make loans to businesses, organizations, and local governments, and keep earnings. It authorizes state bank to refinance state debt and make zero-interest loans to General Fund to finance operating deficits.

The measure's purpose is to boost California's economy generally, but particularly to make financing available to small business and growth industries. It's a laudable goal and an interesting idea, which is more than I can say about the next one that has garnered considerable press attention.

The third severance tax measure, currently just at the Attorney General's review stage is what I call The California Democratic Party Chairman John Burton's Oil & Gas Severance Tax Initiative, some for Higher Education (⅓) and most for the General Fund (⅔) for the Legislature to Play With.

Burton has a long record of public service as a Democrat:
  • 1965 - 1974 member of the California State Assembly
  • 1975 - 1982 member of the U.S. House of Representatives
  • 1988 - 1996 member of the California State Assembly
  • 1996 - 1998 member of the California State Senate
  • 1998 - 2004 President of the California State Senate
  • 2009 - Present Chairman the California Democratic Party
Burton, 79, has long been among the California Democratic Party leaders and is part of the Party's ruling gerontocracy along with Governor Jerry Brown, 73, Senator Diane Feinstein, 78, and Senator Barbara Boxer, 71. (It is worth noting that among this group, only Boxer has experienced any significant time working in the private sector, and she has been in Congress since 1982.)

When Burton left the State Senate in 2005, the California Journal noted:
Gone will be the Senate's most vehement partisan for social services for the poor, the Senate's angriest voice against tax breaks for businesses and the wealthy, its loudest voice for protection of workers, its fiercest pro-labor advocate and its disciplinarian.

Suffice it to say that anything Burton is involved with reflects his preference for a Legislature free of constraints and his partisan viewpoint. This ballot measure is no exception and he clearly states that this is his proposal, not that of any party or group.

For whatever reason, Burton chose to provide for a 12.5% severance tax rate instead of the 15% in the other measures which likely would reduce the revenue to $2.5 billion. The measure specifically provides as follows:
...One-third of all taxes, interest, penalties, and other amounts collected pursuant to this part shall be deposited into the California Higher Education Fund. The remaining two-thirds shall be deposited into the General Fund.
In other words, it would put $1.6 billion into the General Fund for the Legislature and Governor to spend as they see fit. Only $0.8 billion or ⅓ of the revenue pursuant to the measure titled "The Higher Education, Schools, Public Safety and Health Care Preservation Act" is allocated for a specific purpose.

To collect spend the allocated money, a complex new bureaucracy is created called "The California Higher Education Endowment Corporation" which is to have a very large paid Board, CEO, and employees, along with the hiring of an Auditor to perform a very complex annual audit. The Corporation's costs and expenses are subtracted from the $2.5 billion first, and the remaining $0.8 billion not sent to the General Fund is to be allocated as follows:
The corporation shall annually allocate the moneys in the California Higher Education Fund, for purposes of funding direct classroom instruction for higher education, as follows:
(1) Fifty percent to the California State University.
(2) Twenty-five percent to the University of California.
(3) Twenty-five percent to the California Community Colleges.
The measure also provides for a complex sub-allocation for medical and nursing education, the latter based on a complex formula for determining need county-by-county.

Only someone who has spent most of his life in legislative positions in California could propose a measure this complex. The facts are:
  1. It is mostly just a tax to add revenue to the State General Fund,
  2. It creates a large bureaucracy including politically appointed paid board positions to accomplish a simple task of distribution of a comparatively small amount of funds among our state higher education institutions.
I guess Burton has allies for this measure as it has received a lot of press compared to the other two oil and gas severance tax measures. It will be interesting to see which of these measures gets enough signatures to be on the November 2012 ballot, if any.

Again, the severance tax measure petitions that are circulating or likely will be circulating would:
  1. Divide approximately $3 billion per year in new tax revenues as follows: 11 percent to University of California; 14 percent to California State University; 38 percent to community colleges; 37 percent to K-12; or
  2. Establish a state bank named the Sustainable California State Bank funded using approximately $3 billion per year in new tax revenues to boost California's economy generally, but particularly to make financing available to small business and growth industries; or
  3. Collect $2.5 billion per year in new tax revenues, which would allocate approximately $1.7 billion into the State General Fund to be spent by the Legislature and Governor and would allocate to a new fund $0.8 billion for a new bureaucracy to divide between the three state higher education systems which currently spend about $10 billion.

Thursday, December 29, 2011

2012 Tax Initiatives Chapter 1: California's Property Tax Problem and the Ghost of Howard Jarvis

What I call "The California Teachers Association Initiative to Increase and Equalize Property Tax Values on Non-Residential Non-Farm Properties by Splitting the Property Tax Rolls" provides a good place to begin analyzing the plethora of tax proposals.

It is the only proposal that addresses head-on some of the economic and social impacts of Proposition 13, the underlying problem of California's state and local government revenue structure.

(Yeah, yeah, partisans can argue about government spending as there is plenty to argue about. Nonetheless, Proposition 13 was not a spending control measure so spending discussion is irrelevant.)

Most importantly, what voters need to know is that this measure will not change the way residential and agricultural property is taxed. No matter how the opposition phrases scare ads, this measure has nothing to do with homes and farms. Nor will it change the 1%-of-assessed-value property tax rate in California.

It is an attempt to address the problem that Proposition 13 caused California's government revenue structure to be vulnerable to economic cycles in ways most voters in 1978 did not understand.

It's likely that the arguments over this measure will be phrased in the the form of a fight over California's fictional anti-business tax environment, particularly using the California Teachers Association sponsorship to frame it as a fight between public employee unions and private businesses. So let's look at the measure and that issue.

The proponents amusingly entitled this "Protect Homeowners and Close Corporate Tax Loopholes Act". Actually, it would be a tax increase on most, but not all, business property. I do think it is the one and only ballot measure that would stabilize income for California government and thereby stabilize government. Here's what it would do:
  1. Its only impact on residential property is to double the owner occupied dwelling exemption (from $7,000 to $14,000) in 2015-16 and doubles the renter credit on income tax returns at the same time.
  2. It excludes from the definition of non-residential property real property "used and zoned for producing commercial agricultural commodities."
  3. It requires that non-residential property currently subject to the property tax be reassessed every three years to the fair market value beginning after 2014-15.
  4. It exempts from taxation the first $1,000,000 of tangible personal property (specifically excluding from the exemption boats and airplanes not used in the day-to-day operation of the business), primarily intending to exempt the first $1,000,000 in business equipment and inventory providing a significant relief from the impact of the reassessment of business property to small businesses.
  5. It provides that the additional revenue derived from the reassessment be used to cover the reasonable cost of reassessing commercial property with the balance allocated (a) 90% to the State General Fund and (b) 10% distributed to local entities based on law.
  6. It provides that some of the money placed in the State General Fund be remitted back to the counties to cover the exemptions described in "1." and "3." above.
I should point out that the business community already has an "expert" report The Economic Effects of California Adopting a Split Roll Property Tax explaining how this would just be a disaster for businesses.

The only problem is that these are the same people who hold Texas up as the model for "business friendly." The split roll measure would bring California's property tax on business property up to the Texas level. What could possibly be wrong with that???

What it would do is equalize business property taxation, reducing the Proposition 13 extreme favoritism given old business properties over newly developed business properties.

It would eliminate a multitude of inequity sins resulting from the fact that large numbers of business property are owned by corporations. For instance, many of those properties do not sell in a manner triggering reassessment to the selling price. Therefore existing commercial properties are not being taxed at an amount comparable to homes which sell on average every 7-8 years nor are they being taxed at an amount comparable to new commercial developments.

But what about that California business unfriendly tax structure is discussed in the press so frequently?

A March 2010 study was prepared by the firm Ernst & Young (the accounting firm used by award shows if you don't know them from anywhere else) for their business clients who want unbiased information - Total state and local business taxes. From that study, the first piece of conventional wisdom about California that is debunked is in Table 6 which shows State and local business taxes as a share of private sector economy within the state. What we learn is that California ranks #27 among the 50 states. Here's the list:

Note that Sarah Palin's Alaska takes the highest percentage from businesses. Also note that Texas took a higher percentage from businesses.

The primary difference between Texas and California is how we tax businesses (and oil and gas production at the well which I'll address in a future post). Here's a comparison from Table A-3 of the study:

Note the difference in personal income taxes. Texas is more "over-paid corporate executive friendly" because Texas does not have a personal income tax. It has a much higher property tax plus other taxes that impact heavily on corporations. But it is tax friendly to the highly paid executives who decide where to locate the company offices and, like all people, when taxes are considered it all has to do with how it impacts on them. Keep this fact in mind when we discussion the various proposed income tax increases on millionaires. Anyway....

Essentially we don't collect as much property tax from businesses compared to most states, particularly Texas. Simply, this measure would have us do so. And if we do adopt this measure, it would move us up among the states to somewhere around Rhode Island and New Mexico.

Estimates of the amount of additional revenue this would raise range from $2 to $18 billion depending on who's doing the estimating and the time frame used. It likely would take about three years to derive any significant additional revenue from the reappraisal process. It is also likely that the measure would solve the State General Fund revenue stability problem within five years and on a permanent basis.

Could this measure become law? First, it has to get enough signatures. I don't think it will. But if it does, it likely will be accompanied on the ballot with other tax measures. Given that the measure must fight the ghost of Howard Jarvis and the depressing presence of Jerry Brown, it likely wouldn't pass.

Too bad, because it would correct the worst impacts of Proposition 13.

Wednesday, December 28, 2011

Moonbeam, billionaires, high school seniors, and workers - the tax increase initiative competition

And the great owners,...the great owners with access to history, with eyes to read history and to know the great fact: when property accumulates in too few hands it is taken away. And that companion fact: when a majority of the people are hungry and cold they will take by force what they need. And the little screaming fact that sounds through all history: repression works only to strengthen and knit the repressed.
                        -John Steinbeck, The Grapes of Wrath
Many types of uprisings occur when the working class feels aggrieved and oppressed. Certainly today we are beyond the French Revolution, making use of the guillotine. In a political system that basis itself on "democracy", many "pressure relief valves" have been created to keep the ruling oligarchy free of the falling knife blade.

For instance, we here in California have the initiative, which we are using to create our own metaphorical Reign of Terror. Right now there are over 100 "active" ballot measures that have been submitted to the Attorney General's Office (see the list). The web site explains: "The Attorney General provides the official titles and summaries to the Secretary of State for all measures cleared for petition circulation."

Besides taxes, these measures cover every subject from social issues like abortion and marijuana to economic issues like car and health insurance to government reform and pensions and, of course, to "fixing" in incredibly horrific "three strikes law" approved by the voters based upon prejudice, bias, and sound bite advertising paid for by special interests.

Most of these new proposals are complex laws which if adopted would have far reaching impacts on the lives of many, negative social impacts that could not be explained in a book much less in a post. California voters will vote on these measures based upon sound bite advertising appealing to bias paid for by special interests. (Hence my comparison of the initiative process to the French Revolution and its Reign of Terror - that popular rule run amok.)

A number tax revenue increase initiatives have been proposed for the November 2012 ballot, most of which are considered "millionaire taxes," heavily targeting taxable annual incomes above a quarter of a million dollars or oil and gas well production.

In passing, I have to note that some call the measures taxing higher incomes a "millionaires tax." Confusion exists on what constitutes a "millionaire." says:

If a millionaire family is one that has a million dollars in assets (wealth), then at the beginning of 2008 California was full of millionaires. Significant numbers of families owned homes valued over $500,000. By the time you add in some furnishing, cars, electronics, savings and investment, it was possible to be a millionaire without even realizing it - particularly when you had a big mortgage, car loans, and a lot of credit card debt.

Extra taxes on a married couple with taxable earnings of $250,000 and over is probably pretty much a tax on millionaires in the state, just not all. "Taxable earnings" by definition excludes a lot of money.

If by "millionaire" you mean any "very rich person" ... well... even after the recent crash the Forbes list of billionaires residing full or part-time in California is pretty long. Unfortunately, by today's standards being a millionaire isn't all that unusual - kind of an upper tier of middle-class.

But apparently the teachers unions think being a millionaire is rich enough to tax. Who am I to argue with those entrusted with the minds of our children? So taxing millionaires means a meaningful increase the income tax on couples who make more than $250,000 a year.

I'm also a little confused about how many such initiatives ultimately are going to be circulating to get signatures, much less be on the November 2012 ballot. But that's normal in advance of the deadlines for signature submission.

Right at the moment, the following tax measures have been submitted, listed in order of date filed with the Attorney General, using my descriptive titles and the official file number as the link to the text of the measure:
  1. The Nickle (5¢) Tobacco Tax Increase to Fund Cancer Research and Other Stuff  Initiative (approved for the June 2012 ballot). 09-0097.
  2. The California Center for Public Policy 15% to 25% Extra Personal Income Tax on Annual Pension Income Exceeding $100,000 Derived from The California Public Employees and Teachers Retirement Systems Initiative (currently circulating). 11-0021.
  3. The Community College Professor's Oil and Gas Severance Tax to Fund Education Initiative (currently circulating). 11-0044.
  4. The Happy Pills Tax Initiative (currently circulating). 11-0045.
  5. The Occupy-the-Elections Severance Tax on Oil and Gas to Create a North-Dakota-Type California State Bank Initiative (currently circulating). 11-0051
  6. The Unity High School Senior Class Free Resident Tuition for State Colleges Paid from Tax Increases on Incomes over $250,000 Initiative. 11-0086.
  7. The California Teachers Association Increase and Equalize Property Tax Values on Non-Residential Non-Farm Properties by Splitting the Property Tax Rolls Initiative. 11-0087
  8. The Activist Heiress's California PTA Supported Proposal to Tax Millionaire Dad & Friends for Schools Initiative. Version 1 11-0088 was recently replaced by Version 2 11-0100 apparently in an effort to get more political support.
  9. The Moonbeam Complex Free Up General Fund Money and Fix Nothing Tax Increase Initiative. 11-0090.
  10. The California Federation of Teachers & Friends Tax Millionaires for Education, Social Services, Safety Services, and Road and Bridge Maintenance Initiative. 11-0091.
  11. The California Democratic Party Chairman John Burton's Oil & Gas Severance Tax, some for Higher Education (⅓) and most for the General Fund (⅔) for the Legislature to Play With. 11-0096.
Obviously many of these titles reflect sarcasm on my part. I want to emphasize that each one of them offers in preambles lofty language and sincere, laudable goals. Some of them may even be worth considering seriously.

In future posts, I'll offer analysis on these proposals. And when new ones are submitted, I'll add them to this post and offer analysis. I do expect new ones. For instance, The billionaire's beauty and barber shop tax proposal hasn't even been submitted yet.

Thursday, December 15, 2011

The Long Depression, The Lost Decade, The Great California Slump

TIME Magazine coined the term "The Great Recession" for the economic period that began at the end on 2007. It was an effort to liken this recession (which is supposedly over) to The Great Depression of the 1930's, but just not so bad.

When the people who lived it as adults talked about The Great Depression, they generally seemed to say they didn't think it ended for them at least until WWII started in Europe in September 1939. So fundamentally, it was a 10-year time of struggle for many Americans, even though economists call the period of the first 43 months a contraction followed by a period of growth followed by another severe recession beginning in June 1937.

Many Americans are aware that the Japanese economy crashed in 1991 because of what is called the Japanese asset price bubble, and the Japanese initially referred to the period of 1991 to 2000 as The Lost Decade, but many now refer to 1991 to 2010 as The Lost Decades.

What most Americans are not aware of is what is known now as The Long Depression which began with the Panic of 1873 and ended about 1896 or 23 years, an economic collapse that was world wide, but most notably in areas that had gone through rapid economic growth from the Industrial Revolution such as Europe and the United States.

The Great Depression was relatively short as world wide depressions go, shortened because of a world war.

What we should be aware of from The Long Depression is in truth it began with a major economic collapse, followed by some growth in between a series of recessions. In fact the period was a sustained period of painfully slow growth with bumps and dips. As one economist who likens our current situation to that period notes:
New technologies and industries were being created. The telephone was invented, and the foundations of new industries based on the petrol engine and electricity were put into place. The people who got it right still made huge fortunes, and the workers in the right industries prospered. Overall, however, times were hard.
This brings me, then, to what I am calling The Great California Slump. Simply put, California has not been able to create enough new jobs for its growing workforce for two decades. From a worker standpoint, California's economy looks like this:

Simply put, for workers overall The Great California Slump began in 1990 and continues today. And the economist I quoted above feels that it could last 40 years, with some occasional ups and downs. The economy may grow slowly as international corporations generally increase output over the long term, but for workers the general direction will "feel" down in bad times and stagnant in good times.

And that is why we read in the Sacramento Bee  Public confidence in California falls as economy improves and why it appears that a revolution is going on with folks using initiative measure proposals as bullets.

I'll explore those proposals in my next post.

Monday, December 12, 2011

California's Bear Bones Era - Come view the meager remains of our fathers' and grandfathers' promises

“Why don't you go on west to California? There's work there, and it never gets cold. Why, you can reach out anywhere and pick an orange. Why, there's always some kind of crop to work in. Why don't you go there?”
― from The Grapes of Wrath by John Steinbeck published in 1939.

"This is the most significant step California has ever taken in planning for the education of our youth," Governor Edmond G. (Pat) Brown declared in April 1960 upon signing the bill establishing The Master Plan for Higher Education in California.

"I am proud that with this bill California takes the lead among the nation’s states in giving direction and purpose to higher education," said Brown.

"Many others unselfishly contributed their time and talent to this plan and their efforts have given us the tools to build the finest higher education system in the country" said the governor.

In 1980, 40 years after The Great Depression and 20 years following the adoption of the California Master Plan for Higher Education, 60% of California's families were middle income. Last year 47.9% of California's families were middle income. And all indications are that the number will continue to drop.

According to the Public Policy Institute's study The Great Recession and Distribution of Income in California, here is what The Great California Slump has done to Californian's as compared to what The Great Recession has done to the rest of Americans (click on the image below to see a larger version):

What this chart shows is that the 10% lowest income California families saw a drop in median income of more than 21% between 2007 and 2010. This has created a significant change in what it means to be a Californian as seen in this chart:

Essentially, the spending power of a family's income has plunged for the poorest among us and skyrocketed for the richest Californian's. As the report explains:
Not only did the Great Recession strip away any gains in income at the 10th and 25th percentiles that followed the bust of the dot-com bubble, but it also pushed incomes at these levels to near-record lows. By 2010, families at the 10th percentile had incomes roughly 24 percent lower than the 10th percentile did in 1980, and families at the 25th percentile had incomes 12 percent lower. The 10th and 25th percentiles have not yet fallen to the lows of the 1990s recession, but by 2010 there is no evidence that incomes have yet troughed in the Great Recession.

At the other end of the spectrum, the 90th percentile saw a decline from its 2006 peak. However, the gains at the 90th percentile over the past three decades mean that despite the Great Recession, the 90th percentile of income was still 34 percent higher in 2010 than in 1980. Income declines at this level are also much less severe than the declines experienced at lower points in the distribution. Notably for the 90th percentile, the Great Recession has not as of yet stripped away the recovery made after 2004.

The 75th percentile of income saw larger declines than the 90th percentile during the Great Recession, bringing it to a level last seen in the late 1990s. However, over the longer term, income at the 75th percentile is still substantially higher than it was in previous decades. By 2009, the 75th percentile was earning over 18 percent more than in 1980.
The troubling trend relates to the size of the middle-class which is declining as can be seen in this chart:

The study explains:
Most Californians live in middle-income families. In 1980, the proportion of these families reached a 30-year high of 60 percent, a number that has been trending downward ever since. The percentage of individuals in middle-income families reached a new low of 49.7 percent in 2010.
What this tells us is that the goal of our California grandfathers and fathers as reflected by the writings of Steinbeck and the speeches of Pat Brown were being achieved in the 30-year period from 1950-1980. In the next 30 years, 1980-2010, there has been a slow, but systematic decline in access to the middle class, culminating in the effects of The Great California Slump which I now believe will be the period from November 2007 through late-2017.

This has stopped the California population growth from population migration. For better or worse, more people are leaving California than moving in from other states and foreign countries. Instead our population growth of not quite 1% comes from a lower death rate than birth rate. As Sacramento Bee columnist Dan Walters recently noted:

  • Three-quarters of those babies are being born to nonwhite mothers, which means there's a widening generational gap between a fast-aging and shrinking white population and a young and still-growing nonwhite segment.
  • While Asian American and white kids are doing relatively well in public education, the data on academic achievement and high school graduation are miserable for Latino and black kids, which could mean a looming shortage of trained and trainable labor if and when the recession ends.
  • The combination of demographic factors and recession are producing an increasingly stratified society with a predominantly white and Asian overclass, a largely Latino and black underclass and a shrinking middle class, as new studies by the Public Policy Institute of California graphically demonstrate.
This is a trend that is dangerous, it is a trend that would have been unacceptable to the grandfather, Edmund Brown, and to the father, Governor Pat Brown. That the son Jerry "Moonbeam" Brown was Governor when it started (1975–83) and is Governor again is troublesome.

Brown is a 73-year-old man who is the oldest currently serving governor in the United States. He has no children and is married to a 53-year-old woman, Anne Gust Brown, who also has no children. His wife (who plays a significant role in his administration) is the Former Chief Administrative Officer and Executive Vice President of Gap Inc., a corporation that operates the Gap, GapKids, babyGap. GapBody, Banana Republic, Old Navy, Piperlime, Athleta, Gap Outlet, Gap Generation and Banana Republic Factory Stores. During her tenure clothing for these companies were made in Cambodia, China, Colombia, El Salvador, Hong Kong, India, Indonesia, Mexico, Moldova, Peru, Phillippines, Turkey, and Vietnam and the company was embarrassed when The Observer published an accurate article headlined Indian 'slave' children found making low-cost clothes destined for Gap,which embarrassment was handled so well that TIME published a followup article headlined Gap Threatens India's Clothing Boom.  They live in the Oakland Hills in a home purchased for $1.8 million.

Brown, by almost any comparison from a prominent family, is a 1964 Yale Law School graduate who passed the state bar exam on his second attempt and whose only meaningful jobs have been Mayor of Oakland, California Secretary of State, California Attorney General, and Governor of California.

A bachelor in his first term as Governor and as Mayor, Brown was a darling of the press
  1. because he dated high-profile women, the most notable of whom was the singer Linda Ronstadt, and
  2. because he staged appearances at high profile technology events appearing to be the cool technology and environment guy.
In fact it was the combination of these two facts that earned him the name "Governor Moonbeam."

Many ...ok... I would call him a celebrity. Generally the press treats him as a celebrity. Few attempt to relate current events to what happened, to what he did and failed to do, when he was Governor the last time or even when he was Mayor. If he weren't so old, after serving his current stretch as Governor, he'd be a good candidate for "Dancing with the Stars."

Unlike his Irish immigrant grandfather, unlike his Governor father, he has no vision for his non-existent grandchildren. He offers no vision for any other Californian's grandchildren. The vision he has offered recently is him running for another term as Governor in 2014, while the State Government he heads today is in crisis. But rather than lead during a crisis he monitors the public opinion polls to make sure he is a winner even if the State isn't.

Because of opinion polls, while the less wealthy among us are being pushed from their homes or the State Universities that were part of his father's plan or from senior care centers or from medical care facilities for children, he is proposing for the period of 2013 through 2017 to raise the sales tax plus raise the income tax on the wealthiest among us to raise about half the revenue the state needs.

He is doing this by personally sponsoring an initiative measure.He's doing an initiative because supposedly during the budget process in 2011 he discovered to his shock and amazement that the Legislature hasn't been able to do anything significant related to the State Budget for a decade other than overspend.

And apparently nobody but me finds his self-admitted ignorance appalling since from 1999 through 2007 he was Mayor of California's eighth-largest city and from 2007 to 2011 he was the Attorney General of California. He must have been doing these jobs from a cave.

The problem Moonbeam will have with this unimaginative tax initiative to be voted on in November 2012 is that six other proposed tax increase initiatives have already been submitted to the Attorney General and at least one more is expected (along with over 80 other initiative proposals on various subjects).

Few of these initiative proposals will do anything to reverse the decline of the California Middle Class. But in a future post I'll explore the multitude of tax and budget initiative proposals.

Sunday, December 11, 2011

The Great California Slump & The Bear Bones Era collide

Back in the spring of 2009 when I first started posting specifically about the looming financial problems of the State of California and its local governments, I had some belief that Californian's would wise up and head off the long term affects of The Great California Slump.

I apparently was too far out of touch with the voters, the state politicians, and the "smart" influential people.

As I noted in May 2009 (emphasis added):
In Grapes of Wrath, John Steinbeck told a story about how folks migrated to California to find hope within The Great Depression. We are now in what Time Magazine calls "The Great Recession" but California is not going to be a place to find economic hope.
By July 2010 I noted:
...The prevailing mantra is "let's just all ignore the fact that no reason exists to believe that the economy will improve significantly before 2015." California needs to acknowledge we are in a "Bear Bones Era", the first since the 1930's. And by "era" I mean at least a decade.

We needed a "statewide reality check" last year, before the State Budget was adopted. The situation is even more critical now.
So at the end of June of this year, 2011, when the Legislature adopted and Governor Moonbeam signed a "timely" and "balanced" budget, I noted:
...It's a budget predicated on significant revenue growth.

...If February - May is indicative of a trend, the adopted budget will be $10-$12 billion short on revenue without even considering the gimmicks that may not work because they are illegal.

This may be the worst California General Fund Budget ever adopted. But it is truly the Will-of-the-Voters Budget.
The adopted Budget provided for "Trigger Cuts" should the revenues fall short. So here we are at the end of November reading in The Sacramento Bee:

California would impose $2 billion in mid-year "trigger" cuts next month, mostly through K-12 school reductions, under a new revenue forecast issued this morning by the nonpartisan Legislative Analyst's Office. The LAO also said the deficit for the year beginning July 1, 2012 would be nearly $13 billion.

The analyst's report is not the sole determinant of whether the state will impose those cuts, but it is one of two tools the Department of Finance must rely upon before deciding whether to slash spending. The finance department will issue its own forecast in December.
On the same day The Bee reported:
Gov. Jerry Brown's finance director said Wednesday that some mid-year cuts are "likely," increasing the possibility the state will slash education and social services in the coming months.
The latter article also noted that State Legislative Analyst Mac Taylor at his press conference "seemed to discourage lawmakers from taking action to avoid trigger cuts in light of a nearly $13 billion hole staring at them in 2012-13." He was aware that desperation was increasing in the Legislature.

The problem is that next year is an election year for all members of the Assembly and half the members of the State Senate. What they are fearing is that more cuts might have a political fallout.

You see as noted by the Bee in a database "California school districts cut their teaching staffs by almost 25,000, or 8 percent, between 2008 and 2011."

Further, again as noted by The Bee, California is facing elimination "hundreds of state law enforcement jobs that lawmakers and Gov. Jerry Brown say must fall under the budget ax" and elimination 34 joint city and county major crimes and narcotics task forces around the state.

Related to law enforcement are the predictable results of the Governor Moonbeam plan approved by the Legislature to save money by shuffling prisoners off to county jails. Los Angeles District Attorney Steve Cooley, whose office generates one-third of California's felony convictions, is training his personnel to prosecute as many offenders as possible for the most charges available so they will go to state prison, not to LS. County jail. As noted in The San Francisco Chronicle:
In a recent interview, Cooley said he is trying to mitigate the "public safety nightmare" that realignment will bring - particularly in a county like Los Angeles, where the jails are overcrowded and the sheriff regularly releases offenders early.

"It is going to lead to an increase in crime, which is unfortunate, because Los Angeles is at a 60-year low," he said. "There is no place for them to serve their sentences."

Cooley and his senior staff said the office may take this training to other counties as well.
Two years from now we Californians will be blaming someone, anyone but ourselves, for the mess that will result from the "realignment."

And it will be the left side of the spectrum screaming louder than the right.

The only newspapers around the state to offer serious, fairly accurate evaluations of what will happen that I can find serve small counties, like the Eureka Times Standard. I don't know why this is. Maybe because the communities are in more rural regions, the newspapers aren't solely forums for politicians and overpaid talking heads.

Reporters talk to folks who are responsible for things - and maybe the latter are too naive to fear the politicians. For example read this article and a followup article in the Eureka Times-Standard.

What you learn is that the Humboldt County Health Department finds itself saddled with 12 "realigned" health care programs costing about $8.75 million, programs being shifted to a County Department that just experienced a $17 million reduction in funds this year. While these numbers are small when Moonbeam talks about billions, the financial situation is the same almost everywhere in the state.

What is more disturbing is that the Department is the one that provides health and mental health services to the County Jail and therefore will have to serve the increased "realigned" population. So the mental health of the "realigned" prison population will be evaluated and treated by folks who already don't have enough help. They'll be the ones evaluating who should be released.

This is happening all over California. What we learn from the followup article is:
Officials are hoping that Gov. Jerry Brown will make good on his promise to go to the Legislature with a constitutional amendment that will set aside funds for both realignment plans.

Erin Treadwell, spokesperson for the California State Association of Counties, said counties are hopeful that the Legislature will come through with some funding.
Of course that was before the Legislative Analyst "said the deficit for the year beginning July 1, 2012 would be nearly $13 billion."

Finally one can't help but note that some political fallout is coming from the Legislature having to nearly eliminate state tax funding of the two California university systems result in multifold increases in tuition and cuts in faculty pay. Protest by students and faculty have resulted. But the more significant facts are that the universities are admitting more foreign and out-of-state students that pay even higher tuition and a new survey says voters find that state universities get favorable opinions but they fear they are being priced out of the system.

Governor Moonbeam has prepared a tax increase ballot measure to fix things. It appears it could end up being one of many. But that's for a future post.

Monday, November 21, 2011

The billionaire's beauty and barber shop tax proposal

Hmmmmmm. How do we get these weird political things in California???

Apparently we could see an initiative proposal from a 50-year-old foreign-born billionaire investment banker that, if approved by the voters, would collect a service tax on beauty and barber shop charges while giving a tax breaks to international corporations and billionaires.

And according to A Blueprint to Renew California: Report and Recommendations Presented by the Think Long Committee for California, we should create a "non-partisan" and "independent" Citizens Council for Government Accountability to further overload us with opinions, made up of nine members appointed by the Governor, two appointed by the Senate Rules Committee, two appointed by the Speaker of the Assembly from (one each from the state's two largest political parties) and the Governor's Director of Finance, plus the elected State Treasurer, State Controller, and Attorney General. This would be a non-partisan group???

The proposal comes from a Committee under the umbrella of the Nicolas Berggruen Institute, chaired by the Paris-born international investment banker Nicolas Berggruen, who wants to submit an initiative to the voters. He's made a $20 million commitment to jump start an initiative campaign.

According to a Washington Post Bloomberg profile published two weeks ago:

At the poolside restaurant of the Hotel Cipriani in Venice, the billionaire investor glances at the lunchtime crowd drifting over from their sun loungers. He fidgets. Polishing off a cappuccino, he suggests we move....

Berggruen, 50, lives his whole life this way, always on the move, as he seeks out companies to buy, from Berlin to Bangalore to Brisbane. For the past decade, the dual American and German citizen has had no fixed home address. He roams the world on his Gulfstream IV jet, living out of five-star hotels. Most of the time, he carries only a small tote bag containing clothes and his BlackBerry.

If you think the story is slanted, here's who he thinks he is from the Institute's web site.

How does this stuff happen? Would anyone read it if I and 16 friends and relatives drew up an Alternative Blueprint to Renew California? I think I could find $20 to help put it on the ballot.

Monday, November 14, 2011

WE ARE THE MANY - A song for the OCCUPY movement and for 2011-12

We Are The Many - Makana from Makana on Vimeo.

The video is from Makana's web site at Vimeo. Makana represents the next step, a song for the Occupy movement in the tradition of Joe Hill, to Woody Guthrie, to Pete Seeger, and to Bob Dylan.

From a top news story today:
A popular Hawaiian recording artist turned a top-security dinner of Pacific Rim leaders hosted by President Barack Obama into a subtle protest with a song in support of the "Occupy" movement.

Makana, who goes by one name, was enlisted to play a luau, or Hawaiian feast, Saturday night for leaders assembled in Obama's birthplace Honolulu for an annual summit that is formulating plans for a Pacific free-trade pact.

But in the midst of the dinner on the resort strip Waikiki Beach, he pulled open his jacket to reveal a T-shirt that read "Occupy with Aloha," using the Hawaiian word whose various meanings include love and peace. He then sang a marathon version of his new song "We Are The Many."
Here are the lyrics:
We Are The Many

Ye come here, gather 'round the stage
The time has come for us to voice our rage
Against the ones who've trapped us in a cage
To steal from us the value of our wage

From underneath the vestiture of law
The lobbyists at Washington do gnaw
At liberty, the bureaucrats guffaw
And until they are purged, we won't withdraw

We'll occupy the streets
We'll occupy the courts
We'll occupy the offices of you
Till you do
The bidding of the many, not the few

Our nation was built upon the right
Of every person to improve their plight
But laws of this Republic they rewrite
And now a few own everything in sight

They own it free of liability
They own, but they are not like you and me
Their influence dictates legality
And until they are stopped we are not free

We'll occupy the streets
We'll occupy the courts
We'll occupy the offices of you
Till you do
The bidding of the many, not the few

You enforce your monopolies with guns
While sacrificing our daughters and sons
But certain things belong to everyone
Your thievery has left the people none

So take heed of our notice to redress
We have little to lose, we must confess
Your empty words do leave us unimpressed
A growing number join us in protest

We occupy the streets
We occupy the courts
We occupy the offices of you
Till you do
The bidding of the many, not the few

You can't divide us into sides
And from our gaze, you cannot hide
Denial serves to amplify
And our allegiance you can't buy

Our government is not for sale
The banks do not deserve a bail
We will not reward those who fail
We will not move till we prevail

We'll occupy the streets
We'll occupy the courts
We'll occupy the offices of you
Till you do
The bidding of the many, not the few

We'll occupy the streets
We'll occupy the courts
We'll occupy the offices of you
Till you do
The bidding of the many, not the few

We are the many
You are the few

You can download the mp3 version here.

AND through the web sites listed below, you can interact with the movement:

Thursday, November 10, 2011

Chinese cars, Moonbeam, and California's budget plan collapse

Today The Sacramento Bee sent out two of it's "Capitol Alert" stories. The first is headlined Controller John Chiang says California has $1.5 billion cash gap.

Actually, the headline is misleading. The story says:
California has fallen $1.5 billion behind in revenues through the first four months of the fiscal year, according to state Controller John Chiang....

The state also faced spending pressures through the first four months of the year. Chiang reported that California spent $1.7 billion more than budget writers expected.
So the cash gap actually totals $3.2 billion a third of the way through the budget year.

This is no big surprise because as I noted in a June post, I expect revenues alone will be $10-$12 billion short of the adopted budget estimate at the end of the fiscal year in June 2012.

One would expect that Governor Jerry "Moonbeam" Brown would be hunkered down at his desk with his finance people trying to understand the budget situation. But no.

From the other Capitol Alert we are informed:
Gov. Jerry Brown, meanwhile, is talking green at noon as electric vehicle firm CODA officially opens its global headquarters in Los Angeles.

CODA makes all-electric cars named, appropriately enough, CODA, which you can view online at the company's website or its Westfield Century City store in Los Angeles. The base price, including destination charge, runs $45,795, according to the online calculator. Range is estimated at 150 miles.
Oh wow, Moonbeam is down there promoting a California startup electric car manufacturer, right? Well, actually, wrong, but writers at The Bee publish news releases. They apparently aren't familiar with new fangled stuff like Google and Wikipedia. Because....

From Google they would have been taken to a story that explains:
CODA Automotive is teaming up with Great Wall Motor Company to develop EVs, a collaboration that will involve integrating the Californian firm's EV propulsion system with the vehicle platforms of Great Wall.
And if they had gone to Wikipedia they would have told us:
Great Wall Motor Company Limited is a Chinese automobile manufacturer formed in 1976. The company is named after the Great Wall of China. As of 2010 it is China's largest SUV producer.

2010 production capacity is estimated at 500,000 units/year...
So if the Bee reporter, Micaela Massimino, had spent an extra 15 minutes sitting on her butt in front of her computer doing some research rather than pasting in a news release, what she could have told us is that CODA is kinda like Apple, only much smaller. They design stuff, they don't hire workers and build it. Moonbeam is down there promoting a Chinese car manufacturing operation - yeah, electric, but Chinese.

But hey, Moonbeam is being really cool and green and getting great news coverage as a promoter of China's green economy, while the fake state budget put together during the brief period he tried doing his job isn't working.

Saturday, November 5, 2011

Solar Powered Soup Kitchens

The title to this post pretty much says it all about Governor Jerry "Moonbeam" Brown and President Barack "Avatar" Obama.

Both have been sufficiently removed from reality by political ambition that we would expect them to actually favor grant programs to provide solar power to soup kitchens while pondering signing off on cuts in funding for meat.

Reality is the story headlined Most of the unemployed no longer receive benefits explaining:
The jobs crisis has left so many people out of work for so long that most of America's unemployed are no longer receiving unemployment benefits.

Early last year, 75 percent were receiving checks. The figure is now 48 percent — a shift that points to a growing crisis of long-term unemployment. Nearly one-third of America's 14 million unemployed have had no job for a year or more.

...Their options include food stamps or other social programs. Nearly 46 million people received food stamps in August, a record total. That figure could grow as more people lose unemployment benefits.
Even if there are people "gaming" the system, these numbers clearly tell us a serious problem is developing.

By the time you add in those who have never drawn unemployment such as unemployed recent high school and college graduates (and drop outs), we are allowing a huge expansion of the number of our people who are poor by late 20th Century American standards.

Two things are certain.

First, green industry is not going to fix the problem of employment in California no matter how much people might want it to be the universal solution for everything:

Second, despite the machinations of Moonbeam's Administration, the California State Budget will be seriously out of balance by June.

The Great California Slump is not going to be fixed by creating solar powered soup kitchens. (Yes, there is such a thing - see Sun powers Tucson soup kitchen.)

Tuesday, November 1, 2011

What the *&%# happened in Oakland? Jerry Brown, of course.

When the Occupy Wall Street movement spread across the U.S., one of its biggest subsidiaries was in Oakland. Two weeks of peaceful protest activities took place there. On October 25, Occupy Oakland protesters found themselves facing police firing gas canisters. One Iraq War veteran was left in critical condition with a head injury.

On The Daily Show, Jon Stewart asked "What the [expletive deleted] happened in Oakland?"

Like all such occurrences, all kinds of explanations will be offered and someone or several someones will ultimately be blamed.

For consideration, I'd like to offer reports of a sequence of events that occurred in the three months prior, followed by a review of events that occurred in 1999-2003.

From a Thursday, August 11, item:
Oakland police chief Anthony Batts is pressuring the city to funnel more resources into the dwindling department, following Monday's shooting death of 3-year-old Carlos Nava.

At a news conference Thursday announcing the arrest of alleged shooter Lawrence Denard, Batts expressed frustration with city leaders for not prioritizing law enforcement. He made references to the city's opposition to gang injunctions and curfews for teens.

“Monday, August 8 at 1:12 p.m. should be the rallying cry for this city to turn itself around,” Batts said at the news conference.

“Enough with excuses, enough with not doing the right thing, enough with not addressing injunctions, not wanting to do curfews, enough with not taking hard stances,” he said. “Because enough life has been lost.”
Pretty strong stuff from a police chief. Symptoms of a problem?

From an LA Times item, Tuesday, October 11:
Oakland Police Chief Anthony W. Batts, who clashed with Mayor Jean Quan and the City Council over staffing and resources amid a rise in violent crime, announced his resignation Tuesday in a letter to Police Department employees.

Batts, who joined the department in 2009 after being recruited away from Long Beach by then-Mayor Ronald V. Dellums, did not say why he was leaving or what he planned to do next.

In his resignation letter, the chief said he believed when taking the job that he was answering “the call for a reform-minded chief; a leader with a focus on community policing and high professional standards.

“I was told Oakland residents were looking for a strong, visible leader to engage the community and reduce violent crime,” he said. “My goal was to help rebuild a once proud, professional department, geared toward crime reduction and community service.”

But, Batts continued, “I found myself with limited control, but full accountability. The landscape has changed radically over the past two years and with new and different challenges.”

Quan took office in January. She and many council members have largely opposed such crime-fighting measures as a youth curfew and gang injunctions. The City Council met last week to consider those measures and an anti-loitering law; Quan cast a tie-breaking vote to send the measures back to committee.
From another item Tuesday, October 11:
After serving two years as Oakland police chief, Anthony Batts has decided to step down. In an email obtained by the Oakland Tribune, Batts praised officers for their excellent service, despite their limited resources and lack of appreciation. He wrote, “Rather than a chief managing a diverse department of law enforcement professionals making the streets of Oakland safe, I found myself with limited control, but full accountability.”

In March of last year, Batts sat down with KALW’s Holly Kernan to discuss some of the challenges that he faced...
ANTHONY BATTS: I think the systems within the police department are severely broken because of budgetary constraints and other issues that have come up. However, I think we have a lot of excellent employees here, a lot of people who have a great deal of pride, and a lot of people who have good ideas to do different things differently. And I think they’re just looking for a change. I think inside the police organization, the employees are looking for a change, the media is looking for a change, the business people are looking for a change, and the normal residents are looking for a change.
From a Thursday, October 13, item:
Assistant Police Chief Howard Jordan on Thursday was again named to serve as interim chief in Oakland, just days after a report said the beleaguered department is not meeting federally mandated reforms stemming from a decade-old police corruption scandal.

Jordan, a 23-year veteran on the force, was sworn in by Mayor Jean Quan to take over immediately for outgoing Chief Anthony Batts, who resigned Tuesday, citing frustration about having limited control over decision-making.

In a City hall meeting room jammed with leaders, residents and rank-and-file members of the department, Jordan said he looked forward to the challenges ahead.

"The term `interim' will not apply to my decisions," Jordan said. "This is a time for us to move forward, to look to the future."

Jordan takes over amid a rising violent crime rate; after the City Council recently tabled three crime-fighting initiatives; and a judge threatened to put the department under federal control because it has not yet met the terms of the corruption settlement in 2003.

"Howard Jordan is the best person and most prepared to become the chief of police," Quan said. "He's prepared to work forward in a way probably nobody else in the force is."
From a Friday, October 14, item:
If the city's past performance in meeting tax and bond pledges is a guide, officials certainly couldn't use it as campaign advertising.

The most notable example is Measure Y, a 2004 parcel tax measure that assured voters that $20 million annually would be spent to hire and pay the salaries of 63 additional officers and fund public safety programs. It came with a 10-year, iron-clad guarantee that the city would maintain a minimum police force of 802 officers.

Seven years and more than $100 million in taxpayer funds later, where are they? By the department's own count, Oakland has 651 sworn officers.

When you consider things from that point of view, I guess former Police Chief Anthony Batts wasn't the only person in Oakland that municipal government let down.

...So in the space of a little more than two weeks, Oakland's elected officials have stalled three public safety measures, lost a popular and credible police chief and now come to residents to ask for public safety funding - again. There is a definite disconnect in the communications system between Oakland residents and most of the city's elected leaders.
Now, of course there is no direct correlation between what happened 11 days later on October 25.

But if you have any doubts about the underlying problem in Oakland, consider this November 1 item:
The Oakland police union released a statement today saying its officers are confused about Mayor Jean Quan's stance on the Occupy Oakland encampment and what they are being asked to do for Wednesday's citywide general strike.

A legion of Oakland officers and those from 17 outside agencies were asked to remove the Occupy Oakland campers early Oct. 25 from Frank Ogawa Plaza outside City Hall, but Quan allowed protesters to return starting the next day, the union's "open letter to the citizens of Oakland" noted. The encampment is now about as large as before the police sweep.

"We, too, are the 99 percent fighting for better working conditions, fair treatment and the ability to provide a living for our children and families," the Oakland Police Officers' Association statement said. "We are severely understaffed with many city beats remaining unprotected by police during the day and evening hours.

"As your police officers, we are confused."
And this item:
According to the letter, City Hall has left officers baffled about what the city's real stance is on Occupy Oakland and everything that goes along with it, including the tent city at the steps of City Hall and the strike itself, which is expected to draw thousands of people downtown Wednesday for a general strike.

"To add to the confusion, the administration issued a memo on Friday to all City workers in support of the 'Stop Work' strike scheduled for Wednesday, giving all employees, except for police officers, permission to take the day off," the OPOA letter read.

"That's hundreds of City workers encouraged to take off work to participate in the protest against 'the establishment.' But aren't the Mayor and her Administration part of the establishment they are paying City employees to protest? Is it the City's intention to have City employees on both sides of a skirmish line?"

The letter also announced that the entire police force is being called on to work Wednesday, and that the police shutdown of the first Occupy camp on Oct. 25, and staffing the subsequent 1,000-person protest, cost the city more than $1 million.
Are you beginning to get the idea yet? You might ask why is a federal court threatening to take over the Oakland Police Department? Funny you should ask ... and you should.

In February 2003 the City of Oakland agreed to pay nearly $11 million and implement police reforms to settle federal civil rights lawsuits brought by more than 100 people after prosecutors had to dismiss about 90 criminal cases. It all had to do with a few police officers (called the "Riders" working the night shift in one of Oakland's roughest neighborhoods and under pressure from the business community embarrassed by the skyrocketing murder rate - sure the residents were unhappy too but they don't count in Oakland politics) who were charged with beating suspects, wrongfully accusing them of crimes, planting drugs and covering it all up by falsifying police reports.

From 1999 to 2007 the Mayor of Oakland was none other than Governor Jerry "Moonbeam" Brown who at the time ran for office as an independent "having left the Democratic Party, blasting what he called the 'deeply corrupted' two-party system."

Continuing from Wikipedia:
Prior to taking office, Brown campaigned to get the approval of the electorate to convert Oakland's weak mayor political structure, which structured the mayor as chairman of the city council and official greeter, to a strong mayor structure, where the mayor would act as chief executive over the nonpolitical city manager and thus the various city departments, and break tie votes on the Oakland City Council.
What happened was that, true to his nickname, Brown ended up creating neither a strong mayor city government nor a council-manager form, but a weird form I guess he thought was creative but left no one responsible for overall administration.

Ironically, in the overwhelmingly minority city, the political left had hoped for some of progressive politics from Brown, but found Brown "more interested in downtown redevelopment and economic growth."

As one writer noted in 2003:
Two decades after signing Prop. 13 into state law as Governor, Jerry Brown mounted a successful campaign for Mayor of Oakland. The Bay Area housing market was hot at the height of the boom, and the former governor promised to “redevelop” the downtown area so that it would be “more livable” for all of the outsiders flocking to the region.

Once elected, Brown unveiled his “10K Initiative” to attract 10,000 new high-income residents to Oakland by redeveloping 7 cluster areas in and around Downtown. Of course, such a plan required evicting the current residents of those cluster areas, and Brown diligently set about his work of “Jerryfication.”

Under Prop. 13, property is taxed at a fixed rate, and assessed at the market value at the time of the purchase. The only way for a city to get more tax dollars out of a property is for the property to be sold when its market value is higher. This is the motive for Brown’s agenda of evicting old Oakland residents in favor of newer ones.

Brown then entered into a five-year contract with the federal government that would allow the city to take over control of properties seized by the feds, and used this contract to create a mobile police command center to harass Oaklanders into submission (or run them out of town). This, as the infamous “Riders” were making headlines with a high-profile police corruption scandal.
So, John Stewart and anyone else who might really care, what happened in Oakland is Jerry Brown.

Were the events of October 25, 2011, the inevitable result of Jerry Brown assuming the office of Mayor of Oakland in 1999? Of course not. But he left Oakland in such a mess it was inevitable that something sad would happen.

Regardless of what really happens or what is perceived to be happening while he is in office, Jerry Brown is the perfect example of an effective image-manipulating politician who gets elected over and over again because people, particularly reporters, "like him" based on that image.

In 1975 he took office as Governor. He did it so badly that in three years, 1978, Proposition 13 was passed by the voters. But they still let him serve another five years. In 1999 he took office as Mayor of Oakland. He did it so badly that in four years, 2003, a federal judge ordered the reform of the Oakland Police Department. But Oakland voters let him serve another four years.

It's easy to sympathize when the Oakland cops say: "We, too, are the 99 percent fighting for better working conditions, fair treatment and the ability to provide a living for our children and families."

To bad they live here in California where the politician who created their current local government problems is again Governor, a politician who has no apparent empathy for the 99%, a politician who has no understanding of what makes government work well but does understand how to the make the system work for him, a politician who by the time he again leaves the Office of Governor will have overseen the destruction of everything his father worked for to benefit the 99%.

Thursday, October 20, 2011

One Day at a Time: The 21st Century American Family

To gain an understanding of the reality of our national economic condition, a good place to begin is the first in a series of articles by Advertising Age that will be "a year-long study of the American consumer with an examination of how those in the middle are getting squeezed -- and how marketers are beginning to respond."

Advertising Age is the main trade journal for the people who create and place advertising. They generally know what's going on in our consumer-based economy. From this first article:
...America's backbone is bending toward the breaking point. In the last decade, consumers overall cut spending 4.2% in 2010 dollars, and the brunt of that was felt by the middle class, which slashed spending between 10% and 13%. Meanwhile, the upper 20% of earners curbed spending only 6%. The blame can't be pinned on the recession, either. In real dollars, median family income is now what it was in 1997.

...This America looks like neither the Cosbys nor the Jeffersons; it does not resemble the Conners or the Bunkers. Perhaps it looks a little like "Modern Family" without the spending power. Today, half of all households have less than $10,000 in annual discretionary income, according to Experian Simmons.

While these changes haven't happened overnight, marketers are grappling with how to keep up. Walmart has stopped adding upscale merchandise and put back the bargain bins known as Action Alley. Layaway programs are in full swing at Kmart, Sears, Best Buy and Toys R Us. Hallmark even has greeting cards for the unemployed.
The article also discusses factual data from the 2010 Census that confirmed what many were noticing. Even in the early 1970's the median income family lived on one paycheck. But today the median income family has two paychecks.

The problem with that fact is the majority of the income growth over the past 35 years has taken place in two-income families while in the last two decades the number of married-couple families fell below half the American households.

Regardless of how you feel about the sociological changes, the fact is marketers are adjusting in order to survive. For the advertising business, these aren't political or social or religious issues, just economic realities.

The Advertising Age article mentions the ABC show "Modern Family," one of the most popular shows currently on television. It notes that America resembles the show but lacks "the spending power." Indeed, the one absence in "Modern Family" is that there is no one-adult household with or without children.  A curious omission.

I would argue that instead of looking back at the Huxtables (they weren't the Cosbys), the Jeffersons, the Conners, or the Bunkers, we should remember the CBS show "One Day at a Time" that ran from 1975 to 1984 and this family that in retrospect seems prescient:

Sunday, September 11, 2011

Jobs - how government temporarily put people to work in the 1970's and how it's now failing workers

It is clear that for the long term we have lost 10 million jobs in the United States, including 1.2 million in California, compared to the employment level at the end of 2007.

After watching the most recent efforts of our national and state leaders to provide "solutions" to get the employed back to work, one has to wonder why the simplest solution is ignored. In 1973 President Richard Nixon signed the Comprehensive Employment and Training Act. It was legislation that had a number of components, one of which had the most impact on unemployment and was simple.

Through the State employment departments, block grant funds allowed state and local government and non-profit organizations to hire unemployed people.

Again, it was simple. What the federal government did was say to each State, here's some short-term money - say for two years. Put people to work. For instance, the Economic Stimulus Appropriations Act of 1977, which was signed by President Jimmy Carter on May 13, 1977, funded providing 725,000 people with gainful employment in 1978 and 1979.

Or we could do the Obama $447 billion American Jobs Act which involves mix of $253 billion in tax cuts and $194 billion in newly authorized spending. Included are the following:
  • Cut Social Security withholding on people who already have jobs even further - from 6.2% on their first $106,800 of wages, down to 3.1% from the current stimulus cut-rate of 4.2% set to expire at the end of the year; plus cut the employer share to the 3.1%; and if a business hires a new worker or gives an existing worker a raise, all payroll taxes will be waived; most of this will do nothing in the immediate future for someone who is now without a job nor is it clear that it will offers much to increase employment more than would occur without it, but it represents $240 billion of the proposal.
  • About $30 billion would be allocated to keep teachers from being laid-off and, perhaps, allow hiring a few back; an additional $5 billion would be allocated for public safety personnel; this would avoid some layoffs, but it is not likely to help many now unemployed for the $35 billion.
  • About $49 billion would be allocated to an unemployment insurance benefits extension which would help some who are currently unemployed.
  • About $90 billion would be allocated to several different infrastructure/public works construction projects, which within 12 months would start to trickle into the economy probably employing construction workers now working.
  • The remainder would be allocated for various programs from retraining and student summer jobs next year and funding $10 billion in private construction, some of which would help a few of those currently unemployed in the long term.
As an alternative, if the entire $447 billion were put into funding two years of an employment program similar to what was done in 1977, it would put 5 billion unemployed persons back to work. Like that old program, some of the money would be wasted by states, local governments including schools, and non-profit organizations. But generally, the waste would be no more than the waste in Obama's proposal other than the Social Security contribution reduction.

Which brings me to the whole "let's don't pay enough Social Security contributions" approach to stimulating the economy. I thought the Social Security program had a funding problem. If the entire $447 billion were put into employing people directly instead of cutting the Social Security contributions, in addition to getting those contributions back up to normal the newly employed and their employers would contribute an additional $19 billion of that stimulus money into the Social Security fund.

And around half of the currently unemployed would be paying income and Medicare taxes and spending the rest. This would result in an immediate increase in consumer spending which would lead to private sector expansion.

In addition to the Obama proposal, we had proposals by Governor Moonbeam and Legislators here in California. These included a $1 billion tax shift that would have spread out tax breaks to California businesses, an eight year $3.2 billion extension of a tax on private utility customers to fund clean technology research and energy-efficiency programs, and a $500 million tax credit program to moviemakers.

Of the proposals, only the moviemaker tax credit passed. None of these programs would put people currently unemployed back to work soon.

Again, if something similar to the 1977 federal program could have been crafted, California could have put more than 20,000 unemployed persons back to work.

If a direct employment program had been adopted and put in motion by January 2012 at both the federal and state level, somewhere around 500,000 unemployed Californian's and 5 million unemployed American's could have temporary jobs doing things for their communities.

Instead, we'll likely be cutting by $3,311 a year Social Security withholding on employed folks making more than $107,000 and, as a bonus, giving their companies the same amount of money. And we'll be providing Comcast through it's subsidiary Universal Studios a tax credit on movies produced in California. Ironically, all of this is brought to us by Democrats.

Thursday, September 1, 2011

The Great California Slump - Brown v Bezos

Two names - celebrities really - are playing games with The Great California Slump and the future well-being of California families.

Governor Jerry Brown was in Las Vegas on Tuesday at a green energy conference where commenting on the lack of new investment in California infrastructure he said: "It's dangerous, it's shortsighted. But it's a product of this notion that taxes are like some kind of a sexually transmitted disease, and government is all the problem."

Brown was at the green energy conference because he (and his national policy doppleganger Obama) are believers in the concept that the tech industry, the newest being green energy technology, is going to somehow save the economy and pull California out of The Great California Slump.

While Brown was in Vegas making smart remarks dutifully and amusingly reported in the California press, Solyndra shut its doors and laid off 1,100 workers. Solyndra, the Fremont maker of solar technology that President Obama visited May of last year, because it was a model for green jobs in America admitted in a news release that it could no longer compete with foreign manufacturers. Obama said last May "companies like Solyndra are leading the way toward a brighter and more prosperous future."

Essentially, Brown and Obama have yet to figure out that in the Bay Area/Silicon Valley - the area of the technology booms - the number of jobs in 2010 were the same as in 1990. The technology business model does not create permanent jobs as I explained in a previous post under the section Small Lie 1.2 - Technology will save us.

It makes venture capitalists and founders rich. Yes, venture capitalists lost money on Solyndra. They do that. That's what venture capitalists do - lose 19 times and win big on the 20th. But in this case, the U.S. Department of Energy also lost a half a million dollars.

The reality is, these ventures don't create jobs in America. They hire engineers and other tech types. They succeed or fail. In either case, they lay off engineers and other tech types. New ventures hire the engineers and other tech types. No real job boom is created.

Sometimes they set up manufacturing operations. Intel recently shut down its last plant in Silicon Valley laying off a few thousand workers. Now so has Solyndra.

The fact is Silicon Valley and the Bay Area are not the place to look for a model of how to put Americans back to work. It's that simple. Except Governor Moonbeam (he likes the name) and the President don't seem get it.

Jeff Bezos is the founder, President, Chief Executive Officer, and Chairman of the Board of Like it or not, Bezos company is the most successful internet retailer ever. He and his company have been made the face of evil by Brown and California Democrats, out-of-state internet companies that don't collect California sales taxes.

At the behest of Brown, the Legislature passed a bill in an attempt to force Amazon to collect those taxes. Amazon has been attempting an end run around that law by seeking an initiative to effectively repeal it. The Legislature plans to pass another bill which would repeal the first bill and adopt a similar but different law thereby thwarting the initiative efforts of Amazon which have already cost millions.

Last week Amazon reportedly offered to open six new distribution centers in California in the next three years that would create an estimated 7,000 jobs. In return, Amazon wants an exemption from having to collect sales taxes until sometime in 2014.

On Thursday morning Brown indicated to the press that he's leaning against's proposal. He says we need the $200+ million revenue. He says this even though someone on his staff knows the State is looking at a $10+ billion and growing deficit, a deficit that wouldn't even miss $500 million if Californians can't get jobs.

Two problems with this scenario should make everyone in California, including the press, angry with Brown and Bezos.

First, Brown is incompetent in everything but being a winning politician, winning meaning he panders to the press and wins elections. If he weren't that way, he would not be at green conferences as they will produce nothing for California families during The Great California Slump.

Second, if Jeff Bezos can in the next three years open distribution centers in California employing 7,000 people, it would be nearly a criminal act if he does not do so even if his political extortion attempt fails. California's economy is failing at levels significant to the national economy. The biggest single problem is unemployment. Whether or not his company has to collect sales taxes should not determine if he will give 7,000 Californians jobs.

Obviously, there is no auditorium, hall or stadium big enough to hold these two men and their egos, but somehow someone should get them together, force them to work out an agreement.

Tuesday, August 16, 2011

Get an education and be adaptable to thrive in the mid-21st Century

It was about the year 2000 that a friend who is a couple of decades younger than me commented "I don't see how my children will be able to afford a house."

I responded with my opinion that in order to be prepared to thrive in the mid-21st Century today's young people will need to get an education and become very, very adaptable. (For the California working class, getting a good education was still within reach in 2000 without incurring a boatload of debt. But that's not the subject here.)

Floating around in my head as I formulated that opinion in the late 1990's were terms like "bourgeoisie", "plutocracy", and "technocrat" and the name "Pareto."

Unfortunately, relatively few Americans have a meaningful understanding of the three terms - in fact most Americans would have some Palinism/Bunkerism understanding of them.

Less than 3% of Americans know who Vilfredo Pareto was and maybe less than 1-in-3 of them have an accurate picture of Pareto's writings, erroneously associating him with the implemented version of Fascism of Mussolini.

Two apparently unrelated pieces of information recently came to my attention which reminded me of my advice of over a decade ago. This also reminded me of those terms and the writings of Pareto.

First, I became aware of a 4-page card-stock insert ad in the September 2011 issue of Vanity Fair for NBC's new 2011 Fall scripted series "Playboy Club". This was a very large print ad expenditure by NBC in a magazine with a limited appeal for a broadcast network TV show. I didn't understand why NBC would spend this much money to advertise a TV show in magazine that targets the fashion industry and upscale young adults.
While I was still rolling this around in the back of my mind, I came across a piece in Advertising Age headlined On the Road to Riches: Those Under 35 With $100K Household Income subtitled "Study Finds Growth for Brands Will Come From Those in 'Emerging' Tier to Wealth" which offered the following chart:

The article provides the usual statistics about how the income for most Americans families has stalled since 1970, a fact that I have prattled on and on about in previous posts here. But the article provides an interesting focus on the data:
The wake of the global economic recession has shown a spotlight on the yawning divide between the richest Americans and everyone else....

And while the social and political effects of this inequality may be cause for concern, the accrual of wealth among the very few is of great consequence for marketers, since 10% of U.S. households "account for almost half of the consumer spending" and represent about one-third of total GDP....

Simply put, a small plutocracy of wealthy elites drives a larger and larger share of total consumer spending and has outsize purchasing influence -- particularly in categories such as technology, financial services, travel, automotive, apparel and personal care.

But just who today is truly affluent? And which group is on the path to the rich life?

A study from Digitas titled "Affluence in America: The New Consumer Landscape" finds that an individual's career choice is perhaps the most important factor in determining whether he or she will ultimately land among the affluent....

It turns out a major predictor of wealth is one's earning a high income in his or her 20s. Those below the age of 34 in households earning between $100,000 and $199,999, identified as the "Emerging" tier, have a far greater chance of eventually crossing the golden threshold of $200,000 than those who achieve household income of $100,000 later in life, identified above as "Aspiring."
The article then gets right to the core rationale of the NBC ad placement:
Before the downturn, luxury marketers embraced the concept of "mass affluence." Buoyed by fatter stock portfolios and exploding equity in real estate -- and encouraged by easy credit -- a larger portion of the population, mainly in the Aspiring tier, considered itself wealthy enough to buy luxury goods. But in 2011, these consumers no longer "feel rich"....

The real growth for luxury brands will come from those in the Emerging tier....

...The Emerging tier presents a golden opportunity for luxury brands to reach consumers who will likely be wealthy in the future -- before they begin to more actively police their interaction with advertising.
This explains the NBC ad. NBC has suffered from ratings problems. NBC needs to find advertising revenue. NBC is focusing on the sophisticated "Emerging" tier which will allow the network to sell advertising for luxury brands hopefully establishing itself in a powerful niche market. NBC may be making a foolish expenditure, but the news release on the Digitas' Study provides the following:
  • The Mass Affluent ($100-$199K household income level) has disappeared.
    • They don't have the leveraged spending power they once had and now have to live on income alone.  Not surprisingly, an overwhelming majority (53%) classify themselves as middle class.  They have been replaced by:
      • The Class Affluent -- earn $200K HHI or more yearly and 54% classify themselves as upper-middle class.
      • The Emerging Affluent -- earn $100-$199K; same as the Mass Affluent yet are under 35 years old.
  • The Rise of the Class Affluent (in a "class" by themselves):
    • Earns between $200K HHI (the minimum threshold for true affluence in America according to our findings) and $1 million+ HHI annually.
    • Represents the minority -- only 8.5 million in a country of 307 million people.
    • Three tiers of Class Affluence.
      • The Affluent -- $200K–$499K HHI -- The Creative Class: The Affluent are the creative class. They are likely to work in creative fields or industries, like software design, publishing, architecture, advertising, or journalism.
      • The Wealthy -- $499K–$999K HHI -- The Money Class: Likely to work in Finance and Consulting.
      • The Rich -- $1 million+ HHI -- The Leadership Class: They are individuals who run companies and influence industry. They command the highest incomes and make decisions that affect many. They can be found in high-income careers, like financial or legal services, or break-out industries like Internet properties/services or real estate.  
    • In terms of media behavior, Digitas has identified a direct correlation between level of affluence and digital media usage.  Early adoption of new digital devices, digital content consumption, and mobile usage all increase with affluence.  
  • Emerging Affluent: 5.5 million people who are currently in the work force and on their way to affluence.
    • They have the same HHI as the Mass Affluent ($100K–$199K) but are younger, under 35.
    • Emerging Affluents work in careers that will eventually deliver affluence -- financial services, legal services, and engineering -- but they are still in the low to middle management tiers.
    • This group has all the attitudes of the truly affluent. They consider themselves opinion leaders, follow trends, love to travel, and are passionate about food and dining. They pursue both stylish youth-oriented brands like Scion, Diesel, and Samsung and true luxury brands like H. Stern, Tiffany, St. Ives, and D&G.
    • What sets this group apart from all others is their intensely digital media behavior.  Universally digital, members of this class use mobile devices for communicating, consuming content, enjoying music, and gaming. They use social networks and blog, and they prefer apps to 411 to research restaurants, recommend products, or get deals from marketers.
The important thing to remember about this whole marketing discussion and the chart above is that it is all about 44 million Americans out of 310 million, or 14% of the population.  Simply 266 million Americans are perceived to be too poor to matter because they are. For decades, their  disposable income has been or become insufficient to make significant purchases beyond necessities. As a group they can't make a difference by choosing to buy one brand of a high-profit luxury product over another.

The second thing to keep in mind is that about 27 million of the 44 million - "The Mass Affluent" or "Aspiring 35+" also are no longer of any import to the discretionary consumption economy - after The Great Recession they are basically unable to afford more than to make house and car payments, send their kids to college, pay their bills, buy groceries and clothes, and worry about their old age (saving for retirement is out the window). As the news release says, the "Mass Affluent" ($100-$199K household income level), also described as the "Aspiring age 35+," has disappeared - meaning achieving affluence is out of reach.

That leaves about 17 million folks, or about 5.5% of population.

And of those folks, only the under-35 "Emerging affluent" or 1.8% of the total American population both:
  • Are still influenced by advertising to have their buying patterns altered through marketing efforts; and 
  • Likely will have sufficient discretionary income in the future to make the market costs worthwhile.
Hence, NBC's new ad effort.

And that is interesting, but to do a bit of a twist of some words from the Advertising Age article, while the marketing implications of this study are important to some, the social and political effects of this shift may be cause for concern.

This returns us to the meaning of the writings of Vilfredo Pareto which cannot be discussed without a common understanding of three key words. Let's start with two of the words:

  • Bourgeoisie is a social class characterized by their ownership of capital and their related subculture.
  • Plutocracy is rule by the wealthy or rule through power and influence provided by wealth.

Neither of these words is new to political science, nor is there some new understanding of economics and politics related to these terms. They were emotionally loaded by political ideologues of the 20th Century, but they have relative simple meanings. American's seem to have trouble hearing words like this without some gut ideological reaction.

As used here, the third word, technocracy, needs some further consideration beyond a definition.

In it's simplest rendering technocracy is a form of government in which engineers, scientists, health professionals, and other technical experts are in control of decision making in their respective fields. But in this discussion, a literal technocracy is not a concern. Rather, a significant change has occurred since 1950 that has altered our economy and, in the end, influences our political and social systems.

In the discussion of technocracy, Wikipedia notes:
...Engineers were faced with a conflict between physical efficiency and cost efficiency in the new corporate capitalist enterprises of the late nineteenth century United States. The profit-conscious, non-technical managers of firms where the engineers work, because of their perceptions of market demand, often impose limits on the projects that engineers desire to undertake.

The prices of all inputs vary with market forces thereby upsetting the engineer's careful calculations. As a result, the engineer loses control over projects and must continually revise plans.
Indeed, when the transistor was invented, it was invented by folks at Bell Laboratories, a subsidiary of AT&T. Typical of the times, most significant research and development (R&D) was funded either by major corporations or the Government. While this system brought significant resources to the lab, it also kept the bean counter mentality in the middle of everything holy to the researchers. This slowed things down. And the financial benefits from discoveries - the incentives - went to the corporation or the universities and Government, not to the persons who made discoveries and designed new ways of doing things.

While that model of R&D continues (though in some cases less vigorously), a whole new process opened up with the advent of "venture capitalists." The relationship between venture capitalists to the "idea people" who create early-stage, high-potential, high risk, growth startup companies is critical to understanding how our economy has changed.

This relationship altered the bean counter influence in the lab and, more significantly, shifted the benefits of success to the founding members of the startup companies, usually "techies," and to the venture capitalists. In this process, the seeds were planted to undermine the social status and economic security of the class described above as the "Aspiring" or "Mass Affluent."

It all may seem mind boggling, but not when you consider the writings of Vilfredo Pareto (1848-1923).

In The rise and fall of elites after substantial statistical research Pareto explained that elites rise to power, maintain dominance, and then fall; but only if another elite is struggling to take its place.

Indeed, though his times and experiences were different, Pareto noted that economic reality was not a pyramid with its sides from rich to poor sloping gently from one class to the next. Rather it is very fat on the bottom where most people live, steeply sloping to a very thin top where we find the bourgeoisie.

In between we have a narrow neck of turmoil and motion: families rising and falling, some members climbing by talent or luck but most ultimately hitting a ceiling while other members fall. At the top are the elite of the bourgeoisie, the Plutocracy, who control wealth and power for a time – until they are replaced through some change, sometimes a revolution, sometimes economic evolution.

Today about 266 million Americans live somewhere in that fat bottom lacking affluence.

Another 27 million were in the narrow neck getting a glimpse and feel of affluence, in turmoil and motion, but now find that they have fallen or at least hit an impenetrable bottleneck.

The remaining are the "Class Affluent" or "Emerging Affluent" - the American Bourgeoisie, the social class characterized by their ownership of capital, a portion of whom constitute the American Plutocracy, for the most part, ruling indirectly through power and influence provided by wealth.

What happened in the late 20th Century is that the members of the old American Bourgeoisie and Plutocracy started giving way to those who, when they gave it any thought, probably would prefer that we lived in some version of a technocracy, but who have been too busy to engage in politics except occasionally.

One of Pareto's works is entitled The transformation of democracy in which he explains the how and why democratic forms of government undergo decay and are eventually reinvigorated through a shifting balance among the countervailing forces of centralization and decentralization of power, economic expansion and contraction, and liberalism versus traditionalism in public sentiment. And it ties to his concept of  the rising bourgeoisie replacing the old bourgeoisie.

It is no coincidence that we see the President Obama and the Governor Brown paying regular visits to the leaders of the bourgeoisie in Silicon Valley and other centers of new technology. It reflects the change.  Our leaders after President George W. Bush will not be holding hands with a leader of Saudi Arabia. Members of the bourgeoisie who still do are members of families on their way out - out of power and wealth - a slow evolutionary process, but inevitable according to Pareto.

The problem to be solved for Americans not on the chart above - those with annual incomes of less than $100,000,  and for those in the Aspiring 35, is how to survive and thrive in the 21st Century.

The new bourgeoisie derives from enterprises that do not to create jobs except for a relative few. Manufacturing and support for their products is eventually outsourced. That is why the Bay Area/Silicon Valley had the same number of jobs in 2010 as it did in 1990.

The new bourgeoisie cannot relate to the undereducated even as they permit, indeed advocate, tax policy that is destroying education. As technocrats they cannot relate to the complexity of public education - they believe it can be engineered, put computers in front of kids not teachers. (In California we are discovering that the poorly performing students in this new machine are being thrown out like defective parts.) As I noted in previous posts, the irony is that most of the technocrats were products of California's public university system.

It appears that a cyclical significant disruption has impacted our economy as the change in the American Plutocracy evolves. I'm not sure how inevitable this was or is, but by 2000 it was clear to me it was coming.

Perhaps President Obama and the Governor Brown understand the disruptive change going on. But it appears to me that they are throwing 94.5% of the American population under a bus when it comes to ameliorating the effects of the change. And that leaves a political vacuum in the United States similar to the one experienced in the European democracies in the 1920's, giving rise to demagogues similar to Michele Bachmann and Rick Perry and ultimately to despots.

I told my friend that in order to thrive in the mid-21st Century today's young people will need to get an education and become very, very adaptable.