Inequality in San Francisco breeds political unease

Good morning! We’ll get to legislative action in a second, but first we turn to San Francisco, where inequality is making for tense politics.

As San Francisco’s sharp inequality draws national attention this election year, California Democrats have begun to question how to explain their role in fostering — and reversing — the trend.

The gulf between the progressive city’s richest and poorest, and the emptying space between the two, has come to haunt Democrats worried that their almost unfettered control over state and municipal politics has left promises unfulfilled and little plan for change in the future.

“During all my years in Asia I constantly grappled with the perniciousness of poverty,” Thomas Fuller wrote in a dispatch for the New York Times Sunday Review. “Yet somehow I was unprepared for the scale and severity of homelessness in San Francisco. The juxtaposition of the silent whir of sleek Tesla electric vehicles, with the outbursts of the mentally ill on the sidewalks … .”

CalWatchdog has more. 

In other news:

• “The California Fair Political Practices Commission will investigate donations made to the California Democratic Party by privately owned utilities and other energy interests. The action was prompted by an August report. Despite the report’s heavy focus on Gov. Jerry Brown — it was entitled “Brown’s Dirty Hands” — the commission did not see fit to investigate the governor himself.” The San Diego Union-Tribune has more. 

• “More than 50 employees working inside Los Angeles County’s juvenile lockups received promotions despite a history of disciplinary problems or criminal arrests under a deal county leaders quietly cut earlier this year,” writes the Los Angeles Times.

• “State Assembly candidate Madison Nguyen appears to be dealing with at least one argumentative campaign volunteer impostor. A man posing as a campaign volunteer has been visiting San Jose homes and getting into arguments with residents, but there might be more than one person involved, Nguyen’s campaign said,” The San Jose Mercury News has more.

• “Offering relief to dogs stuck in hot cars, Gov. Jerry Brown on Saturday signed legislation letting Californians in limited cases – and without fear of civil liability – smash car windows to set them free,” reports The Sacramento Bee.

Legislature:

• Gone ’til December, but there will be a hearing on the use of psychotropic drugs in the foster care system at 1 p.m. 

Gov. Brown:

• No public events announced.

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This has prompted hand-wringing from San Franciscans who worry that their city is well on its way to being a global symbol of income inequality. With the average home selling for more than $950,000 and average monthly apartment rent hitting $3,458 this year, with further increases expected in coming months, this fear seems well-founded.

Yet a proposed new fee on residential development that appears likely to be adopted would push housing costs even higher. This account is from the San Francisco Business Times:

The city hopes to quiet one roaring gripe in San Francisco: Cranes are in the air and housing is pouring into neighborhoods, so why haven’t public transit improvements kept up?

 

Well, those complaints may never dissipate. But the first citywide transit fee on market-rate residential development was introduced as legislation Tuesday to help the San Francisco Municipal Transportation Agency pay for $1.2 billion worth of upgrades over the next three decades. …

 

“When I tell people that commercial development is required to pay transit impact development fees but residential doesn’t pay a dime, their jaws typically drop,” Supervisor Scott Wiener, who sponsored the bill, told the Business Times. “It’s been a gaping hole.” …

 

Residential builders will pay $7.74 a square foot on new projects, with those already approved by the Planning Commission grandfathered in. Non-residential projects will pay $18.04 a square foot, and production, distribution and repair (PDR) buildings will pay $7.61.

 

Private, nonprofit universities that build new facilities will also have to pay fees for the first time, but other nonprofits would be exempt.

Affordable housing said top priority

The fee has been endorsed by San Francisco Planning Director John Rahaim. In a June interview, he said that improving public transit was his second most important priority — trailing only affordable housing, which he said “keeps him up at night.”

This isn’t just hollow rhetoric. San Francisco has added more than 6,100 housing units since 2012, and Rahaim has emerged as a key supporter of some big, bold projects — especially the construction of 12,000 homes at the abandoned naval base Hunters Point Shipyard and at adjacent Candlestick Point.

Rahaim has downplayed the effect of the new fees on further residential construction. They would add nearly $8,000 in cost to a 1,000 square-foot apartment.

But as the state Legislative Analyst’s Office pointed out in a March report, “California’s High Housing Costs: Causes and Consequences,” developers see government fees as a huge impediment to pursuing projects — especially along the coast:

A 2012 national survey found that the average development fee levied by California local governments (excluding water-related fees) was just over $22,000 per single-family home compared with about $6,000 per single-family home in the rest of the country. … Altogether, the cost of building a typical single-family home in California’s metros likely is between $50,000 and $75,000 higher than in the rest of the country. … Building costs account for around one-third of home prices in California’s coastal metros.

Competing interests, limited options

So San Francisco’s leaders — and voters — have difficult choices and limited options. The case for improving mass transportation is plain. According to Inrix, a transportation data and analysis company based in Washington state, San Francisco/San Jose were among the five worst metro areas in 2014 when it comes to time wasted because of traffic delays. Swapping stories about traffic nightmares — and anticipating new ones — is a San Francisco tradition.

But if mass transportation improvements add to housing costs and create disincentives to adding new housing stock, that makes it more likely that there will be still more sharp increases in rent and the cost of homes, which are already sky-high. That will mean more stories about Northern Californians with middle-class jobs being unable to live in one of America’s iconic cities.

That’s not a surprise, given that income inequality’s rise is a worldwide phenomenon. But one pattern jumps out from the various charts in the study: In California, income inequality is significantly more concentrated among Latinos than blacks, despite a perception of both groups facing similar economic straits.

Latinos make up 39 percent of the state workforce, but account for 56 percent of workers in low-wage jobs, defined as those paying $13.63 an hour or less. African Americans make up 5 percent of the workforce, but only 6 percent of those in low-wage jobs.

This illustrates a point made often by Charles O. Ellison, an African American political strategist who writes for The Root and other publications: Contrary to media imagery, blacks are more likely to be middle-class or wealthy than impoverished. The percentage of African Americans in poverty has fallen by more than half since 1960, although the net worth of middle-class blacks is far lower on average than middle-class whites.

In California, that pattern holds for African Americans but not for the Latino population, in which poverty is as common as middle-class status.

The UC Berkeley study dovetails with a point made by Gov. Jerry Brown about the urgency of improving educational outcomes for Latino students. It shows only 20 percent of people with college or advanced degrees have low-wage jobs.

According to the Public Policy Institute of California research, only about 14 percent — one in seven — of Latino adults have such degrees. That’s less than half the California average of 33 percent.

But while such degrees remain a path to the middle class, that trajectory is less certain than it used to be. According to UC Berkeley, in 1979, only 8 percent of low-wage jobs were held by people with college or advanced degrees. Last year, that figure was 13 percent.

That, too, reflects a national trend.

So far, this has led many state politicians to call for doubling down on conventional means of providing affordable housing: using government subsidies to build homes for a relative handful of residents. New York Mayor Bill de Blasio, however, believes the biggest impediment to affordable housing is the lack of new housing stock. He backs a plan to repeal regulations and allow 160,000 new dwellings to be built in his city.

Now there’s another prominent East Coast liberal weighing in with a similar view: Vox’s Matthew Yglesias, among the most influential policy wonks in liberal circles. Yglesias’ comments come in a discussion of Thomas Piketty’s ballyhooed book “Capital in the 21st Century” and the criticisms of it by MIT graduate student Matt Rognlie, which centered on Piketty not grasping the relevance of extreme housing costs to income inequality. Yglesias’ key point:

Yet if labor’s falling share of national income is entirely accounted for by the increased returns to housing capital, then it seems we should be looking at housing-specific trends to explain the problem. Rather than robots [taking away jobs], the problem is almost certainly snob zoning rules that prevent the construction of new affordable housing in expensive areas.

Rognlie cites work by economists Ed Glaeser, Joseph Ryorko, and Raven Saks to argue that exclusionary zoning practices have contributed greatly to lack of housing affordability and that this should be more central to the wealth inequality debate. Lawrence Summers, likewise, argued in a review of Capital that “an easing of land-use restrictions that cause the real estate of the rich in major metropolitan areas to keep rising in value” should be an important element of the policy agenda to address Piketty’s concerns.

East Coast vs. West Coast policy gap on housing as well as schools?

It is nothing new for Yglesias to make the point that more housing stock is badly needed. He’s been doing it for years, most notably in his book, “The Rent is Too Damn High.” But what’s interesting is how in this case he explicitly links income inequality to the modern regulatory state.

By contrast, many California Democrats argue that the impact and cost of regulations is exaggerated, starting with leading environmentalists.

When it comes to housing policy, we could see stark regional differences that amount to a replay of the education reform debate. East Coast liberals have been far more receptive to school reforms like teacher competency testing and use of metrics in measuring student and teacher performance than West Coast liberals. Massachusetts arguably has the best-run public education system in the nation, and its landmark education reform measure was adopted in 1993.

There’s also a long history of East Coasters understanding that union interests are not aligned with student interests. In Woody Allen’s 1973 movie “Sleeper,” about a New Yorker in suspended animation who wakes up 200 years in the future, the lead character learns that America was destroyed when “a madman named Albert Shanker got hold of a nuclear weapon.”

The joke was aimed at New Yorkers, many of whom loathed a teachers union leader named Albert Shanker who led a 55-day citywide teachers’ strike in 1968. This New York Times obit of Shanker reflects on the strike’s rancor and mentions the “Sleeper” reference.

The prime cause of the strike was Shanker’s objection to a pilot program in which local communities were allowed to take over three struggling schools in minority neighborhoods. Nearly a half-century later, similar issues are at play in the Vergara case involving Los Angeles schools. The lawsuit centers on the plaintiffs’ claim that union-backed state laws protect teachers and hurt struggling minority students.

High housing costs are the main reason that California has the nation’s highest poverty rate when cost of living is included. More than 23 percent of residents struggle to make ends meet compared with 14 percent of Americans.

One of the LAO’s most provocative findings got scant attention. It was that as high as housing costs already are relative to the nation, the disparity is probably going to get worse:

As we have discussed, a collection of barriers have prevented California’s housing developers from responding to high demand to live on California’s coast by building more housing there. Our analysis in this section suggests that these barriers have created a major disconnect between the demand for housing and its supply. Looking forward, there are many reasons to think this dynamic will continue.

Many of the primary factors that make California desirable — moderate weather, natural beauty, and coastal proximity of its major metros — are ongoing. At the same time, we see no signs that coastal community resistance to new housing construction is abating. In addition, many state and local policies that have slowed or stopped development in recent decades remain in effect today.

We therefore think that, in the absence of major policy changes, California’s trend of rapidly rising housing costs is very likely to continue in the future. … In our view, this major finding that demand for housing in California substantially exceeds supply should inform discussions and decision making regarding state and local government housing policies.

Much of the coverage of housing costs has focused on how they exacerbate poverty. The LAO report notes that low-income families in Los Angeles, for example, spent two-thirds of their money on housing alone.

But if the LAO is right and housing costs continue their rapid rise, this will push upper-middle-class families down into the middle class, and middle-class families into the working poor. The implication is that without commensurate increases in family income, higher housing costs are likely to drive state poverty even higher than the present 23 percent.

But there are a few problems with this narrative in the Golden State. For starters, the high cost of housing is at least as responsible as stagnant wages for California having the nation’s highest poverty rate. The federal minimum wage could double from the present $7.25, and poverty would still be sky-high here so long as mediocre one-bedroom apartments rent for $1,200 a month or more in urban areas.

What would bring down the cost of housing? Adding more housing stock by limiting regulations blocking new construction and incentivizing developers to build mixes of middle-income and lower-income housing.

Will CA Dems ever do that? Of course not. Growth is evil, yunno. Even if opposing it hurts poor people. Gaia must be honored.

The best way to create middle-class jobs

But where the Democrats’ posturing on income inequality is most unhelpful is with public education. If we wanted to create middle-class opportunities galore for kids in poor communities, we would mandate that they take computer science in high school. I wrote about this angle in March:

Even if minimum-wage hikes don’t kill jobs, the idea that this policy is a promising solution to income inequality makes little sense. In the big picture, what we need are many more people with in-demand job skills that lead to middle-income careers. And what we badly need from our elected leaders is an acknowledgment that California’s approach isn’t working in creating these job skills.

Income inequality isn’t just growing in the U.S. It’s growing in all advanced nations as technological advances wipe out middle-class jobs by the millions. It’s growing everywhere as the job marketplace increasingly values — and strongly rewards — a narrower range of skills than it did previously.

The best way to minimize the disruption this inexorable change creates is by maximizing the number of people with job skills not diminished by “creative destruction.” For starters, we need a focus on computer science and technological expertise in middle school and high school — not curriculums based on the educational values of the 1950s. We also need to make it much easier for displaced workers of any age to go back to the classroom to get practical job training.

Pursuing this ambitious agenda would be far more daunting than raising the minimum wage. But it has promise to significantly reduce income inequality — not nibble at the margins.

Will Biden make this point? Or just posture with Occupy-style rhetoric about the 1 percent?

You know the answer. President Obama may have a good record of calling for incompetent teachers to get the boot, but he has had little to say about the urgent need to revamp high-school graduation requirements for the 21st century.

Why? It’s tough not to think that it’s because it would cost 10 percent or more of high-school teachers their jobs. Never forget that the main opposition in New York state in the late 1990s to ending or scaling back failed bilingual education policies came from teacher union leaders who were upset it would mean pink slips for many “Spanish immersion” teachers.

Get ready for traffic hell, Los Angeles

Meanwhile, Angelenos once again will face a traffic nightmare today because of Biden’s visit and the Obama administration’s latest Socal money-grubbing. Joe Mathews had an enjoyably tart take on this last week:

Bad news: President Obama is coming to California again.

Mr. President, I realize such a statement may seem jarring. After all, our state voted for you twice. When you were first running for president, Maria Shriver said, “If Barack Obama were a state, he’d be California.” But these days, I bet I could rally a majority of Californians behind a proposition asking that you never visit again. And I wouldn’t even have to talk about your record-low job approval ratings among Californians.

No, our fundamental problem with you is more personal than political. You, sir, have developed a reputation as a very poor houseguest.

You often show up with little warning about your itinerary or schedule. (Your excuse? That the Secret Service can’t disclose your movements for security reasons.) Your massive security cordon routinely causes hours-long traffic jams in a state that already has too many of them. I was once two hours late picking up a child from day care because you just had to stop for takeout in Los Angeles during the evening rush hour.

Mathews makes this case that this might be more palatable if the president actually seemed familiar with and eager to address California issues. But Obama doesn’t and isn’t.

Your trips here have come to feel like those political fundraising emails that keep arriving this time of year. You’re spamming us, Mr. President. If you can’t do better by California on these trips, then maybe you should stop visiting.

This isn’t the first time Joe Mathews has griped about such inconveniences. Here he also takes a shot at George Clooney. Now he’s really getting too big for his britches.

But if you’re the governor of that state, and the media think you’re a whiz-bang because there aren’t any more budget stalemates every summer, you can just blithely say that 24 percent poverty is just the way it is, man. This was in the Sac Bee.

“Brown defended California’s business environment, citing venture capital and foreign investment in the state.

“There’s a fellow named Schumpeter who talked about the creative destruction of capitalism,” he said, referencing the economist Joseph Schumpeter. “And, I put the emphasis on creative, and, change is inevitable. We’re getting 60 percent of the venture capital, we’re the number one place for direct foreign investment in the United States. Do we have everything in all respects? No. But we have an abundance that constitutes a two trillion dollar economy.”

Brown celebrates dynamics that are roiling San Francisco

As my Cal Watchdog colleague John Seiler notes, it’s pretty cool to see California’s governor invoke an economist who is a free-market icon, not a Krugmanite — even if it’s Texas that reflects Schumpeter’s core insights far more than Cali. But it’s also very curious in that anyone who celebrates the California status quo certainly isn’t looking at the 24 percent of folks in poverty. Or the stagnant middle class. More than anyone, such a celebration is about the tech titans of Silicon Valley and San Francisco — the allegedly evil 1 percenters.

It’s no stretch to say Jerry Brown is celebrating the same economic dynamics that have San Franciscan lefties going goon on rich techies.

But then we live in a state in which outside of Christopher Cadelago and Dan Walters at the Sac Bee and Steve Greenhut at the U-T San Diego and the editorial board of the U-T (which includes me), practically no one ever mentions that California has the nation’s highest poverty rate if cost of living is included.

Do these journos think cost of living shouldn’t be included? Or are they just clueless? Or are they scared to break with the pack?

I don’t know which of these is true. But it is stunning that so few of the articles about how California is doing simply omit our nation’s worst poverty ranking.

Who is Piketty and why does he matter? His 700-page book, “Capital in the Twenty-First Century,” newly translated into English, is the best-selling book on Amazon. No largely academic book has ever achieved this distinction before.

Piketty’s central thesis is that the world has returned to its pre-World War I norms of extended periods of slow growth that will result in a further stratification of wealth in which the 0.1 percent fare better than everyone else. This is not because of the Occupy theory that the economy is rigged in an evil way to help them. It’s because of Piketty’s theory that during extended periods of slow growth, the mega rich will see their sophisticated investments in capital (stocks and other financial instruments) gain more share of a society’s wealth than everyone else accumulates through their earnings (salaries).

Many economists on the left love this thesis as providing a grand theoretical way to understand how the world has come to be the way it is — a way they don’t like. Paul Krugman leads the way, proclaiming, “This is a book that will change both the way we think about society and the way we do economics.”

It’s gotten respectful reviews from some free-market economists, and some pretty good takedowns, starting with Tyler Cowen’s essay. (Here’s a round-up of links.)

But whether you think it’s hooey or too high-falutin’ or just arcane, if you’re a believer in Proposition 13, Piketty’s emergence gives you fabulous ammo with which to shoot back at the George Skeltons, Peter Schrags and Harold Meyersons — all the lefty pundits who say it is the prime evil force driving California’s downfall. Piketty says states that have property taxes that penalize homowners if their homes increase in value are imposing what amounts to “America’s secret middle-class tax.”

Property taxes (outside of CA) a ‘secret middle-class tax’

This is from a Matt Yglesias piece in Vox:

“Piketty’s big point about the United States is that we actually do engage in substantial wealth taxation in this country. We call it property taxes, and they’re primarily paid to state and local governments. Total receipts amount to about 3 percent of national income. The burden of the tax falls largely on middle-class families, for whom a home is likely to be far and away the most valuable asset that they own. Rich people, of course, own expensive houses (sometimes two or three of them) but also accumulate considerable wealth in the stock market and elsewhere where, unlike homeowners’ equity, it can evade taxation.

“Piketty also observes that the current property tax system is curiously innocent of the significance of debt. A homeowner is taxed on the face-value of his house, whether he owns it outright or owes more to the bank than the house is worth.”

So the next time you face Prop 13 critics, call them “middle-class haters,” and say that’s the view of Paul Krugman’s favorite economist, too. If Piketty’s PR boomlet continues, you can just use his name and skip the Krugman framing.

With or without Piketty, noting that homes are the single biggest repository of reliable wealth for most middle-class families is a strong defense. But if Piketty proves to be the enduring “rock star” of the progressive community that many lefties think, that gives this pro-13 argument way more juice.

Doubt Piketty is the big deal that I say he is? Today’s NYT opinion page has both Krugman and David Brooks weighing in on his book.

I wrote about this angle in the U-T San Diego today:

“University of California-Irvine economist David Neumark’s review of 100-plus major academic studies — which did not include studies from ideologically aligned think tanks — concluded that 85 percent of the analyses “find a negative employment effect on low-skilled workers.” Automation is likely to worsen this effect; Google “Europe” and “Corner Café” and you’ll see a Starbucks initiative that inevitably will be copied and yield mass displacement of U.S. fast-food workers.

“But even if minimum-wage hikes don’t kill jobs, the idea that this policy is a promising solution to income inequality makes little sense. In the big picture, what we need are many more people with in-demand job skills that lead to middle-income careers. And what we badly need from our elected leaders is an acknowledgment that California’s approach isn’t working in creating these job skills.

“Income inequality isn’t just growing in the U.S. It’s growing in all advanced nations as technological advances wipe out middle-class jobs by the millions. It’s growing everywhere as the job marketplace increasingly values — and strongly rewards — a narrower range of skills than it did previously.

“The best way to minimize the disruption this inexorable change creates is by maximizing the number of people with job skills not diminished by ‘creative destruction.’ For starters, we need a focus on computer science and technological expertise in middle school and high school — not curriculums based on the educational values of the 1950s. We also need to make it much easier for displaced workers of any age to go back to the classroom to get practical job training.

“Pursuing this ambitious agenda would be far more daunting than raising the minimum wage. But it has promise to significantly reduce income inequality — not nibble at the margins.”

Does left want to create middle-class jobs? Or play populist games?

As the success of the “war on women” rhetoric in getting young women to the polls in 2012 suggests, both parties are likely to be in permanent 24-7-365 campaign mode on a national level from here on out. That doesn’t bode well for substantive debate.

But at some point, it seems likely that the middle class — especially those with laid-off family memories or nervousness about their own prospects — will begin to tire of the Occupy rhetoric and the class-war cliches — the very efforts that laid the groundwork for the current relentless focus by Dems on the minimum wage. I wrote about the diminishing long-term returns of populist rhetoric in January:

“We could have marginal income tax rates of 90 percent, and it wouldn’t change the fact that for 40 years we have been moving inexorably toward an economy in which elite skill sets are highly rewarded while improving technology and automation steadily thin out jobs in which those with average job skills used to be able to make middle-class wages. Instead of the 1 percent vs. 99 percent divide, this is the divide that matters most. New York Times economics columnist Tyler Cowen pegs this gap as the 15 percent of working adults with elite job skills vs. the 85 percent without. …

“Thinking in fresh new ways about how we can become the society we need to become is not as tidy or viscerally satisfying as simply blaming the 1 percent. But it has far greater promise of actually yielding a more broadly prosperous society.”

In California, alas, thinking in fresh new ways is verboten in the state Capitol. Majority lawmakers are vastly more likely to use their clout to protect unions and public employees, to give trial lawyers new ways to squeeze money out of the legal system, and to pay tribute to the green religion then to actually take steps to create middle-class jobs.

Will most Californians notice this? Maybe not. I increasingly buy the theory that values drive voting more than pocketbook issues, a big change from a generation ago. And so in California, as long as non-white voters believe right-wingers are uncomfortable with them, right-wingers are doomed in statewide elections. As long as independent, secular Californians believe right-wingers are judgmental social conservatives, they’re doomed in statewide elections.

But if California libertarians and fiscal conservatives ever managed to advance a candidate who kept the focus on jobs and the economy and avoided the right’s baggage, it wouldn’t take a miracle for a GOPer to get elected to statewide office — just a 5-to-1, UCLA-in-this-year’s-March-Madness kind of long shot.