Category: California

Tenderloin thoughts from San Francisco

by philg

What if we just gave each resident of the U.S. either a basic income or the necessities of life such as shelter, food, and clothing? Poverty wouldn’t be eliminated in the technical sense as defined by the poverty-industrial complex because people who did not work wouldn’t have any cash income, but poverty would be eliminated in a practical sense because nobody would be without the necessities of life.

The Tenderloin neighborhood of San Francisco comes pretty close to the universal basic lifestyle utopia. Nonprofit organizations (the “homeless-industrial complex”) own buildings and give away shelter. Taxpayer-funded meals are also provided by nonprofits. From the Tenderloin Museum:

As a sign in the Museum gift shop notes, almost everyone is taken care of:

(Exercise for the reader: What class of humans are left out and should be denied care?)

Predatory capitalism has been kept at bay via zoning restrictions:

What happens when you give Americans everything that they need to live, by historical standards, an extremely comfortable life? They take a lot of drugs and live in tents on the sidewalk:

(See also, this New York Times article about Portland, Oregon, three years after drug use was decriminalized: “Oregon’s overdose rates have only grown. Now, tents of unhoused people line many sidewalks in Portland.”)

Related… Dianne Feinstein made cleaning up the Tenderloin a top priority during her tenure as mayor of San Francisco:

(In a great example of American polygamy, Feinstein was the third wife of a rich guy and is now involved in a fight with the dead rich guy’s children with another wife (NYT).)

Loosely related, a sticker on display at Oshkosh that I wouldn’t expect to see in the Tenderloin or anywhere else in San Francisco:

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California says inequality is bad and also participates in Powerball?

by philg

From Governor French Laundry, 2022:

“In California, we recognize that our incredible diversity is the foundation for our state’s strength, growth and success – and that confronting inequality is not just a moral imperative, but an economic one,” said Governor Newsom.

It’s a moral imperative to reduce inequality. Therefore, anyone who increases inequality is evil (immoral).

From a government agency run by Governor Newsom:

Middle- and working-class Californians became poorer so that one Californian could become a billionaire. It is tough to think of a better-targeted method of increasing inequality. Why does California do this? Nothing requires the state to participate in Powerball or, indeed, run a lottery at all (Alabama, Utah, Alaska, Hawaii, and Nevada do not have government-run gambling (CNN)).

Florida runs a lottery, of course, and it funds college tuition scholarships for the academically inclined. But Governor DeSantis does not say that it is a moral imperative to reduce inequality. Ron D. might be the terrible person that NYT and CNN say he is, but he isn’t a hypocrite on this issue.

Loosely related… a tax question… California exempts winners of its government-run lottery from paying the 13.3% state income tax (calculation for each state). What if the payout chosen is annual, though, and the winner moves? If he/she/ze/they doesn’t move to a tax-free state (e.g., NV, FL, TX) does he/she/ze/they have to pay the new state of residence’s income tax on the payouts? Suppose the winner had lived in Maskachusetts and bought the ticket in Maskachusetts. If he/she/ze/they moved to Florida after winning, would he/she/ze/they have had to continue to pay MA state income tax every year? I’m guessing the answer is “yes” because the money is actually coming from a Massachusetts state government agency so it is obtained in Massachusetts. (It still might make sense to move, however, because investment income on the newfound wealth would then be tax-free. See Effect on children’s wealth when parents move to Florida for an example, noting that it doesn’t include the new 9% income tax rate for successful people in MA.)

(On reflection, the tax policy is interesting. California does not tax people who enjoy taxpayer-funded housing, health care, food, smartphone, and home broadband. California does not tax people who collect child support or alimony. California does not tax people who decide to buy a lottery ticket instead of their daily cigarettes and marijuana. If a person chooses to work and/or invest, however, he/she/ze/they will be taxed.)

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The Californian comments on the marvels of Europe

by philg

Overheard in Delft… a chubby California blonde was on her iPhone describing the marvels of the city to friends back in Sacramento and San Francisco: “It’s incredibly clean, not like the cities in our country.”

This was late on a Sunday afternoon and, in fact, the streets and sidewalks were somewhat trashed by all of the weekend tourists and strolling locals. Trash cans are relatively sparse, takeout food is common, and smoking is more common than in the U.S. In fact, even before the weekend I had noticed that the city was dramatically more littered, especially with very small items, than what we’re accustomed to in the parts of Florida that we visit.

A potential source of trash (my host forced me to eat fries with mayonnaise):

Locals eating just outside the shop:

Three tourists (background left) eating/drinking outside of the old city hall:

A lot of the houses in the center are tidy:

For fans of 1980s Artificial Intelligence:

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California: (a) Florida is not free, and (b) migrants are harmed by relocating to California

by philg

According to Governor French Laundry, Florida is one of the worst places on Planet Earth. Some examples… books are banned, speech is restricted, nobody can vote against Republicans, and “women” are criminalized:

abortion care for pregnant people is restricted:

2SLGBTQQIA+ people cannot get medical care in Florida:
What about a vulnerable person who wishes to live for four generations at taxpayer expense? According to this CATO report (in pre-Biden dollars, but the percentage figures in Table 4 should still be reasonably accurate), in the paradise of California he/she/ze/they will enjoy 96 percent of the spending power of someone who works full-time at the median wage. What about in the stingy hell of Florida? Only 41 percent (i.e., it might actually be rational to work).

Combining all of the above, it is tough to understand how anyone would choose oppression and/or poverty in Florida rather than freedom and material splendor in California.

Yet… “California investigating whether migrant flight came from Florida” (NBC):

State Attorney General Rob Bonta said that the migrants who were dropped off in Sacramento without any prior arrangements “were in possession of documentation purporting to be from the government of the State of Florida.”

“While this is still under investigation, we can confirm these individuals were in possession of documentation purporting to be from the government of the State of Florida,” he added. “While we continue to collect evidence, I want to say this very clearly: State-sanctioned kidnapping is not a public policy choice, it is immoral and disgusting.”

The Florida Legislature passed a bill in February that expanded DeSantis’ program enabling government officials to fly migrants to destinations in blue states that have sanctuary policies in place. The Republican-controlled Legislature gave the DeSantis administration $10 million for the program during a February special legislative session, and $12 million more during the recently concluded 2023 legislative session.

“Immoral and disgusting” to help a migrant enjoy the California lifestyle in which abortion care is available as part of standard reproductive care for any pregnant person? Immoral and disgusting to help a migrant who chooses not to work collect more than 2X the welfare benefits (housing, health care, food, smartphone, etc.) as a percent of median income? What is there about Florida that these noble defenders of migrants in Sacramento consider to be good? If everything about Florida is bad, how is it “kidnapping” to give someone a relocation ride on a private aircraft to California, where everything is good?

From the CATO analysis:

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Can ChatGPT save San Francisco?

by philg

I was talking to an elderly Bay Area tech industry worker at a wedding in New York City recently (see Abortion care as a wedding gift?). He said that he has switched to thicker-soled shoes for commuting via BART due to the high density of used hypodermic needles and bodily fluids on the floor. Why doesn’t he move? “OpenAI is in San Francisco and that makes the city the center of the AI industry,” he responded. “Also, for a guy like me in his 20s I have a lot more credibility here as a startup founder than I would anywhere else.” (He’s in his late 20s, which is why I characterized him as “elderly” by Silicon Valley standards.)

I wonder if this will be what saves San Francisco from suffering a “doom loop” and becoming like Baltimore and Detroit. Yes, the folks who currently live in tents and those who live at taxpayer expense in public housing will never leave (why should they?). But the opportunity to get rich quick in the AI world could keep enough workers, and the taxes that they pay, in the city.

Where else is there a competitive concentration of AI startups?

As a market enthusiast, I think we can get an estimate of the probability of San Francisco coming back, as NYC did from the 1970s nadir, by looking at residential real estate prices. Zillow says they’re down roughly 13 percent from a year ago. Adjusted for Bidenflation, therefore, they’re down 20 percent. But that only brings them back to something like pre-coronapanic values.

Let’s compare to Miami:

Owners can feel good about being 10 percent richer until they reflect that inflation in Florida has been far higher than 10 percent for almost everything!

What about the rich? With a government by the elites and for the elites let’s hope that at least the rich can get richer. Here’s Palm Beach, up by 18 percent in fake dollars;

(The recent curve looks pretty darn flat to me, however, which means that it is trending down with Bidenflation.)

So… the real estate market suggests that San Francisco isn’t going to be quite as rich as previously expected, but it will still be an in-demand place to live. On the third hand, a friend who owns a three-story building in a tent-free neighborhood has been unable to find a tenant for a vacant apartment. He has a professional agent handling the listing and the asking price is set to what the agent says is the market price, but there have been no serious inquiries in months. One area of concern that my property-owning friend raises is that he believes commercial real estate pays the majority of property taxes in the city. With office building values coming down, the city will be starved of revenue and will have to try to find a way to get it from residential property owners. I’m not sure how his scenario plays out in the Proposition 13 world. Both commercial and residential property owners are paying tax based on whatever they paid for the building some years ago. The city’s property tax receipts, therefore, shouldn’t change much even if office building values fall by 70 percent because the typical owner bought in 10+ years ago at only a fraction of the 2020 value. Even with a dramatic collapse in value, there wouldn’t be that many buildings whose property tax payments would fall after a sale and valuation-for-tax-purposes reset.

Speaking of Proposition 13, I wonder if it explains the California elites’ fondness for deficit spending and the inevitable associated inflation. Peasant renters in California are subject to the market and, except in a few rent control paradises, fully exposed to the ravages of inflation. Elite property owners, however, cannot be taxed more than 1% of whatever they paid for a house, subject to an increase for inflation not to exceed 2% per year. Elite Californians, therefore, get a tax cut in every year that inflation exceeds 2%. Who will fund their services then? While professing to be progressive, they’ve hit their peasants with a regressive 10% sales tax (varies a bit by specific location).

(For comparison, in Deplorable Florida, with no personal income tax or estate tax and nobody professing to be a progressive, sales tax is just 6-7% (depending on county).)

Related:

  • San Francisco happens to be one of the few rent control paradises in California. The economic planners allowed landlords to raise rents by 2.3% for March 2022-2023 and will allow 3.6% this year (rules). The ministers note that “A landlord must be licensed to increase rent” and “A landlord may increase a tenant’s rent by the allowed amount once a year provided they’ve obtained a current rent increase license by complying with the City’s Housing Inventory requirements.”
  • “The Biggest South Florida Housing Boom Is Near the Rail Stations” (Wall Street Journal): “While mass transit systems throughout the U.S. are suffering from decreased business as more people work from home, Brightline reported a 68% increase in ridership in March of 2023, compared with the same month last year. … Property values near the [Miami Brightline] station were up 83% in price over that period, compared with a 38% median increase for the Miami area. … Rent has also increased at a higher rate near the Brightline train stops. In Fort Lauderdale, rental premiums are up most, 28% higher than the market average, according to Tina Tsyshevska, an analyst at Green Street.”
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Why can’t San Francisco turn vacant retail and office space into shelters for migrants and the unhoused?

by philg

Headlines are packed with stories about major retailers shutting down stores in San Francisco and distressed office towers. At the same time, we know that folks in the Bay Area are passionate about social justice and welcoming migrants (San Francisco has been a sanctuary city since 1989). See, for example, “Nordstrom is the latest retailer to leave San Francisco” (CNN) and “Office vacancies in San Francisco jump to a record 33%” (The Real Deal).

San Franciscans who say that they want to help the vulnerable and reduce inequality are still wealthy. Why won’t they vote to tax themselves so that the city can acquire the vacant retail and office buildings to turn into housing for migrants and those who are currently suffering from unhoused-ness? These buildings are already equipped with bathrooms and it wouldn’t cost a lot to add more showers. From the WSJ:

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Measuring income inequality in a centrally planned economy with income-based pricing

by philg

We are informed that income inequality is one of the biggest problems facing Americans, but I wonder if the activities of central planners is going to make it ever-tougher to get accurate measurements. Looking at gross cash income is relatively easy. Adjusting for federal, state, and local income taxes is also relatively easy. It gets tougher when we want to factor in the value of means-tested welfare programs such as housing subsidies from a housing ministry, Medicaid, SNAP/EBT, and Obamaphone, but some valiant attempts have been made in this area (see “Is rising income inequality just an illusion?” (The Hill, 2021) for a description of some of the efforts).

I’ve noted here that spending power for cultural activities is actually infinite in many states for those who are on welfare (see “Why you want to be on SNAP/EBT“) because the price of museum or garden admission, for example, is reduced to $0.

California’s central planners are adding an interesting wrinkle with income-based electricity pricing. “PG&E monthly bills could jump for many customers due to new state law” (Mercury News, April 12):

Customers for California’s three major power companies — including PG&E ratepayers — can expect to see some big changes in their monthly electricity bills in the coming years as compliance with a new state law begins to unfold.

PG&E, Southern California Edison and San Diego Gas & Electric, the three major California utilities whose services include electricity, have filed a joint proposal with the state Public Utilities Commission that sketches out proposed changes in monthly bills.

At present, those bills are primarily based on how much electricity and gas customers consume.

A new proposal would add a fixed monthly charge that would be based on the household income levels of the respective customers.

PG&E says many customers would ultimately pay less for electricity — although the distinct possibility remains that an unknown and potentially significant number of more affluent customers might wind up with even higher electric bills.

The new law creates a need for a new government ministry of income verification:

It also appears that a formal effort will be made by state officials to confirm the household income declarations of utility ratepayers.

“The proposal recommends a qualified, independent state agency or third party be responsible for verifying customers’ total household incomes,” PG&E said in an emailed statement.

California is usually the leader in new ideas for expanding government. As more states adopt programs like this, I wonder if it will become practically impossible for academics to estimate spending power inequality in the U.S. (the relevant measure; if you can spend $200,000 per year on housing, health care, food, etc., what does it matter if your earned income is $0?).

This reminds me to relive some happy California memories. From Queer Ecology at Muir Woods (November 2020; San Francisco schools were closed, but youngsters could go to the forest (reservations required) and learn):

San Diego trip report and Meet in San Diego tomorrow or this weekend? describe my June 2022 trip to the Golden State:

Related:

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Silicon Valley Bank and Moral Hazard

by philg

Dedicated to diversity and regulated/supervised by a San Francisco Fed that was dedicated to diversity (see also “San Francisco Fed elevates a gay woman — its vice president — to the top job” (LA Times, 2018)), Silicon Valley Bank is being described as a casualty of its own wokeness. A friend who used to run a multi-$billion investment fund sent me this article by an economist, which attributes the need for an FDIC bailout… to the existence of the FDIC. Some excerpts:

The wrong way to think about moral hazard

Deposit insurance gives bank executive an incentive to take socially excessive risks. In some cases the risks won’t pay off. But that doesn’t mean executives don’t have an incentive to take excessive risks.

Things didn’t pan out for SVB. But that doesn’t mean their executives made an unwise gamble. It’s very possible that SVB’s strategy had a very high expected payoff, and they were simply hit by bad luck (rising interest rates.) Of course from a social perspective their decisions may have been bad, but not necessarily from a private perspective. “Heads I win, tails part of my losses are borne by taxpayers”. Of course I’d take more risk with those odds.

… back in the 1920s people cared a great deal about bank safety. Banks knew this, and managed their balance sheets far more conservatively than do modern banks. That’s why big city banks used to look like massive Greek temples; they had to convince depositors that they had the capital to survive hard times. The vast majority of big banks survived the Great Depression. US GDP in 1929 was about $100 billion and deposit losses during the Great Depression were $1.3 billion. Today, a 50% fall in NGDP (as in 1929-33) would wipe out almost our entire banking system. Modern bankers are far more reckless “despite” regulation. The negative effects of deposit insurance are far more important than the positive effects of regulation.

How do we get to Yglesias’s utopia [of more big banks]? Abolish deposit insurance (he wouldn’t agree). You’ll see a massive shift of deposits toward the larger, more diversified banks, making our system resemble the Canadian system.

FDR opposed deposit insurance, as he (correctly) feared it would create moral hazard. Unfortunately, Congress refused to listen to his good advice.

“FDIC fees are not a tax on the public.” Yes, they are.

“We aren’t bailing out bank executives”. No, we are not bailing out SVB executives, but we are (implicitly) bailing out their competitors.

I disagree with that last statement. The executives at SVB got to keep all of their big earnings from the big years that they had due to their aggressive risk-taking. Mary C. Daly gets to keep her $500,000+/year (including benefits) SF Fed compensation from incompetently supervising SVB. When things fell apart, none of these people had to pay anything back to the FDIC. It is the chumps with low-interest accounts at conservative banks who are left to pay.

Separately, I’m shocked that McKinsey wasn’t involved somehow in SVB! How can there be a group of elites robbing the peasants without McKinsey’s assistance? At least one of the usual suspects was there… “How Goldman’s Plan to Shore Up Silicon Valley Bank Crumbled” (WSJ):

Silicon Valley Bank executives went to Goldman Sachs Group Inc. in late February looking for advice: They needed to raise money but weren’t exactly sure how to do it.

Soaring interest rates had taken a heavy toll on the bank. Deposits and the value of the bank’s bond portfolio had fallen sharply. Moody’s Investors Service was preparing for a downgrade. The bank had to reset its finances to avoid a funding squeeze that would badly dent profits.

While few could have predicted the market’s violent reaction to the SVB disclosures, Goldman’s plan for the bank had a fatal flaw. It underestimated the danger that a deluge of bad news could spark a crisis of confidence, a development that can quickly fell a bank.

Goldman is the go-to adviser to the rich and the powerful. It arranges mergers, helps companies raise money and devises creative solutions to sticky situations of the financial variety—a talent that has made the firm billions.

Yet, for SVB, Goldman’s gold-plated advice came at the steepest possible cost. SVB collapsed at warp speed in the second-largest bank failure in U.S. history, setting off a trans-Atlantic banking crisis that regulators are working furiously to contain.

How big was the failure compared to the investments that are needed to build things with silicon? SVB’s pre-coronapanic/free-money-shower value was about $13 billion. A single Samsung fab is on track to cost 25 billion Bidies: “Samsung’s new Texas chip plant cost rises above $25 billion” (Reuters). The bump due to inflation in this one factory, according to the Reuters article, is in the same neighborhood as the SVB market cap, at least in nominal dollars.

We’re not hearing much about Signature Bank’s failure. For 8 years up to and including its seizure by the FDIC, Barney Frank was on the board: “Barney Frank defends role at Signature Bank: ‘I need to make money’” (FT):

FT says that Barney Frank made about $2 million by serving on the board of failed bank. None of that will be clawed back by the FDIC…

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Silicon Valley experts on gender equity and money have a $175 billion bank failure

by philg

Folks at Facebook like to lecture others, sometimes via software, regarding gender equity. What happens inside their own company? “Meta has a pay gap problem, with women abroad getting lower pay and smaller bonuses than men” (Business Insider):

The company, formerly known as Facebook, continues to pay women less than men, whether they’re hourly workers or on salary, according to Meta’s most recently available reports on pay inequity in the UK and Ireland. The company also hands women smaller bonuses, the reports said.

The report on Meta’s pay gap in Ireland is the most recent, having been released quietly in December as part of a new law in the country that went into effect last year. In 2022, women working for Meta in Ireland were paid 15.7% less on average than men at the company. The difference in bonus pay in the country is even larger, with the average bonus for women being 43.3% lower than those that go to men.

For women working at Meta in the UK, where the company operates out of London, the pay gap is smaller but still prevalent, according to a report from last year detailing pay data from 2021. The average woman there was paid 2.1% less than the average man. And again, the difference in bonuses is much starker, with the average bonus going to women being 34.8% less than bonuses paid to men.

The lords of Silicon Valley are also fond of reminding the peasants how much smarter they are about money, even as many venture capital firms there underperform the S&P 500 (HBR 2014; a 2019 article). What about something simple like running a bank? With about $200 billion in deposits to protect, Silicon Valley Bank made a big bet that the Vanquisher of Corn Pop wouldn’t set off hyperinflation. The bank bought long-term Treasury bonds. When Bidenflation took off, the value of these bonds collapsed. From “What’s Going on With Silicon Valley Bank?” (WSJ):

SVB Financial bought tens of billions of dollars of seemingly safe assets, primarily longer-term U.S. Treasurys and government-backed mortgage securities. SVB’s securities portfolio rose from about $27 billion in the first quarter of 2020 to around $128 billion by the end of 2021.

These securities are at virtually no risk of defaulting. But they pay fixed interest rates for many years. That isn’t necessarily a problem, unless the bank suddenly needs to sell the securities. Because market interest rates have moved so much higher, those securities are suddenly worth less on the open market than they are valued at on the bank’s books. As a result, they could only be sold at a loss.

Many of the bank’s deposits are sizable enough that they don’t carry Federal Deposit Insurance Corp. protection. SVB said it estimates that at the end of 2022 the amount of deposits in its U.S. offices that exceed the FDIC insurance limit was $151.5 billion.

Before it disappears, let’s have a look at their home page:

Certainly nobody can accuse them of failure to represent a diversity of hairstyles.

What can you do to protect yourself in case some other banks were overconfident regarding our current rulers and their Borrow-and-Spend-Like-Drug-Dealers economic policy? Move money that is in cash into mutual funds or common stocks. The bank is just a custodian for these assets and if the bank fails you’re still a shareholder at the same level. If you must have cash of more than $250,000, spread it among multiple banks.

Let’s dig a little deeper into this failed bank. It seems that they too might have built a culture of equity by underpaying a group of employees unified by a gender ID:

They were experts on “sustainable finance” whose own enterprise just happened not to be sustainable.

Related:

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Winter in Death Valley (versus heat tourism)

by philg

One thing that we learned during our December trip to Death Valley was that nobody else comes to Death Valley in December. “I would have thought that this would be the most popular time of year,” I said to a National Park Service manager, “given that one can hike around in comfortable temperatures and barely have to carry water.” He responded that summer was actually the busiest: “We get a lot of Americans driving through and checking us off their bucket list, but also Europeans who come here for heat tourism.” Heat tourism? “They don’t have deserts or extreme heat in Europe so they come here to experience 120 or 130 degrees.”

We did the Artists Drive loop, Natural Bridge trail, and Badwater lowest point from about 9:30 am to 12:30 pm.

After lunch, it was time for Golden Canyon Trail.

The next day we drove to Stovepipe Wells, a desolate and crummy place to stay compared to Furnace Creek, stopping first at the Mesquite Flat Sand Dunes:

After breakfast (masked restaurant staff and unmasked customers), we hit Mosaic Canyon.

We had lunch at the Ranch at Death Valley steak house. Once again, the servers were masked while customers were not. Also, curiously for California, the establishment seemed to be celebrating gun violence.

I’m not surprised by the passion for masks given that we were in California, but I am surprised that people who are sufficiently concerned about Covid to wear a mask didn’t take the opportunity, at some point during the past three years, to change careers into a job that doesn’t involve contact with hundreds of infested-by-viruses humans every day.

The Inn at Death Valley has nicer public areas, but the Ranch at Death Valley has some brand new standalone cottages.

After some time at the pool we went to Zabriskie Point for sunset, along with every other tourist.

Some fun with Apple’s panorama software:

We ate most of our meals at the Inn at Death Valley, just up the hill from the golf course/Ranch. Food and service seemed to be better.

After two days and three nights, it was time to head back through Pahrump to Las Vegas. We did not stop at Sheri’s Ranch for lunch with Hunter Biden, however, because we wanted to visit the Mob Museum before checking into the Cosmopolitan and walking to Din Tai Fung for dinner before Cirque du Soleil’s Mad Apple. The show was funny in addition to being awe-inspiring. Din Tai Fung made me weep for the paucity of good Chinese food in South Florida. What must we promise to the Taiwanese to get a branch here in Jupiter?

Before we left Death Valley, though, we stopped at Zabriskie Point for some pictures in the morning light.

One more panorama:

It was a great trip and one of the few times in recent memory that I was in a U.S. National Park and not jammed into a Manhattan-style crowd.

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