IT’S ALL ABOUT MONEY

While money can’t buy happiness, it certainly lets you choose your own form of misery. ~ Groucho Marx  

Money makes the world go around. Money or currency is commonly defined as a generally accepted commodity used as a medium for making commercial transactions, a store of value and a means of stating prices, values and costs. Humans have used money in their daily lives long before the advent of written history. Archeological objects related to coinage have been found dating back over 100,000 years.

Long before 1869 when George Washington first graced his visage on our $1 bill, numerous items have served as money, including cowrie shells (Africa, Asia, Oceania, Europe), red ochre (Australia), wampum (Native Americans), whale teeth (Fiji) and very large carved limestone disks (Yap Island in Micronesia).

Sea shells have been used as a US currency far more recently. During the Great Depression, some drugstores in California provided change to customers in clam shells when cash was in short supply. Cowrie shells and Yap Island’s giant stone disks are shown below as examples of very old money. Cowrie shells may have been pocket change, Yap’s disks certainly were not. 

 Yap’s stoned money 

A fortune in cowrie shells

Economists classify currency in 2 distinct ways. First, as commodity money (like gold and silver coins, candy bars and cigarettes in WWII prisoner-of-war camps and peanut M&Ms for US troops in Afghanistan) are items that have intrinsic value in some other use. Precious-metal coins were initially used as money in several places about the same time, around 600-500 BCE; in China’s Yellow River valley, in India’s Ganges River valley and by the king of Lydia in western Asia Minor (modern Turkey).

Second, as fiat or token money that is an item designated as money by an acknowledged, trusted authority that is otherwise intrinsically worthless (like the “paper” we use for US bills composed of 75% cotton, 25% linen). Paper money banknotes first arose in China during the 7th century.

According to the Federal Reserve, the most recent value of all the currency in the US money supply is $5.8 trillion, which is almost 21% of our current GDP. The most valuable US banknote now in circulation is the $100 bill, otherwise known as the Benjamin because Benjamin Franklin’s face is on it. Over the past 5 years, Benjamins have become the most widely-circulated banknote, representing 34.3% of all circulating currency, overtaking the George (aka, $1 George Washington banknote). Circulation of the Andrew (aka, $20 Andrew Jackson banknote) increased significantly during the 1980’s when ATMs became broadly popular. The Andrew’s circulation is in third place, right behind the George.

What is the largest US banknote ever circulated? The Salmon P. Chase $10,000 banknote, first printed in 1918. It was never used much except for banks, given that its value was greater than the net worth of the average American for most of its history.

Mr. Chase was one impressive person: he was a governor and then senator from Ohio, served as Secretary of the Treasury under Abraham Lincoln, and became the 6th chief justice of the Supreme Court in 1864. He remains one of the few people to serve in all 3 branches of the federal government.

The Chase $10,000 banknote was purged from US currency in 1969, along with other large banknotes like the William McKinley $500, Grover Cleveland $1000 and James Madison $5000 bills. After this culling, the Benjamin became and remains the largest US banknote. 

Perhaps the most interesting coin produced by the US Mint is the silver dollar. The true “Silver Dollar” production began in 1794 and ended in 1935 as this was the last year that 90% silver coins were made for circulation. In 1975-76 the Bicentennial Dollar (with President Eisenhower on the face) was produced, but with a 40% silver content. In 2021 the mint began production of Peace Dollar coins, also with a 40% silver content.

Speaking of money, what is the most profitable US export? I think it is the $100 Benjamin banknote. Because there are 11 foreign nations that use either fully or partially US currency as their domestic currency, including Ecuador, El Salvador, Zimbabwe, Panama and Micronesia. That’s in addition to the 5 official US territories that use our currency: Puerto Rico, Guam, America Samoa, U.S. Virgin Islands, and Northern Marina Islands. 

Citizens in these 11 nations and their governments buy US banknotes at their face value, if not close to it. The US Treasury's cost to produce one $100 Benjamin is $0.086, which is an implied ”return” of 1,163 times its face value. Production costs for the $1 George are $0.028, an implied “return” of 35.7 times its face value. That's considerable "profit." 

According to the Federal Reserve Bank of Chicago, almost 80% of $100 US banknotes and more than 60% of all US banknotes are used overseas, a sizeable increase from roughly 30% in 1980. Such an increase in exported US banknotes is not only impressive, but likely quite profitable for the US Treasury. The Treasury’s foreign customers for US currency may soon include Argentina. Argentina’s new President Javier Milei campaigned to officially “dollarize” his nation. That may or may not happen, but if it only unofficially does, it could involve supplying South America’s second largest economy with more US currency’s fine crew lead by Benjamins, Andrews and Georges.

Money is said to be legal tender when the government requires it to be used in settlement of fiscal transactions, including tax payments. For example, you cannot settle your owed taxes with the IRS by paying in candy bars or shells, or for that matter with coins.^[1] Only US dollars will do via check, online payment or debit/credit card.

Congress established the US dollar as the basic unit of currency in 1792. The first coins were created in 1793 at the Philadelphia Mint and presented to Martha Washington. The US government did not issue paper money until 1861, when it helped finance the Union’s Civil War efforts.

Before our 1776 Declaration of Independence, the majority of currency used to conduct commerce in the American colonies was commodity money. Wheat is one example of a commodity currency that was used nearly 400 years ago in Massachusetts.

Before 1700, many students at Harvard College paid their tuition with wheat because hard currency – the British pound or Spanish real – was challenging to come by in the early colonies. The Massachusetts Bay Colony prices for standard items were stated in terms of bushels of wheat and corn, not British pounds or pence. Using such agricultural produce as a commodity currency in early America was not surprising. Throughout the 1700s, at least 90% of the American labor force was farmers.

No wonder paying with wheat made sense and cents at that time. Samuel Willis, Harvard class of 1653, its 13th graduating class, paid his tuition with wheat.

Here’s a current-day perspective about what a wheat-based Harvard tuition could be. Using a recent price of wheat together with Harvard’s 2023-24 tuition ($54,269 not including room and board), a student would need to provide Harvard College with 8,269 bushels of wheat for full tuition. This heavy tuition load of wheat would require a 167 acre farm to grow it and 2 big railroad hopper cars to transport it to Harvard’s Student Accounts Office in Cambridge. Surprise!

Wheat farmers have not been at all pleased with the market prices they are facing. Over the past year the average price of US wheat has dropped nearly 24%, which is not at all good if you’re paying tuition with your own-grown wheat, but no big deal if you are not a wheat farmer whose daughter is going to Harvard. Nevertheless, having to pay for tuition with 8,269 bushels of wheat would be inconvenient, to say the least.

All things considered it is very fortunate that Harvard, along with every other college and the rest of our economy, grew out of our 17th century wheat-as-commodity money habit. Hitching our fiscal wagons to fiat money’s US dollars makes sense.

 

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[1] Despite income tax protestors’ efforts, the IRS has successfully refused to accept tax payments with coins. So keep your pennies in your piggy bank, don’t include them with your 1040 form. 

 

REPARATIONS FOR K-12 STUDENTS

The Berkeley Unified School District’s (BUSD’s) Reparations Task Force (RTF) began meeting last April. The RTF has been tasked with determining how the BUSD could fund reparations, what form of reparations it would recommend to the BUSD Board and formulating a recommendation on how the Board could implement that program. No other school district in the US has taken it upon itself to cure the ravages of slavery. Berkeleyside, a local news periodical, recently published a story written by two RTF members, “Now is the time for reparations in Berkeley schools” attempting to justify their mission. I was not convinced.

Most school districts find it challenging enough just to keep their K-12 students educated in these challenging times of teacher and budget shortages. Nonetheless, other school districts are not located in Berkeley, California, a long-time nucleus for progressivism.

It is utterly unclear how the BUSD, or any local school district, is suitably equipped to remedy the damages caused by historical slavery. Most folks correctly understand people possibly affected by the ravages of past slavery are far more numerous than one community’s Black K-12 students.

From its outset, the RTF believed the BUSD has caused direct harms to some of its students from segregation, discriminatory policies and other legacies of chattel[1] slavery. Thus, it supports the district paying these students financial reparations for these harms.

Last year the State of California’s own pioneering reparations task force presented its assessment of the issue from a more apt, state-wide perspective. Its report recommended to the legislature that eligible, long-standing Black California residents each could be owed up to $1.2 million for repairing the damages of slavery and racism. Given the controversary surrounding reparations, this report seems to have been subsequently swept under Sacramento’s political rug. Neither the Legislature or the Governor have provided any meaningful public responses regarding paying for reparations.

The BUSD RTF has postponed until this summer making their recommendations about how to fund, plan and implement a reparations program in Berkeley’s schools. The RTF states that a majority of its members are descendants of individuals enslaved in the US. The RTF has undertaken one “community engagement survey” to solicit input on the types of reparations it should recommend. This survey seems to have been sent to 3 groups of people – descendants of enslaved Californians, students at BUSD schools and students’ caregivers. The reported RTF survey results published in Berkeleyside appear to be erratic, as shown in the chart below.

 

    Source: Berkeleyside, 3/23/2024 

This chart states there were 1,386 total respondents (All Respondents) for this question. But the sum of survey responses from the 3 groups – Descendant Families, Current/Former BUSD Students and Caregivers of Current/Former BUSD Students – adds up to 1,649 respondents, 263 more people than the total respondents. This makes no sense unless All Respondents includes none of the other groups. Or the RTF made a straightforward addition error. Or was there another group of 263 people who received the survey, but was not reported. If the All Respondents are a distinctly separate group, who are they? This inconsistency is a mystery.

The RTF has never stated that their survey was sent to people who were representative of Berkeley’s citizenry. It is thus unsurprising that an astounding 85% of all survey respondents said they were “in support of financial payments to students for educational purposes.”

These BUSD RTF results are very different from other reparations surveys. Past surveys have focused on possible remedies provided by the federal government, state governments or local governments. A 2021 Pew survey found that 75% of reparations supporters say the US federal government, not other government organizations like cash-strapped school districts, has all or most of the responsibility to repay descendants of enslaved people. Like other surveys, this Pew survey found that a large majority of Black adults (77%) think the descendants of people enslaved in the US should be repaid in some way and that only a slight minority (18%) of White adults agreed that reparation payments are appropriate. A 2023 poll by UC Berkeley’s Institute of Governmental Studies showed California voters opposing reparations payments by a 2-to-1 margin.

The RTF will likely advocate to the BUSD that fiscal reparations are wholly justified for every Black student who attends K-12 schools. Using the most recent available data, there are 1,134 Black students in the district’s 17 schools. They probably also will promote reparation payments be made to former qualified BUSD students as well. The bigger the proposed total reparations payments are for the BUSD, the more satisfied the RTF will likely feel. The RTF may have a larger target in mind for the reparations amount per qualified Black student to out-progressive the efforts of both the ill-fated San Francisco Reparations Advisory Committee (that recommended $5 million per qualified person) and the aforementioned California Task Force to Study and Develop Reparation Proposals for African Americans’ $1.2 million per qualified person.

So far, the RTF’s mandate apparently excludes addressing common-sense questions about why a local school district should even provide such reparations, or how the district could afford to pay such reparations, given its educational mandate. The latest Berkeleyside RTF story (March 27) mentions that they may recommend adopting a new Berkeley tax to provide funding.

The simple fact is neither Berkeley or the BUSD can afford direct financial reparations or other reparations-related expenditures. If the city and/or BUSD somehow decided to pay reparations, it would need to raise the needed substantial funding either through a new city tax or a public, general obligation (G.O.) bond. A new tax might only require a simple majority of voters to pass, the bond would likely require approval by at least two-thirds of voters.

No matter where funding would come from, getting Berkeley’s voters to pay for BUSD reparations would be a singularly fraught and divisive campaign. Currently, less than 8% of Berkeley’s population is Black/African-American, 12.5% of BUSD students are Black. Another possible, more politically-expedient option for the BUSD is to accept the RTF’s findings in June, then offer an honest, sincere apology for the harms to Black students it directly or indirectly created in the past, and say nothing with respect to financial reparations.

So far, this strategy seems to be what the California Legislature and Governor Newsom have adopted after the California Task Force submitted its 1,000 page report last May. Subsequently, public talk about state-funded reparations largely disappeared into Sacramento’s political ether. Also, San Francisco Mayor London Breed indirectly but publicly disagreed with her Committee’s direct reparations recommendations. Her office stated, “The Mayor does not believe that addressing the needs of the African American community requires adding more bureaucracy,” referring to the establishment of a proposed SF Office of Reparations.

Like many school districts, the BUSD is now facing mounting financial challenges because of continuing reduced student enrollment in Berkeley’s public schools. The BUSD’s fiscal future is cloudy, at best. In 2017, 10,340 students were enrolled in BUSD schools. In 2022, it was 9,073 students. That’s a 12% drop over the last 5 school-years. Making a similar calculation of the BUSD average student enrollment change during the last 3 school years, it’s a 7.8% drop. BUSD personnel have said that yes average student enrollment has fallen, but the rate of the drop is lessening. That’s true, but immaterial.

Reductions in student attendance presages diminished BUSD funding from the state because California expenditures for K-12 education are based on average daily student attendance in each district. Like other California school districts, it’s virtually certain that state education funding for BUSD will decline. In 2023 overall California state education funding shrank by $2.1 billion.

Last year the BUSD’s director of fiscal services cautioned that the coming 2024-25 school year could be a “reality check” for the district if the state’s funding formula for schools does not change. It’s California dreamin’ to believe this formula will change to benefit BUSD and other school districts. Why? Because last month California’s projected 2024-25 tax revenue deficit increased to a sizeable $73 billion. More state money going to school districts is an unlikely prospect, no matter how worthy.

Fortunately for the BUSD, last month Berkeley voters once again strongly supported the city’s Berkeley Schools Excellence Program (BSEP), a local property tax increase now responsible for 17% of the district’s budget. The district budget needs to continue rising. A growing proportion of the BUSD’s costs has been focused on providing support for “high-need” students. Evermore districts, like the BUSD, will be facing daunting “fiscal cliffs” due to 4 factors: no additional temporary Covid-related education funds are available now to school districts, shrinking K-12 student enrollments due to changing demographic trends, continuing inflation and appropriately-increased teacher/staff salaries. Because 83% of the BUSD’s budget are employee-related expenses, the impending fiscal cliff will result ultimately in school personnel reductions.

The RTF survey purposefully was not sent to a statistically-representative sample of Berkeley citizenry. It’s thus no wonder that an astonishing 85% of respondents said they were “in support of financial payments to students for educational purposes.” Do you think 85% of Berkeley voters will be willing to pay for cash reparations to the 12.5% of BUSD students who are Black? I doubt it.

The survey-based percentages presented by the RFT, as shown above, have nothing to do with whether all Berkeley residents believe it’s appropriate for the BUSD to pay reparations to K-12 students who have suffered from the impacts of chattel slavery and its legacy. Not being representative, the RTF survey results cannot characterize anything definitively beyond the survey subgroups’ respondents themselves.

Berkeley has been justifiably recognized as an honest-to-goodness mecca of progressive thought, but I question whether a majority of voters would say yes if asked to actually pay reparations to qualified Black BUSD students. After all, when the Berkeley City Council placed its biggest-ever bond measure (Measure L) on the ballot 2 years ago with hopes of funding a very broad array of activities, it went down in ignominious defeat.

The RTF’s public statements about school-based reparations payments confirms both their strong advocacy and that they hold an atypical worldview where providing sizeable direct reparations payments only to their small number of Black K-12 students will meet little resistance. Depending on the specifics, I can support indirect reparation remedies to qualified Black citizens. I cannot support the Berkeley school district providing direct reparation payments to its Black K-12 students.

 

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[1] Chattel refers to a human being considered to be property, an enslaved person. 

 

SWEET INFLATION

All the candy corn that was ever made, was made in 1911. ~ Lewis Black   

For a while I’ve seen headlines commenting on how citizens feel about our economy. They are predominantly not at all happy with what’s occurring in their economic lives. They’re upset that prices remain too high and employment opportunities are too restrained. That’s puzzling.

The latest annualized inflation rate in the US was a subdued 3.4%. December unemployment remained at a five-decade low of 3.7%. The US real (inflation-adjusted) GDP increased at a decent 3.3% annual growth rate in the fourth quarter of 2023. Wages grew 5.2%, a healthy clip. December’s retail sales increased 0.6%, flouting expectations. During the past year 2.7 million workers were added to total nonfarm employment. In January the economy unexpectedly added 353,000 jobs, about double what was anticipated. What’s not to like?

From an economic perspective, each of these macroeconomic changes is strictly positive, if not overdue. Especially when compared to the recent past, when inflation was flying twice as high and employment gains were largely declining.

How could people’s individual views be so distinctly different and glum from our macroeconomic performance? Ultimately, it’s because none of us live in the aggregated world of macroeconomic indicators like the Consumer Price Index (CPI) or the national unemployment rate. We live in real towns and cities, none of which exactly characterizes economists’ models of the entire macroeconomy.

The president’s re-election campaign is attempting to sell Joe to voters in terms of his successful efforts to protect liberal democracy from The Donald’s bombastic dark forces, his constructive legislative record and his management of the economy. Unfortunately, America’s likely voters seem far less moved by Joe’s protecting democracy than by improving their lives via quickly reducing their housing and food costs. This is a tall order that’s a hefty political challenge for the current and any future president. 

President Biden impressively has signed into law two beneficial pieces of legislation that authorized federal expenditures totaling a sizable $2.09 trillion. First was the Bipartisan Infrastructure Bill of 2021 and then the Inflation Reduction Act (IRA) of 2022. Many analysts believe these sizeable expenditures actually have contributed a bit to inflation, not reduced it. Despite its broad title, the IRA has begun to lessen rising prices only by capping a small number of prescription drug prices for Medicare recipients. That’s certainly a good thing, but doesn’t have broad impacts. The IRA’s primary goal has been to reduce the threatening effects of climate change.

Instead, inflation reduction has been largely accomplished by the Federal Reserve Bank’s program of raising the Federal Funds (interest) Rate. As mentioned, the inflation rate has lessened thankfully without inducing a recession so far, but folks unhappily keep seeing higher, rising prices. In a recent survey, more than two-thirds of voters said inflation has hit them hardest through higher food prices. That’s 50% greater than any other category of purchased goods.

Economists have suggested an explanation for the political conundrum of improved macroeconomic performance not being appreciated by many people. It’s an interesting and sweet one that involves Snickers candy bars. A friend alerted me to this idea (thanks Robert): we become more aware of goods’ price changes the more frequently we buy them. In addition to groceries, frequently-bought goods include convenience and impulse purchases, like candy and snacks. This helps explain why Snickers bars occupy primo grocery store real estate within easy reach of shoppers as they unload their carts at the checkout line.

Snickers bars for all

 In other words, one of the president’s challenges is there’s a world of difference between the increased price of items on grocery-stores’ aisles and statistical representations of the macroeconomy that he often cites in speeches.

Mars, Inc. domestically produces over 500 million Snickers bars each year. That’s an enormous quantity of chocolate-nougat-caramel-peanut candy that is frequently bought by legions of folks. With reason, Snickers is often cited as the king of the candy aisle. The very first Snickers bar was crafted 94 years ago by Frank C. Mars in Chicago. The Snickers bar, which was named after a favorite horse of the Mars family, originally sold for 5 cents. Unfortunately, there’s no annual time series of Snickers’ prices. Nevertheless the chart below shows the cost of the Snickers bars in various years since its introduction.

The Price of a Snickers bar  

Year	Price
1930	$0.05
1978	$0.25
1981	$0.30
1983	$0.50
2012	$1.00
2024	$1.79

There are two reasons for Snickers most recent, sizeable price increases: higher sugar and higher cocoa prices. First, it’s impossible to separate the price of Snickers bars from the price of sugar, its major ingredient. The US price of sugar increased nearly 9% last year. The domestic prices of sugar and sweets rose more than 2 ½ times higher than the overall CPI. Having a sweet tooth is evermore expensive. It’s no surprise that a majority of surveyed voters indicate that inflationary food prices, including sugar and candy, have hit them hardest.

Second, Snickers bars are covered in chocolate and have a fair amount of additional cocoa inside as well. The global price of cocoa rose a stratospheric 73% during the past year. Poor growing conditions in West Africa, where much of the world’s cocoa beans are grown, have shrunk cocoa powder production, hence prices have rocketed.

The domestically-produced sugar you may put into your morning coffee or taste in a Snickers bar is likely one of the most regulated of any consumer item, but not to consumers’ advantage. For over 50 years, domestic sugar producers have benefited from generous government policies. These economic policies include US import restrictions like high tariffs and strict quotas, as well as robust US production subsidies. Domestic sugarcane and sugar beet producers are well protected from cheaper imported sugar. These federal policies effectively restrict sugar imports to about 15% of the US market, which is a sizeable $13 billion. The relatively few, large domestic sugar producers act as a high-priced cartel buoyed by full government support.

Consequently, the price of American sugar towers well above the world price. In December the US price was 27% higher than the world sugar price. Domestic sugar producers taste sweet success. Sugar consumers and confectioners like Mars taste only bitterness. Accordingly, the cost of making sugar-intensive Snickers bars in Texas and other locations is considerably higher because of federal policy, with consumers picking up the added tab. That tastes expensive. Such increased prices easily make consumers feel that they remain too elevated. If such feelings endure, they will not help the president come November.

 

 

FUZZY DARK ENERGY AND POLITICS

People shall beat their swords into plowshares, and their spears into pruning hooks… Isaiah 2:3-4 

I think by now the media’s unending focus on everything related to the upcoming activities transpiring on Nov. 5, 2024 would be satiated, at least outside the DC beltway. It’s apparently not. The media is only shifting out of first gear now that Iowans have finished their caucuses’ dances.

A meager 15% of Iowa’s Repubs managed to brave sub-zero temperatures and celebrate being caucus-goers last week. With no surprise whatsoever, Donald Trump was the caucuses’ winner. Naturally, The Donald is now beating his Iowa plowshares into political swords.

A timeworn plow, likely older than The Donald’s 77 years.  

This time around the Dems wisely abandoned caucusing for their presidential candidate after being gravely wounded by their grand mal caucus fiasco in 2020. It took 3 days for them to figure out that Pete Buttigieg barely beat Bernie Sanders. Congrats Pete that victory got you the Transportation Secretary’s job. In 2024, Iowa Dems instead are casting regular mail-in ballots from Jan. 12 through Mar. 5 (aka, Super Tuesday) to vote for their presidential candidate. Ho hum.  

But let’s not get too grounded in the Hawkeye state’s momentary quadrennial political glow. Instead, look above and beyond. There’s fascinating news about the heavens that has a connective thread to the presidential election. Dennis Overbye wrote an intriguing story about how our universe may have begun, way, way beyond Des Moines, Concord and even Washington, DC. Dennis is the New York Times’ “cosmic affairs correspondent.” I wonder what Dennis’ cosmic affairs beat does not include because ultimately there’s very little outside the realm of cosmic affairs, not even Cleopatra and Mark Antony, Richard and Liz or Taylor and Travis.  

Dennis’ story, “The Early Universe Was Bananas,” discusses results from a new astrophysical assessment about the birth of our universe. This investigation focuses on the astronomically short interlude of just half a billion years after the Big Bang, when time itself began. Mercifully, this birth was free from any medical interventions.

The study focuses on examining “newborn” galaxies in the firmament. Until now, standard cosmological theory has assumed that the newest galaxies would appear very similar to the prevailing inventory of about 2 trillion galaxies in the universe. Unexpectedly, after scrutinizing thousands of baby galaxies they appeared not at all like orbs or discs associated with older galaxies like our Milky Way. The newborn galaxies instead look more like bananas, pickles or surfboards shown in the image below. If confirmed, this surprising result may expand our sense of how dark energy-matter influences the universe.

 A baby banana galaxy.

 A fair amount of modern cosmological deliberation about the birth and life of our universe entails considering completely-invisible dark energy. Dark energy and its closely-related dark matter are estimated to constitute 95% of our universe’s total energy-mass content. Thus for thousands of years as we humans have gazed up into starry night skies what we’re seeing represents only 5% of the universe. This pervasive dark energy-matter is postulated to account for the universe’s gravitational forces that influence everything everywhere.

 Having been hypothesized for more than 30 years, dark energy-matter now comes in several flavors. Cosmologists have enlarged their views about how dark energy-matter may work and gained fresh insights about new galaxies. Currently, an entire dark-sector gallery of imperceptible particles has been hypothesized, including fuzzy dark energy.

After learning about this shadowy astrophysical realm, I connected these universal dark forces with our current political expanse. It’s quite clear to me that The Donald embodies fuzzy dark energy through and through. Unfortunately, the untruthful Trumpian fuzzy dark energy is having quite visible consequences. His political and campaign forces are certainly dark, too often very fuzzy and have very little to do with gravity. That hasn’t bothered his followers at all.

Baby banana galaxies portray challengers like Nicki Haley and up until Sunday, Ron DeSantis (who’s retreated to the Everglades), whose hoped-for goal is somehow to be the Republican candidate for president. Baby pickle galaxies depict Dean Phillips and Marianne Williamson, the virtually invisible Democratic presidential challengers. Galactically-speaking, President Joe Biden is represented by Mayall’s Object, an adult galaxy discovered 82 years ago at the Lick Observatory on Mt. Hamilton, east of San Jose, CA. It’s my local space observatory. Joe will be 82 years old 15 days after he wins the election, having conquered fuzzy dark energy spewed by the Repubs. Here’s hoping.

 

GEORGISM RISES FROM THE GRAVE

The association of progress with poverty is the great enigma of our times. ~ Henry George 

Georgism? What’s that? Does it have anything to do with a dearly-departed former Beatle or a cult affiliated with our first president? Nope. Until recently, only students who took a course in the history of economic thought, like I did eons ago, ever came across the mention of Henry George. He was a 19th century journalist and political economist born in Philadelphia just like me, who became famous for advocating a single, solitary tax on private land to support a government’s expenditures for public benefit.

His groundbreaking book Progress and Poverty, published in 1879, argued that a tax on land’s value should be the sole basis for determining public tax revenues, rather than taxing income or sales. Several million people bought his book, which helped stimulate this nation’s Progressive Era. His land-based fiscal philosophy became known as Georgism. In 1886, Henry George ran on the United Labor party ticket to be the mayor of New York City. He lost, as did the Republican ticket’s Theodore Roosevelt.

Henry George

George deemed the value of land depends on its permanence and immobility, as well as the economic activities that are pursued on top of it. He thought land’s unique and enduring characteristics would eliminate the need for all other types of taxes. George fervently believed in a tax based on the value of land but not on the improvements on it. George’s promotion of a single Land Value Tax (LTVs) influenced tax policies in the US as well as other nations. Denmark’s “ground duty” land tax, implemented almost a century ago, remains a key component of its federal tax system. Other nations that have used LVTs in various ways include Australia, Germany, Lithuania, Mexico, Singapore and Taiwan.

After the turn of the 20th century, Georgism mostly slumbered in the US. However, once again discussions have surfaced about Georgism as a result of two events.

The first event. A Kansas City trial jury’s decision last month determined the National Association of Realtors (NAR) and major real estate brokerages have conspired to keep their commission fees artificially high. The jury apparently believed this cooperative behavior was tantamount to price-fixing, and thus not consistent with anti-trust law. Consequently, the jury awarded $1.8 billion to a half-million Missouri home sellers. Georgism is not directly related to this case, but it hovered around it. Anyone who’s ever purchased or sold a dwelling knows the standard 5%-6% commission has been inviolable that realtors on each side of the transaction jointly agree between themselves how to split their fees before the sale. This is ever so slowly changing. Realtors’ commissions have been dwindling especially in states like California where housing prices remain stratospheric.  The average 2022 California realtor commission was 4.91%.

This court decision already has sent tremors through the real estate and financial industries. Zillow’s publicly-traded stock dropped about 7% after the verdict was announced. Realtors fear that it will transform their century-old cooperative fee system. Without such fee cooperation, buyer agents’ fees are likely to be more exposed because they would have to compete on the worth of their services. Separating the buyers’ and sellers’ agent commissions could also result in lower home prices announced through the highly-used Multiple Listing Services (MLS) that realtors own.

Some real estate specialists believe there is a surfeit of realtors among the 1.6 million active agents, including many part-timers. One industry authority characterizes the US real estate market as “a congested, part-time industry where the part-timers are draining income from the full-timers. This glut of agents is killing the industry.” This sense is reflected by realtors’ 2022 median annual salary of $52,000.

Other experts are predicting that buyers agents could veer to an explicit multi-level fee system, where the amount of service that agents provide their clients will depend on the agreed-upon fee level. A higher fee, say 3%, might result in more personally-provided services by the realtor like personal showings of newly-listed homes that are consistent with the potential buyer’s stated preferences. A buyer who has agreed to a lower 1% commission fee might receive email announcements of newly-listed MLS homes for sale that are consistent with the prospective buyer’s desires.

Predictably, the NAR is appealing the court’s ruling. If the federal trial decision is upheld, the $100 billion that US consumers pay in real estate commissions will likely plummet, conceivably as much as 30%. That would be a significant victory for lots of property buyers and sellers way beyond Kansas City and a potentially significant loss for the NAR’s realtors.

The second event. Detroit’s three-term mayor Mike Duggan asserts his city’s come-from-way-behind efforts to revitalize itself would be much more fruitful if it wasn’t being stifled by real estate speculation. Absentee owners who inexpensively purchased plenty of Detroit properties after the Great Recession have done next to nothing in the way of beneficial improvements. In June 2020 Detroit’s property vacancy rate was over 20%; it has dropped only a bit since then. The mayor believes these shadowy investors are taking advantage of the city. They’re speculators, passively waiting for their land’s value to increase without undertaking any direct investment to improve their properties.

Mayor Duggen is not at all happy about this. As he puts it, “Blight is rewarded, building is punished.” The mayor’s proposed salve is a relative of George’s Land Value Tax, although he apparently has never heard of Mr. George. The mayor wants to raise property tax rates on unimproved Detroit land, and lower them for land that has existing structures which are occupied. Perhaps Henry is smiling from his grave. If the mayor is successful, Georgism may be renewed as it captures Detroit territory.

Like most municipalities, it's no simple matter to modify property taxes in Detroit. Mr. Duggen first needs approval by the State of Michigan. So far, lawmakers in Lansing have not been moved into action and are dubious of the merits of the mayor’s proposed new property tax. If and when the legislature approves it, Detroit voters also would have to vote their support of the new tax.

Does it take just 2 steps to tango back to a revitalized Georgism in the 21^st century? Maybe, but breath-holding isn’t recommended. Nevertheless, lowering land taxes on improved, inhabited properties is likely to be an appealing idea for many.

 

 

EV MISSION POSSIBLE?

Porsche is the last bastion of petrolheads. So when they start making electric vehicles, you know the world has changed. ~ Chris Harris 

The world has changed.[1] President Joe Biden has mandated that at least one-half of all new passenger vehicles sold in America after 2030 will be electric vehicles (EVs). Governor Gavin Newsom has ordered that only zero-emission new passenger vehicles – aka, EVs – will be sold in California after 2035. None of the Californians who own the 14.3 million cars now registered in CA will be allowed to trade them in for another internal combustion engine (ICE) vehicle. Car consumers will only be allowed to buy an EV.

Let me guess how popular, let alone equitable, that will be in a few years. New climate policies like Joe and Gavin have established will fundamentally change the transportation sector, among others. Analogous policies are already facing popular backlash in Europe. The Netherlands and Germany already have been forced to backtrack on several of their green climate policies’ implementation.

US EV sales have continued to increase notably. By some accounts, they now represent about 5% of all registered vehicles in the US. And yet Joe’s and Gavin’s beyond-optimistic EV goals are not going to be realized for a host of reasons. Gavin’s official duties will be long past; Joe’s hopefully not, depending on Nov. 5, 2024. No matter, they each wouldn’t be much affected by such slippage. But we will be. 

The most prominent challenges are daunting supply-side constraints for continued growth in the EV market. In order to meet these fantastic objectives many millions of US-produced batteries and EVs will be required very soon, along with installation of many more EV charging stations that will reliably provide needed kWh “fuel” across much of the nation’s landscape. A key domestic issue remains how American utilities can dependably supply all the additional electricity needed to charge evermore EVs. 

China remains the foremost producer of battery metals, battery cells and components, as well as finished EV batteries and EVs. China produces nearly 7 times the number of EVs as the US does. It controls 82% of world EV battery production and key battery production technologies as well as dominant access to crucial battery materials like copper, nickel, lithium and other rare earth metals. 

Beyond moral suasion and expensive financial offerings like the federal incentive to buy a qualified EV, Joe and Gavin have no real inducements to offer ICE vehicle owners to trade in their vehicles. As of April, the average EV price remains a sizeable 24.1% higher than an average ICE vehicle (over $11,000 more). That’s considerably more than the federal $7,500 tax credit/rebate for buying a new EV. This matter of EV pricing is where inevitable equity-related concerns about EVs and Gavin’s 2035 proclamation will certainly arise. After all, in California the price of electricity will soon depend on each customer’s income level. Postponements in the 2030 and 2035 calendar dates is practically preordained.

Rebates appear necessary at this point, but probably not sufficient for more typical car-buying folks to trade up to a more-expensive EV. Especially when the federal EV incentives have already become ever-changing and hopelessly complex. The revised, convoluted federal EV inducements are more focused on incentivizing EV component producers to locate in the US rather than clearly providing purchasers with money to buy an EV.

The president and the governor need help to ensure needed EV components are available and induce ordinary Americans – like Jim and Mary Van with their 2 mini-Vans – to actually buy EVs . Current EV policy objectives seem like a mission impossible because of such formidable challenges.

What can be done? Hire Tom Cruise. Significantly expanding EV sales and EV infrastructure may be vanquished unless Joe and Gavin convince Tom to engage in another special mission impossible. Tom will need to turn EV sales into something loftier and improve the befuddled EV system. They should give Tom a shot against adversity in an unexpected 8th Mission Impossible (M.I.) adventure to re-craft the governments’ EV policies and convince consumers to purchase them.

With his proven talents I’m confident Tom can turn the EV market into Mission Possible (M.P.). Without him, it will remain impossible.

Tom cruising during M.I. Rogue Nation 

 Tom, aka Ethan Mathew Hunt in his M.I. escapades, has the skills and chutzpah to create EV success with the vehicle-buying public. After all he’s retrieved deadly viruses (M.I.#2), rescued the Rabbit’s Foot (#3), battled the evil Syndicate (#5) and saved Luther from the vile Apostles (#6). Fortunately, he takes shit from exactly no one and isn’t burdened by excessive EV industry knowledge. In his latest M.I. movie, Dead Reckoning Part Uno, he’s after the malicious Entity and incongruently seems to prefer driving a petite Fiat 500 very fast through a European city’s very narrow, medieval streets. Impressivo, as always.

There’s much for Tom to do in EV world. Most recently, the US accounts for only 6% of global EV battery production. No US firms are in our planet's top 10 EV battery producers. They are either Chinese or South Korean companies. There is only one active lithium mine now operating in the US that accounts for just 1% of global production. Others are planned, but creating a productive lithium mine can take up to 10 years. The US market share of EVs is roughly one 12th of Norway’s share.

The 2022 Inflation Reduction Act is offering $394 billion in energy and climate funding to qualified firms and consumers. By necessity, many US firms – including major US vehicle manufacturers – are now planning to produce more EVs and their key components like batteries. Massive EV battery production facilities can take 5 years to build, quixotically assuming that none of the usually-lengthy regulatory and operational lags appear. They already have.

Multi-billion dollar US battery-production facilities – gigafactories – on average cost 46% more to construct in the US than in China. Current information indicates that existing US based gigafactories employ about 8,500 employees. Significantly more will be needed to ensure that half of all American passenger vehicle sales will be EVs in just 7 years, and be consistent with the president’s goals that strongly emphasize domestic production.

Should Tom choose to accept it, this M.P. adventure will be unlike any of his previous M.I. ones. It won’t involve many of the physically-astounding feats he’s deservedly famous for. Nope, this adventure will instead require him to creatively gnash together the heads and hearts of an ensemble of quintessentially important EV people in our public and private spheres. Tom will also need to talk with current EV owners and potential EV purchasers to understand their important demand-side perspectives.

These people often have conflicting visions of EV-dom. If anyone can clear up the problematic EV goals, increase EV battery production and EV sales inside the good ol’ USofA as well as fashioning an immaculate decrease in EV prices, it’s Tom Cruise. He can fuel up consumer demand for EVs among the masses of US car buyers (not just richer folks who’ve generally bought EVs so far) and modify pollyannish government goals to realize success. If Tom can spark the broad opportunities and benefits associated with transforming US vehicle transportation, he’ll command our enduring gratitude. If he’s triumphant, I’ll be in a front row seat for Dead Reckoning Part Due, Tre and Quatro. We’re all counting on you Tom.

 

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[1] Porsche does indeed make an EV, the Taycan. A Bay Area Porsche dealer offers the Taycan Turbo S for $230,090. That’s a bit more expensive than the Chevy Bolt LT’s MSRP of $28,795. 

 

GREEN ENERGY HEADING TO RED STATES

 When you’re green you’re growing; when your ripe, you’re not. ~ Ray Kroc 

Unexpectedly, the winds of green energy are blowing towards red territories. It’s still in the early rounds of states racing to claim the gigantic amounts of federal funds available for greening the energy we use on a daily basis. Nevertheless, politically red states are doing unexpectedly well in the nascent green energy sweepstakes. The Rocky Mountain Institute thinks that red states will get $623 billion (B) in total clean energy investments by 2030, compared with $354B for blue states.

The misnamed Inflation Reduction Act (IRA) that President Biden signed into law in last August will be providing $367,000,000,000 for loans and subsidies to upgrade or replace the nation’s energy infrastructure, improve energy technology and promote electric vehicles (EVs). Even in Washington, DC this $367 billion (B) is not chump change. The IRA is offering the largest opportunities for climate enhancement and green energy in the nation’s history. Such fiscal largesse is even changing policy makers minds in red states. Hopefully these abundant funds will not go to chumps; we’ll see.

Red states are now receiving significant federal funding for renewables. The table below shows much larger solar and wind electricity generation in Republican-controlled red states like Texas, Iowa and Oklahoma than in blue California. The sun shines nearly everywhere on our worthy planet, but where winds are constantly blowing is more circumscribed. This is due in large part because Aeolus, the Greek ruler of the winds, provides the most favorable wind conditions for producing electricity – winds steadily blowing between 10 to 50 mph – in the Great Plains states from Texas to North Dakota. This fact is illustrated by 4 of the 5 top renewable energy producing states shown in the table below are predominantly wind-driven. Texas produces 85% of its renewable electricity from wind; 3 of them – Iowa, Oklahoma and Kansas produce renewable energy only from the wind. California has substantial wind farms, including the nation’s largest, but just 34% of its renewable energy comes from wind. Two-thirds of its green energy comes from solar PV panels on urban rooftops and more remote solar farms.

Top 5 Solar and Wind Electricity Producing States and their Political Control  

State & Rank	2022 Solar +Wind Generation (MWhr)	Gov-ernor Party	Legis-lature Party	Overall Control
1.Texas	136,118 (85%)*	Repub (R)	R	R
2.California	52,927    (34%)	Dem (D)	D	D
3.Iowa	46,058  (100%)	R	R	R
4.Oklahoma	37,500  (100%)	R	R	R
5.Kansas	29,536 (100%)	D	R	Mixed
Total	302,139	3-R;    2-D	4-R;   1-D	3-R; 1-D; 1-Mixed

  *Indicates percent of Total renewable energy from wind generation. Sources: DOE/EIA, Multistate chart of governors and legislatures.

Red states like Texas are ironically doing quite well generating green energy, despite their on-going solid preference for good ol’ fossil fuel produced electricity. Certifiably blue states like California have not yet overcome existing rules and regulations that can hinder swift implementation of “getting to green” policies, like constructing new transmission lines to serve newly-built, remote solar and wind facilities.

Adding to California’s green energy paradox is the California Public Utility Commission’s (CPUC’s) December ruling that drastically cut payments (up to 80%) to new rooftop solar customers who sell their excess solar energy to the grid. The CPUC mistakenly rationalized its anti-solar decision solely on equity grounds, not California’s green energy policy goals. Lower-income residential electricity customers have not participated nearly as much in rooftop solar installations as higher-income customers have. Thus, the CPUC judged that heretofore inequitable solar payments will be reduced for the latest solar customers, to diminish the inequality. By design, this decision de-incentivizes solar rooftop installations. Apparently the CPUC did not get Governor Gavin Newsom’s memo about the state’s solar-reliant energy goals.

These tribulations in California illustrate that progressive liberalism may lead to seriously-stymied construction of much-needed new facilities, whether it’s new housing, solar rooftops/farms or infrastructure. This frustration is echoed by the governor when he stated, “’People are losing trust and confidence in our ability to build big things. People look at me all the time and ask, ‘What the hell happened to the California of the ’50s and ’60s’” when we got things built? This issue is squarely allied with governor’s vexation about his new prioritizations to add evermore solar and wind farms and mandating that car dealers sell only non-fossil, non-polluting new EV or PHEV vehicles by 2035.  By then California will need at least 1.2 million EV charging stations; it currently has 73,000.

Clearly, this is an aggressive mandate. My sense is the 2035 terminal date for selling any new internal combustion engine (ICE) vehicles will slip, because the state of California cannot force customers to buy zero-emission vehicles (ZEVs), many of whom inconveniently for the California Air Resources Board (CARB) won’t likely buy a new or used EV just because the state mandates and offers incentives for it.

The governor has forgotten the multiple postponements that were required for the CARB’s previous and premature ZEV mandates that CA vehicle dealers were to sell more ZEVs that represented the CARB-mandated percentage of total vehicle sales. The CARB grudgingly eliminated its 1998 and 2001 ZEV mandates, keeping only the requirement that 10% of all vehicles sold in California have zero emissions by 2003. Why the elimination? Because most vehicle buyers had other priorities than purchasing an expensive EV to satisfy the CARB. California ZEV annual new auto sales finally reached 10% 17 years later, in 2020. EVs now represent 2.7% of all registered vehicles in California.

The governor’s aggressive goals will require electricity transmission line additions to be built in a timely manner, not just new green energy facilities. Pictured below are high-voltage transmission lines that are part of the Pacific Intertie system. The Intertie has been the state’s electron throughway since 1970. It is the longest electricity transmission system in the US, crossing 850 miles from far northern Oregon to Los Angeles. During the coming years, the Pacific Intertie will be shipping more electricity, largely from renewable sources in new California locations and beyond.

 

The 500 kV Sylmar Converter Station on the Pacific Intertie

 No small contributor to this growth is Gov. Newsom’s green energy policy goal: by 2045 California will be carbon neutral and running its electricity grid, operated by the California Independent System Operator, on 100% renewable energy. This date may seem distant, but not after realizing that meeting this goal will require quadrupling quickly the amount of green electricity generation. In 2021, renewable power accounted for 34.8% of California’s electricity generation. Attaining 100% renewable power in just 22 years will not happen unless regulatory process gets modified. Such changes will be resisted and require trade-offs to be made by regulators, environmentalists and regular citizens. There’s been little public discussion, let alone agreement about how to counter this resistance and make such trade-offs to achieve policy deadlines. Its resolution will require time-consuming deep thought and administrative lingering. Furthermore, these public goals speak nothing about the various behavioral changes we Californians will need to accept in getting to 100% green energy.

Other changes that began during the Covid pandemic are continuing to wallop the SF Bay Area area’s public transit systems especially BART, the commuter rail system in the East Bay and the City. In 2020 the federal government provided almost $10B in temporary “operational relief to stabilize California’s transit agencies” as the pandemic hit. Many of these agencies, like BART, are now exhausting this extraordinary relief funding at the same time as ridership has plummeted below pre-pandemic levels. Public transit is facing an acute “fiscal cliff.”

BART’s commuting patterns and ridership have profoundly changed. Ridership has sunk to only 37% of what it was before Covid, probably the worst drop in the nation (see image below). At the same time, BART customer complaints regarding personal safety and cleanliness have dramatically risen.

 

A recent BART rush hour that’s not at all rushy. Source: NYTimes

 In the best of times BART’s passenger fares only provide 60% of the system’s costs. It’s currently nowhere near the best of times. The system’s public subsidy has been estimated to be over $6 per person-trip before ridership collapsed. California will likely provide a needed $1.1B bailout for customer-poor, fiscally-decrepit BART, only about half of what it requested. BART has already begun increasing fares and fees for its riders. Also likely are new requests for higher Bay Area sales taxes aimed at avoiding transit’s fiscal cliff. Train and bus services will surely be reduced to save costs. Such cliff-avoidance procedures in turn will further diminish transit ridership.

Prohibiting ICE sales by 2035, achieving carbon neutrality by 2045 as well as returning BART and other transit agencies to stable, long-term existence ASAP seem positively utopian to me. Mind you, I have nothing against utopias, beginning with Thomas More’s that I read in high school. But as literary worlds, they’re far more interesting than any of the real-world ones that never succeeded,

Maybe the ambitiously bold policy deadlines mentioned above aren’t really fixed, they're only innuendoes. It’s an unfortunate mystery that no one apparently really knows how these diverse, consequential goals will be threaded through our blue state’s arduous permitting, site licensing and fiscal regulatory processes to meet these aspirational deadlines. Here's hoping.