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.

 

---

[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. 

 

RATE, RISES AND REPARATIONS

You know the nearer your destination the more you're slip slidin' away. ~ Paul Simon    

What could be better? Schools are out for summer, the debt ceiling circus has departed until New Years Day 2025, roughly 3 weeks before the newly-elected president takes his/her oath of office, and the summer solstice will soon shine longest for all us North Hemispherians on June 21st when it will be directly overhead at the Tropic of Cancer.

Unfortunately, not everything is hunky dory. There are several remaining issues. First, the Federal Reserve Bank’s target interest rate; next, the proposed, fundamentally-different rises in California electricity rates; and lastly, the impending submission of an official report on reparations by the California Reparations Task Force.

Interesting.  From center field of the macroeconomics policy ballpark, I hope the Federal Reserve will increase its inflation target rate from 2% to 3% at its September 20 meetings. Through thick and thin, the Fed’s 2% target rate has been in effect for the last 11 years. Despite the Fed’s solipsistic concerns about its credibility, the target rate should be modified soon. It’s both overdue and utterly independent from how the markets and certainly the public view its credibility.

On the contrary, I believe its credibility will be strengthened when it raises the target to a more realistic 3%. Even at 3%, the Fed still has its anti-inflationary work cut out for itself. The current core PCE Price Index that the Fed uses to measure inflation is 4.7%, which thankfully has been declining, but is still elevated.

In the roster of international central banks, the Fed was an inflation target dawdler. The Central Bank of New Zealand pioneered its 2% inflation target in 1989. By 2012, when the Fed finally adopted a 2% target rate, 27 other national central banks had already set inflation targets, usually 2%.

Come on Fed Board members, get with inflation’s new milieu. It’s no longer 2012, the economy has changed a lot; 2% is no longer a solution. Rolling back inflation down to 2% isn’t going to happen without markedly increasing unemployment, which is always a bad call, especially during presidential campaign season. Imagine what the media will do for the Fed’s credibility as unemployment keeps rising, and the dozen or so presidential wannabes screech about the impending recession. Times change, so should the Fed and its rate. Raise the target rate to 3% at your Autumnal equinox meetings and call it a macroeconomic victory.

Zapping electricity rates.  The State of California and the California Public Utilities Commission (CPUC) apparently were not completely satisfied after the CPUC issued its anti-solar Dec. 2022 rate decision in the name of equity that crushed incentives for Californians who were planning to conserve electricity by installing very green rooftop solar panels. The CPUC solar decision adopted the interests of California’s investor-owned utilities that see solar as a threat. The new solar rate schedule, implemented on Apr 15th, will reduce solar-generated payments to new customers by up to 80%. I previously blogged about this fraught decision here.

The CPUC is now considering linking a customer’s income level with their electric bills to promote more equitable rates. This linkage between electric rates and income was authorized by California’s 2022 Legislature which passed an energy bill stating in part that electric rates need to be related to customer income levels. This rate-income linkage never has been considered previously, certainly not for equity reasons. California once again may be on the bleeding edge of over-innovative potential equity enhancement.

The legislative and now CPUC equityists believe electric and gas bills are one means of correcting systemic inequity. It is a narrowly shared belief that’s already created a fair amount of blowback beyond the sizeable additional multi-million dollar expenses that will be required to track electric customers’ income over time and be integrated into the utilities’ billing systems. The utilities and CPUC are aware of these sizeable additional expenses, and have suggested kicking this nasty fiscal can onto a separate road. They want the added mega-dollars to be paid by California’s taxpayers, not electricity ratepayers. That’s faulty but impressive hutzpah.

The CPUC is now considering electric rates that include an Income-Graduated Fixed Charge (IGFC). How’s that for bureaucratic clarity. In plainer English, the greater your income, the more you’ll be paying no matter how much electricity (kWh) you use, because your income has been “graduated” into your rates. It’s labeled a fixed charge, because it is not related to how many kWh a customer has used.

If you’re a PG&E customer in the highest income bracket (>$100k/yr.) you’ll pay $36.69/mo., 13% more than the middle-incomers. The lowest bracket (<$50k/yr.) customers would probably pay no fixed charge, only a “volumetric charge,” meaning their bill would just be based on how many kWh they have consumed. Other utility IGFC rates would assess fixed fees as high as $128/mo.

This new rate policy is likely to work against the goals of needed additional energy efficiency because IGFC rates may increase the bills for lower-usage, non-low income customers. For customers like these the IGFC will likely be the largest portion of their monthly bill; it’s definitely likely for us as veteran solar kWh producers.

Critics of IGFC rates argue that they will deter progress on energy efficiency and energy conservation efforts. Such folks include those who have already or are considering installation of solar or other energy-savings kit. Inappropriately, with these IGFC rates higher-usage customers will receive relatively more savings. Other critics say using electric rates to correct inequality will offer, at best, minor benefits and large costs. Such annual costs include an estimated $2.8M of added “internal labor costs” by the utilities over the first 4 years, plus the expected multi-million dollar expenses of contracting with the single Third-Party Entity (a large, private contractor) to be hired by the CPUC who will be responsible to conduct the on-going customer income verification process. But, hey it’s true cobalt blue California where the ever-increasing varieties of inequality that surround us must be annihilated.

Establishing income-based electric rates like IGFC is a misdirected, oblique means of resolving inequality that will include unintended consequences as well as considerable distress by confused customers, especially when they receive their first notice asking us to confirm our income level for the CPUC’s mandate with others perhaps to follow annually.

Paying for bygone sins.  The last issue involves reducing inequality using the deep end of the public fiscal policy pool. I’m referring to California’s possible attempt to rectify the effects of abhorrent past racial policies by providing direct reparations payments to those harmed by these policies.

The California Reparations Task Force will submit its final report to the legislature on July 1st, after spending 2 years assessing what the state should do about reparations. Because California entered the nation as a free state in 1850, it never legally operated under slavery. Thus, reparations to Black Californians may be provided by the state to atone for the effects of discriminatory public policies that created “systemic disparities,” rather than recompense for slavery itself. The task force has focused on policies that have had inequitable effects on wealth, health, housing and education.

 Ben Franklins for Reparations? Many more will be needed.

 The task force has already stated it will recommend paying direct payment of reparations to qualifying Black Californians – those who can prove they are descended from slaves. These individuals may be entitled to as much as $1.2M per person. Such reparations might sum to $800B, which is twice as large as the state’s annual budget. The task force also states this compensation would merely be a “down payment” on reparations, not a final one.

Not to be bested by the state, and illustrating the nitty-gritty rivalry among the Golden State’s progressive politicians, San Francisco’s reparations committee suggests paying $5M to each eligible Black resident in the City. London Breed, the mayor of San Francisco – and the City’s first mayor of color – has declined so far to endorse her city’s proposal. Burrowing down into even smaller jurisdictions with shallower funding pools but outsized aspirations, the Berkeley Unified School District also is examining how much its Black students should receive as reparations.

The straightforward fact is these reparation efforts unavoidably include fantastical and unobtainable fiscal payments. Travelling further down the reparations road will be a perilous passage for Dems, especially progressive ones. They are headed into a very tight political and economic corner of their own making. For 3 reasons the Dems should be dissuaded from backing direct reparation payments.

First, no jurisdiction – be it a school district, city, county or state – has the financial ability to pay what task forces and committees are recommending for direct reparations. There aren’t even any large-enough slush funds available. Such reparation amounts would literally break their budgets. For reparations proponents, fiscal infeasibility is irrelevant; I don't agree. As mentioned below, reparations are well-liked with many Black Americans, but not with Whites. Despite this narrow popularity and an understandable moral foundation, requested reparations will be unfeasible to provide.

Perhaps the task forces and committees are adopting a first shoot for the stars bargaining strategy. They already know their requests are way beyond budget realities. The mayor, school board, county council or governor might first offer a compromise by providing a formal apology to Black constituents for these indisputably bad policies from the past. Then add a “symbolic payment” over a multi-year period of say one-tenth of the task force’s implausibly requested reparations amount. Will the task force accept such a two-part offer? As this is happening opponents of any compromise will have a field day publicly lambasting it, even if privately these opponents don’t disagree with the offer.

Second, direct reparations are unpopular. Simply put, the majority of Americans do not support reparations payments. Unsurprisingly, views of reparations vary widely by race and ethnicity. Two-thirds of surveyed White adults say descendants of slaves should not be given reparations. In stark contrast, about three-quarters of Black adults assert descendants of enslaved people should be paid reparations. In California, only 43% of surveyed adults said they support having the California Reparations Task Force seek reparations from the state.

Third, pro-reparations Dem politicians should remember the tale of California Prop 187, the 1994 “Save Our State” initiative. It’s now hard to believe, but in the dark past Repubs once enjoyed more power in the state’s political firmament. One of the several reasons they slipped was Prop 187.

Voters passed Prop 187 that would have established a state-run screening system to prohibit illegal immigrants – mostly crossing from Mexico into the state – from using non-emergency health care, public education, and other services in California. Outraged opponents promptly filed lawsuits challenging the new law. Four years later, after many anti-187 demonstrations and legal hearings, a Federal Court judged this proposition in to be unconstitutional. It was never put into action and became one of several contributing factors that eventually displaced Repubs as a force in California state politics.

If the California Legislature mistakenly passes a bill that institutionalizes paying the requested reparations directly to resident Black ancestors of slaves and Gov. Newsom signs it, they’ll bust the state’s piggy bank, which is already facing a $32B deficit; oh well, what’s $800B more. In addition, I bet the Dems’ reparations acceptance will create much political flack for themselves and perhaps allow the now-immobilized Repubs to “ride to the rescue” in denouncing this effort, perhaps even returning to some political power in California this fall. If Dems don’t agree to pay, they’ll confront many offended Black citizens.

Furthermore, if the legislature and governor sign-off on paying any amount of cash reparations for qualified Black Californians, there is no doubt that Hispanic and Indigenous/Native American Californians will rise to the occasion and demand their own reparations for systemic disparities they have faced. Currently, Blacks represent 6.4% of Californians; Hispanics represent 40%; Indigenous people represent 2.1%.

How California’s Dems in the legislature and governor’s office deal with the Task Force’s final report in 2 weeks will obviously be closely watched near and far. Expect them initially to say they need more time to study the requests in detail, even though they’ll know exactly what the task force is proposing.

Perhaps this study break will allow negotiations with the task force and other prominent members of the state’s Black community to discuss the worthiness of providing indirect benefits like reducing educational and/or health expenses rather than the fiscal impossibility of paying what’s been requested.

The Dems’ ultimate political decisions will reveal who they believe should be winners and losers in this zero-sum reparations arena. They would be wise to also remember Tuesday, Nov. 5th in each of their discussions. These Dem politicians will finally realize it was relatively facile and inexpensive to support studying reparations. However, on July 1st the tab will now be owed that everyone may have to pay for in more than just dollars.

 

 

THE DEBT CEILING CIRCUS COMPROMISE

Politics has no relation to morals. ~ Nicolo Machiavelli 

You and I have read accounts of the president’s, Rep. McCarthy’s and Sen. Schumer’s AIP (Agreement in Principle) for resolving this year’s federal budget ceiling circus. Since 1960, Congress has either raised, extended or revised the US debt ceiling 78 times. These changes have allowed the federal government to pay for expenditures that Congress has already approved in prior legislation. As I mentioned in my last blog, their AIP seems to conform with the most feasible of the suboptimal solutions for the June 5, 2023 ceiling deadline.  

US Capitol

The best solution would be to annul the entire debt ceiling requirement, so politicians couldn’t advocate fringy proposals – like relying on the 14th Amendment – to surmount the ceiling. But that first-best solution will not happen for two reasons.

First, the ceiling has become politically institutionalized with Congress at the center of it. Congress’ collective ego is very pleased with this. Because Congress has allowed its annual budgetary process to become DBA (Dead Before Arrival) for quite a while, its members will never agree to withdrawing the periodic debt ceiling circus since it’s the only mechanism that affords both pollical parties several weeks of budgetary spotlighting. Unfortunately, this illumination can focus on the vainly desired solutions of both radical liberals and conservatives, the wildest animals in this circus. The real decisions are made behind tightly sealed doors.

Second, it once again allows the media to spend weeks resurrecting updates of stories talking-heads used in the last ceiling circus that propose a plethora of resolutions by this year’s experts. Every media personality has her/his opinion about the ceiling, both within and outside of our borders, and we get to hear from all them if we want. Occasionally, the media reminds us about how appallingly destructive for everyone an actual default would be. One question that has been raised during this year’s debt ceiling cliff-hanger is: why didn’t the Dems pass a ceiling extension in 2022 when they controlled both houses of Congress and the presidency? Was it too early to tango away from the fiscal cliff? Retrospectively, it seems like a sizeable strategic mistake on the Dems’ part.

The path to Congressional ratification of the new ceiling deal now being written as legislation based on the AIP will be bumpily rocky, as always. This will require Joe, Kevin and Chuck, to climb into their politically-directed 4x4s. Joe in his Hummer EV, Kevin in his Jeep Wrangler Rubicon Hemi V8, Chuck in his Chevy Bolt EUV will attempt to smooth the road a bit for eventual success via cajoling, commiserating and hand-holding. This will require overcoming their respective radicals’ upsets about the compromise agreement, as well as convincing their members to expand their perspective for a day or so, beyond the unwarranted discontent of just a sliver of their members.

What does the AIP offer? Repubs get some minor, temporary reductions in government expenditures – including a near-freeze in FY2023 real (inflation-adjusted) funding for many discretionary programs and slimming down the large-ish $80B in additional support that everyone’s most fav federal agency -the IRS- was expecting spend over 10 years to “catch bad-ass, tax-cheating rich guys.” These IRS cuts will be somewhere between $10-20B, almost a pocket-change change across a decade. But oh my, the symbolism of cutting the IRS’s budget and $4 will buy you a cup of coffee on Capitol Hill.

The Dems get an extended, post-2024 election time limit for the next debt ceiling follies and a relatively slim extension of welfare recipients’ work requirements. Both the Dems’ Progs and the Repubs’ Freedom Caucus have started howling that this deal is inexcusably terrible, positing they’ll not vote for it. The deal is not terrible. Especially when you compare this compromise, where by design not all Congress-people are happy, to having no deal at all and default actually happens for the first time.

President Biden, Speaker McCarthy and Majority Leader Schumer have their work cut out for themselves. I think on balance, the Dems are batting .550 with the compromise, the Repubs .450. It may be futile, but let’s hope rads on both sides of the political firmament begin recognizing the GIANT costs that will be borne by 100% of everyone – including themselves – if they don’t agree with this proposed legislation.

Out from center field, this agreement also will likely contain rules to expedite the permitting of new energy-related facilities that mitigate global warming, including a gas pipeline through West Virginia to placate Sen. Manchin. This revised permitting regime hopefully will include facilitating and advancing much-needed electric grid improvements.

For all our sakes, here’s hoping the President, Speaker McCarthy and Majority Leader Schumer are successful in getting Congress to approve number 79.  

 

 

 

DARK ENERGY, FAR AND NEAR

The past and the future are fiction; they only exist in the imaginations of the present. ~ Archibald Wheeler  

People consider many distinct time periods during their lives. Many persons focus on what’s going to happen to them during the next day or next week. Some young folks wonder how they’ll survive their teenage lives. California truckers pay attention to the next 12 hours, the maximum duty period many of them can drive during any single time interval between rest stops. Unsurprisingly, elected federal politicians focus on the next 2, 4 or 6 years depending on what political office they want to retain. I hope at least a few of them, especially the president and Rep. McCarthy, are also now concentrating on the time between now and June 1st to avoid a national debt default.

Economists distinguish different analytical time periods as either short run or long run. The economic short run is a time period where at least one productive input is fixed or unchangeable. Classic productive inputs are land, labor and capital. More recently, entrepreneurship has been added. The long run is a time period where all productive inputs can vary; for example, rental rates (the price of land) and wage rates (the price of labor) can change. Notice that economists often do not usually state how much actual clock time the short run or long run is. That degree of specificity apparently depends on case-study specifics. I believe the range of a short run period is from 3 months to a full year. The long run heads off from there into multi-year eras.

Almost a century ago, archeologists devised a means of classifying ancient societies called the three-age system. This system, beginning with the oldest period called the Stone Age, measures human development. The Stone Age lasted more than 3 million years ending between 4000 BCE and 2000 BCE, with the advent of metalworking. The Bronze Age lasted through 1200 BCE. The last and most recent period was the Iron Age, when the production of iron and then steel was mastered. The Iron Age ended during the 5th century BCE, after written records like Samarian tablets were first produced by human accountants and royal writers.

Cosmologists, like the late Professor Wheeler, quoted above and who popularized the concept of black holes, have adopted an entirely different, truly expansive time perspective. Astrophysicists have no professional trepidations about next month’s consumer price index or an up-coming prophesized recession. Their long run heads not just for a decade or even a century. No, cosmologists’ attention squarely aimed at the firmament could span 100 billion (10^10) earth years.

This very looong run period – give or take a few billions years – is cosmologists’ current guestimate for when the entire universe will end. No personal worries for any of us or our grandkids’ grandkids. But if you’re the worrying sort, cosmologists also expect our dear sun – currently a yellow dwarf star – will flame out in a mere 5 billion years. Oh, my.

Cosmologists concern themselves with the life cycle of stars and galaxies that comprise our universe. The picture below illustrates fragments of Cassiopeia A, a massive red supergiant star that met its fate when it became a supernova. The light from this star’s detonation probably reached the Earth in the early 1680s, about 80 years after the telescope was invented. Perhaps Edmond Halley, a pioneering astronomer during that time, saw Cassiopeia A explode through his eye piece. Halley’s fame rests with his comet, whose periodicity he accurately computed to be 75-76 years. Halley’s comet will next be seen here on Earth in 2062, perhaps by our kids and grandkids.  

Remnants of Cassiopeia A

Source: NASA, ESA, CSA via the New York Times

 

It was a mere 13.8 billion years ago that our current universe was created in some sort of singularly impressive, fiery burst of energy. It has been growing ever since. Astrophysicists have debated for decades if our universe will continue to expand forever or collapse in some sort of gigantic contraction. In fact, 25 years ago astronomers realized that the cosmic enlargement was not contracting but speeding up, attributed to a supremely strange force called dark energy.

If the universe’s dark energy continues to reign unabated, distant galaxies will be speeding away ever-faster from our miniscule neighborhood in the Milky Way. Which means eventually we won’t be able to see them anymore. As the celestial clock continues to tick, the less we’ll know about our universe. That represents a worrying prospect for cosmologists, given their very elongated analytical time period.

But dark energy isn’t just a celestial force influencing the heavens. I’d posit that we Americans also are once again suffering from a dark energy force in Washington, DC. I’m referring to the Republicans’ efforts to use our nation’s artificially-imposed federal debt ceiling (created in 1917 and legislatively modified in 1939) to now forcibly implement their own detrimental policies. Our debt ceiling concerns the fiscal requirements associated with paying for already-implemented legislation, not future legislation.

The US debt ceiling has been raised or revised 78 times since 1960, including 49 times under Repub presidents and 29 times under Dem presidents. The debt ceiling was increased 3 times with trifling trauma under President Trump without any associated conditions. Each of these 78 rounds of debt ceiling revisions has involved considerable political posturing and much media attention. Each time the same issues are raised but never resolved; they’re simply pushed off for the next round to deal with once again.

Last week, the president wisely retreated from his pointless no negotiation stance. The initial “negotiations” began at the White House, with President Biden and congressional leaders including Rep. McCarthy and Sen. Schumer. Each side regurgitated their already-known positions. Dems want a clean debt ceiling increase passed by Congress – meaning debt enlargement with no spending cuts. The Repubs offered a temporary $1.5 trillion (T) debt increase only if the Biden Administration agrees to remove sizeable existing renewable energy tax credits, add more work requirements for food stamp and government aid recipients and stop the president’s student debt-forgiveness plans. Predictably, neither side gave a proverbial fiscal inch to the other.

The best debt ceiling resolution would be to annul the Second Liberty Bond Act of 1917 that authorized Congress to establish an aggregate ceiling on the total amount of new bonds – Liberty Bonds – that the government could issue (for World War I expenditures). Neither Repubs nor Dems want such an annulment to happen because it would significantly diminish congressional budgetary authority. I expect the ultimate resolution for this round of debt ceiling negotiations, like others before it, will be another unclean agreement that includes budget cuts that aren’t as large as Repubs want, but are greater than what Dems want, tied to a substantial increase in the debt limit. Dems and Repubs are no doubt now discussing such terms behind very tightly sealed doors.

Real negotiations will not start until the debt ceiling clock ticks to within 10 seconds of when current federal expenditures officially reach the existing debt limit of $31.4 T. On May 1st Treasury Secretary Janet Yellen warned that the US may exhaust its established “extraordinary measures” by June 1st (the so-called “X-date”) to pay its existing debt obligations. Until then, we will suffer from the Repubs’ self-righteous brinkmanship.

    Is this any way to operate a political economy? No. Besides the US only Denmark has a national debt ceiling that is an absolute amount of money. But while Dems occupy the White House and at least one side of Congress is controlled by the Repubs, that’s when dark energy may force our fiscal cookie to crumble with severely damaging consequences for everyone. It’s time for Rep. McCarthy to remove the dark energy cloud surrounding him and other Repubs and pass an almost-clean, significant public debt increase without delay or obstruction. 

FRACTIONS AND FACTIONS

Life is hardly more than a fraction of a second. Such a little time to prepare oneself for eternity. ~ Paul Gauguin 

Fractionalization surrounds us. We have been witnessing prominent and all too public splintering of socio-political viewpoints on our phones, our computers, our radios, our TVs and at our brew pub eight days a week. Some virtuosos insist that until we can gain more tolerance of each other we cannot conquer or at least live with our encompassing socio-political fractionalization. In an age of global warming surrounded by polarized factions of public zealots, tolerance remains a fitfully-distributed skill to counter this fractionalization.

Fractionalization is based on the Latin word fractus, meaning breaking into parts. About 3000 years ago, ancient Egyptian hieroglyphs contained fraction notations. They used the Eye of Horus to represent different unit fractions, illustrated below in two figures.

 

Figure 1: Fractions in the Eye of Horus

 

 

Figure 2: Other fractions at the Eye of Horus

Horus’ Eye itself symbolically represented prosperity, protection and health. Horus was characterized as a falcon, often as a peregrine falcon, or as a human with a falcon head. The first figure shows the specific series of fractions, a geometric sequence of 2, that the Eye of Horus itself represented.

The second figure illustrates how Egyptian hieroglyphists represented other fractions with the Eye, here for the fraction 1/5. The Egyptians’ means of falcon fractionalizing was far older and more straightforward than the Romans, who used a duodecimal rather than a decimal system for fractions.

Moving east, in 100 BCE the Chinese not only developed a way to use fractions for comparisons, but how to make calculations using them. The Chinese also created a notation of fractions that is analogous to how we report fractions. These fractional procedures were presented in the Nine Chapters on the Mathematical Art. There’s a concept, mathematical art.

Leonardo Fibonacci was the first European to use the fraction bar in the early 13th century, coincident with his discovery of what later became called the Fibonacci sequence (aka, Fibonacci ratio). The first recorded use of the word fraction in the West was in the mid-14th century. Decimal fractions were introduced by an Islamic scholar in 952. European numeric intellectuals re-invented decimals in the late 16th century. Afterwards, more than mathematicians realized that writing fractions as decimals made arithmetic far easier.

Fractionalizing has thus ensued for a very long time; way before we first learned about them in primary school.[1]  Unsurprisingly, even in 2023 not everyone is happy with fractions. Eva Moskovitz, an American education reform leader, stated “Schools can ebb and flow. It can be phenomenal one day, and then you hit fractions and it falls apart.”

Erudite mathematicians have characterized fractions in 9 ways: proper and improper, mixed, like and unlike, terminating and non-terminating, and recurring and non-recurring.

As you may recall from grade-school math – although I didn’t – a proper fraction is one which has its numerator value less than the denominator. For example, ⅔ and ¼ are proper fractions. An improper fraction has its numerator greater than the denominator, such as 5/2 or 9/7. A fraction represented with its quotient and remainder is a mixed fraction; 3 ⅔ is a mixed fraction, where 3 is the quotient, ⅔ is the remainder.

If and when two fractions have the same denominator, they are said to be like fractions; 7/2 and ½ are like fractions, so we can easily perform addition and subtraction operations on them. When two fractions have different denominators, they are said to be unlike fractions. For example, 5/2 and 3/5 are unlike fractions so we need to rationalize their dissimilar denominators before performing proper addition and subtraction. Like many, my now very distant memories of denominator rationalization aren’t exactly exhilarating. So it goes.

To determine whether a fraction (and its equivalent decimal) is terminating or non-terminating you just need to determine the prime factors of the denominator when the fraction is in its simplest form. If these factors are made up of 2s and/or 5s, the decimal will terminate; if not, it will not terminate. The fraction ½ is a terminating fraction; its decimal equivalent is a ceasing 0.500.

Finally in the fraction sweepstakes, there are recurring and non-recurring fractions. A recurring fraction/decimal exists when decimal numbers repeat forever. An example of a recurring and non-terminating fraction is 1/3, which when decimalized becomes 0.33333 forever and ever. A well-known nonrecurring, non-terminating fraction/decimal is pi (π, in Greek notation). Pi is the fraction derived from dividing a circle’s circumference by its diameter; very approximately, 3.14159. To date, the most accurate value of π uses 62,831,853,071,796 digits, which was achieved by University of Applied Sciences of the Grisons in Switzerland two years ago. Their computer system completed this calculation within 108 days. OMG.

There are several political fractions that remain noteworthy. Joe Biden’s electoral college victory margin for the presidency was 26/538 or a significant 4.8%.[2] The Dems’ Senate vote margin – including 3 Independents who vote in their caucus – is a mere 2/100 or 2%. The fully-factional Repubs’ House vote margin is a paltry 9/435 or 2.1%. These slender margins require constant management and cajoling. Senate Majority Leader Schumer has burned much midnight oil. House Speaker McCarthy also has worked like a dog, likely because of his oxymoronic Freedom Caucus. Flexible tolerance for cross-party votes in the Congress remains an endangered action.

What if we consider using these 9 mathematical types of fractions to describe our severe political fractionalization. Could such melding between math and politics somehow allow for greater tolerance and less upset between factions’ fractionalization?

If we are to achieve any success in merging math with politics, we will first need to eliminate improper and proper fractions. No faction will ever consider their position improper; so out go fractions that have their numerators greater than denominators. Those proper ones, the ones with smaller numerators, should not be included either because each and every politician considers their votes always proper, even if it’s quite unseemly. Instead, we’ll need to transform all such improper and proper fractions into mixed ones, which shouldn’t be too hard.

I suspect mixed, like, unlike, non-recurring and non-terminating fractions don’t have the same fraught connotative concerns as improper ones, so they’re worthy of usage in the political realm. This is especially true for terminating ones that need to have nothing to do with 2-, 4- or 6-year tenures of political service.

After all, mixed drinks have become far more popular than they were in the late 1960s through the beginning 1980s when wine and craft beer became liquid royalty. Nevertheless by the mid-2000s cocktail culture rose again. During the last decade there’s been nothing like a Manhattan to ease tensions, even though you’ve never lived there. Perhaps that’s true for mixed political factions as well. For the greater good, let’s have mixed, recurring, non-terminating discussions among many folks that might lead to fading fractionalization.

 

---

[1] At California primary schools fractions are first taught in third grade.

[2] In presidential elections the 3 normally non-voting House members from Washington, DC vote in the electoral college.