Archive

Tag Archives: race

Five stationary cameras and a "point, tilt, zoom" bubble camera in an East Oakland neighborhood with a population that is 50% Black, 23% Latino, 16% white and 6% Asian.

Five stationary cameras and a point, tilt, zoom (“PTZ”) bubble camera in an East Oakland neighborhood with a population that is 50% Black, 23% Latino, 16% white and 6% Asian.

Race is a surveillance technology. Race can be theorized as an embodied, primarily visual means of perception used by the viewer to identify and track human bodies.

In the era of early mercantile capitalism race was deduced by skin color, hair, and facial features. Race was used to categorize humanity into castes of slaves and masters, free and bonded.

The anthropology and biology of the colonial era developed the idea of race as a “nature” in the blood, and as a fact measurable in the body’s proportions, the texture of hair, the size of the brain. All of this was scientific nonsense, of course, but the point wasn’t to grapple with empirical reality; the point was to justify slavery and imperialism based on what is otherwise an arbitrary and politically determined difference. In the plantation societies of the Americas every white eye was a camera, every Black body the object of surveillance.

mayberecorded

A street sign in deep east Oakland circa 90th and International Boulevard, a mostly Black and Latino area of the city, warns pedestrians and vehicles that “all activities” are under surveillance.

Surveillance has always been about controlling the mobility of the poor and property-less, be they slaves or prisoners, wards of reservations, immigrants, or welfare recipients.

The poverty and violence of inequality constantly threatens to spill over into the privileged zones of wealth and tranquility.

Surveillance tends to be most concentrated on border zones between the enfranchised citizens and the marginalized denizens, or in ghetto and prison architectures designed to contain the boiling masses of the darker nations.

11thBroadwayPTZ

A PTZ camera along Broadway in Oakland’s downtown commercial corridor, location for the offices of fortune 500 companies, law firms, and valuable real estate.

Today the state and the military-industrial contractors that build and operate the contemporary surveillance systems adamantly deny the raciality of surveillance. Like those who deployed surveillance systems of prior centuries, the empirical evidence contradicts them. We know that NYPD stop and frisk tactics disproportionately target Blacks and Latinos.

We know that border reconnaissance drones fly mostly over the US-Mexico border, watching down upon non-white immigrants.

Biometric databases are used to capture the identities of “foreign” combatants, prisoners, border crossers.

These surveillance systems, vast projects that have consumed billions of dollars and countless labor hours, reveal obvious obsessions with the movements of racialized bodies.

achievesuccess

The sign for a youth center in east Oakland tells Black, Latino, and other immigrant youngsters to “achieve success.” A PTZ surveillance camera watches over them.

In Oakland, California, local police and security agencies are in the early phases of building out a city-wide surveillance system called the Domain Awareness Center (DAC). The DAC will pull video camera feeds, gunshot detection alerts, and even information gleaned from social media, into one central hub. It will allow the Oakland Police Department to use the surveillance intelligence to deploy officers in real time, and also as evidence in later criminal prosecutions.

As with all surveillance it’s important to understand who will be watched, and who will be watching. Oakland is one of the Blackest cities in California with roughly 100,000 African American residents. 73,000 of Oakland’s African American residents live at or below the federally defined poverty level of income. 27 percent of Oakland’s population is Latino, and 16 percent is Asian. Poverty is high among these groups also.

tribunebuilding

Surveillance cameras peer around the corner of the building in which the Oakland Tribune, the city’s major daily newspaper, is located. The street poles in the background are decorated with banners of the Downtown Oakland Association, a business improvement district that is applying for grant funding to build out a private surveillance camera network that may eventually be linked into the city’s DAC system.

FremontHigh

The eyes of authority watch over Black, Latino, and Asian youngsters at Fremont High School in east Oakland.

reaganomicsA technology writer for the Wall Street Journal Farhad Manjoo has a defense of California’s tech industry in the current issue San Francisco Magazine. Manjoo’s core claim is that while northern California’s tech boom might be a source of problems like rising rental prices, and what he euphemistically calls a loss of “cultural diversity” (read: Black and Latino displacement), it’s still good for everyone in the Bay Area. It’s a trickle down economics argument, basically. To support his tech and wealth-friendly perspective Manjoo offers us what he says is a key economic stat, the “rising paychecks of workers in San Mateo County.”

Since Manjoo chose the words “paycheck” and “workers,” you’d think we can safely assume he’s trying to tell us something about the real incomes of the majority of the labor force in San Mateo County, the Bay Area’s tech epicenter. He’s not.

Perhaps because Manjoo is trying to portray the tech industry as a great economic engine creating jobs and wealth that trickle down to everyone he chose the Bureau of Labor Statistics’ County Employment and Wages Summary as the source for his “rising paychecks” stat. Here’s what he reported:

“At the end of 2011, according to the Bureau of Labor Statistics, people in the county just south of San Francisco earned about $81,000 a year on average. That’s a respectable figure—despite being a small, mainly suburban area, San Mateo had workers who were among the best paid in the nation. Then something extraordinary happened: Over the course of a single year, the county’s average pay shot up 107 percent. In the last quarter of 2012, San Mateo wage earners averaged about $168,480 a year. That made San Mateo by far the top-earning county in the nation[…]”

This is misleading and it undermines anything further Manjoo might have to say about economic inequality in Silicon Valley. Not that he tries to say anything substantively about it anyway. His article shrugs off growing inequality while offering up anecdotes and de-contextualized factoids he says show how tech wealth is being spread around.

To be fair, Manjoo does point out that the dramatic spike in wages in 2012 was due to the Facebook IPO which minted more than a few millionaires. That event skewed the county’s average upward.

But while the BLS wages statistic helps Manjoo talk about the princely incomes of the tech elite, it leaves his argument devoid of any accurate information about how income is actually distributed in San Mateo and the wider Bay Area. He ponders the lives of nomadic twenty-somethings who live out of their cars and spend their days trying to build startup companies in hackerspaces. He doesn’t spend any time thinking about half of the region’s workforce employed in low wage service sector jobs, amassing debt, afflicted by housing insecurity, with little promise of advancing. Without finding a stat to actually measure workers incomes he can say nothing of substance about the overall equity of the tech boom.

Given this fact you’d think Manjoo would ditch his unreliable “rising paycheck” statistic for something that actually measures the real earnings of the majority of workers, not wages as they’re defined by the BLS.

He doesn’t.

Instead Manjoo let’s these astonishingly high paycheck estimates stand with that little caveat about Facebook’s public offering. He then proceeds to claim that this skewed wealth creation over three months helped San Mateo rake in more tax dollars to fund local services, thereby lifting all boats. Then he rattles off that the county’s unemployment rate is at a seemingly healthy 5 percent. Finally he makes the following amazing claim for the entire Bay Area: “Every other local economic indicator—including per-capita income and employment in sectors outside the tech industry, as well as the aforementioned rental and real estate prices—is at or approaching an all-time high.”

That sentence is also very misleading and says nothing about human welfare. It’s like saying, because asset prices are high, and because lots of people are technically employed (forget their actual earnings or well-being) then the society is fine. It’s not.

But let’s just focus on income, the metric Manjoo never actually measured.

When he didn’t actually measure it he couldn’t say anything substantive about the situation of most workers in San Mateo, or the Bay Area today. Instead chose to make a Reaganomics argument about how enrichment at the top of society trickles down and benefits those at the bottom. Of course this isn’t true nationally, and every economic and social statistic, from real incomes to health outcomes demonstrates the suffering that growing inequality causes. The trickle down ideology holds no truer for the Bay Area if you actually look at people’s real incomes compared to the cost of living.

If Manjoo wanted to actually measure the paycheck of the average worker in San Mateo he couldn’t have picked a more misleading source. The BLS data he used to claim that the average worker earned $81,000 in 2011 is calculated as the mean average of all wages paid to every employee in San Mateo County covered by unemployment insurance. But in the BLS’s survey, wages are defined not just as cash in the form of wages or salary. The BLS includes “non-wage cash payments [including] employer contributions to certain deferred compensation plans such as 401(k) plans and stock options.” That’s the 2012 Facebook distortion right there. Manjoo recognizes this in his article, but he misses the significance of this technical note.

What Manjoo fails to see is that 2012 was only an anomaly in absolute scale. Otherwise every year in San Mateo the income figure reported by the BLS survey is greatly inflated by the over-sized compensation packages (that include yearly infusions of stock options) of the thousands of corporate executives who live there. Not only was the 2012 estimate of $168,480 skewed upward, the 2011 average of $81,000 which Manjoo calls a “respectable figure,” and which he assumes is normal, is also already skewed upward.

$81,000 would be respectable if it were a remotely accurate estimate of what workers actually earn in San Mateo on average, but it’s not. To understand what workers actually earn today in San Mateo a better source of information is the U.S. Census Bureau’s American Community Survey, 1-Year Estimate for 2012. For half of San Mateo’s labor force, wages fell below $41,274 in 2012.

What Manjoo avoids recognizing in his ode to the tech sector is that Silicon Valley is an extremely unequal place, and that this inequality is ripping apart the social fabric. Almost half of San Mateo’s households have incomes under $75,000 a year. Half of the county’s households —which average in size at 2.8 persons— subsist on an annual income that is well below Manjoo’s fictional average paycheck for a single worker.

HouseholdIncomeSanMateobyRace

Income distribution in the tech epicenter of San Mateo County is highly unequal. Black and Latino households are over-represented at the bottom the county’s income range.

There may very well be 40,000 households (15 percent) in San Mateo County whose income is above $200,000 a year and who are living very well. These are the tech executives, the private equity investors, and the lawyers and banker who work in San Jose, San Francisco, and the suburbs in between. Just the same there’s another 40,000 households that earn less than $30,000 a year. Many of these Silicon Valley denizens at the bottom of the hierarchy are Black and Latino families who live in the shadows of the region’s wealth and glory. Their struggles to survive are rarely reported. Instead “tech journalists” these days run around the Bay Area telling cute stories about killer apps and occasionally lamenting how the hyper-gentrification of San Francisco is paradoxically destroying opportunities for artistic and cultural consumption for the privileged techies. The real big story, however, is the massive redistribution of wealth and power to the top 5 or 1 percent, the shrinking of the middle class, and the immiseration of the bottom half of society.

Per capita incomes in San Mateo by race show us that the tech boom hasn’t been good for Black and Latino workers. While white workers make $63,000 per capita, Blacks make only $30,000 and Latinos even less with $20,000. Let that sink in. The per capita income for white San Mateo residents is double that of Blacks and triple that of Latinos. It’s well known that the tech sector is a white and Asian space, that the average software programmer or engineer is a young white or Asian male, and that the upper-most executive posts in tech and along Sand Hill Road (the finance capital for Silicon Valley) are filled with white men.

RaceGenderIncomeSanMateoWe also know that the tech boom is unequal in terms of gender. To jump right to the point, inequality in Silicon Valley follows a pretty typical pattern of racial and gender hierarchy in which white men rake in the biggest rewards by far, followed by white women and Asian men. At the very bottom of the income earnings distribution are Latinas and Black men. The median earnings for white men in San Mateo County are 200 percent higher than for Latinas. Half of all Black men in San Mateo earn less than $22,000 a year.

Of course only focusing on the socioeconomic statistics of San Mateo creates a skewed picture that itself doesn’t accurately reflect the changes being wrought on the Bay Area by the latest tech boom. The San Francisco Bay region is an integrated and inter-dependent economic unit of nine counties and dozens of cities. The tech sector is geographically concentrated in Santa Clara, San Mateo, and San Francisco Counties. These three counties also are home to the most affluent households in the Bay Area, so any income averages that don’t drill down to particular cities and neighborhoods will be biased upward and the growing poverty beneath the surface will be obscured. Any exclusion of Alameda and Contra Costa Counties —the East Bay where polluting industries are concentrated alongside hyper-segregated Black and immigrant communities— also creates a distorted picture of the Bay Area’s economic transformation.

Atmosphere

Part of San Francisco’s Union Square hyper-lux retail offerings, the De Beers store which features armed guards at the entrances. Ferrari recently opened a store a block away on Stockton Street. Haute Couture names obscure fill the district’s buildings offering items of conspicuous consumption.

Through the Financial Crisis and the Great Recession, inequality has intensified through income, housing, and public debt in the Bay Area. Black and Latino communities have lost wealth and power, while white and Asian communities have mostly to recovered. At the top, the wealthiest 5 to 10 percent, have made enormous gains.

Imagine a place where the hills are lined with the mansions of millionaire families, some of them billionaires. Their residences sit atop forested ridge lines with views of a peaceful ocean, or upon oak-studded peninsulas that jut into an azure bay. In this place they want for nothing. De Beers opened a retail store in one of their favorite shopping districts a few years ago, next to haute couture names like Bulgari, Cartier, and Gucci. An investment bank opened a “coffee shop” just a couple blocks from the headquarters of no less than seven Fortune 500 corporations, to catch their employees after work for talks over lattes about what to do with all that money crowding their bank accounts. Posh towers filled with luxury apartments sprout from the city center where multiple cranes seem to perpetually dot the skyline. iPhones pop from the palms of pedestrians like third hands, and newfangled apps like third eyes give them instantaneous information about the latest opulent consumer activities. Everything glows with money and power, a lot of it.

Below the hillsides glittering with wealth are even more expansive terrains of crumbling homes and apartment buildings —many foreclosed upon and awaiting some kind of financial death— packed with families that barely scrape together twenty thousand dollars a year to live on. Their views: smokestacks, port cranes, freeway overpasses, and scrap yards, or, sometimes on a clear day, if they ever think to pause from survival mode, they can see the hills, the mansions, the gleaming skyscrapers beyond reach, the towering campaniles of universities where they can never afford to send their children.

This place is characterized by the crowding of impoverished human beings, most of them of African and Latin American descent, into hollowed out industrial zones where factory buildings and abandoned warehouses echo the bustle of past decades. This economy of yesterday was exported to the new shop floors of China. Among the only things left are the toxic plumes of chemicals spreading slowly under fence lines. In this place entire generations face severe poverty and a decimated public sector – especially the schools. Tens of thousands of adults exist, persist, somehow without meaningful work or income. Tens of thousands of house-less persons —likely no longer even part of the statistical surveys used to calculate joblessness and income— wander the streets and sleep in the cracks of weathered concrete each night. Every few months the police slay a youngster under questionable circumstances. Crime is rampant. Violent crime is hard to avoid, part of the overall suffering.

The splendid heights and stratospheric wealth would not be so contemptible was it not hanging directly over such desperate poverty. Of course the two things are not unrelated.

Welcome to the San Francisco Bay Area, in the Golden State of California.

The West Coast financial center of the United States.

The epicenter of the tech industry.

The global vortex of venture capital.

One of the most brutally unequal places in America, indeed the world.

If measured by the same metrics that are used to gauge income inequality within nation states, the Bay Area’s internal divide between its rich and its poor would place San Francisco between China and the Dominican Republic, making it roughly the 30th most unequal state in the world. China is now the estimated home to 317 billionaires. California counts perhaps 90 billionaires. Half of these, mostly white men, live in San Francisco and Silicon Valley. The Census counted 4.2 million persons slipping below their definition of poverty last year in California.

In the distribution of income and wealth, California more resembles the neocolonial territories of rapacious resource extraction and maquiladora capitalism than it does Western Europe. Oakland is more El Salvador than it is EU. The Bay Area metropolis is more Bangladesh than Belgium.

California is just one of seven states that has the distinction of ranking higher than the national average on three basic metrics of income inequality, as measured by the Bureau of the Census. Its gini coefficient of income inequality was most recently measured at 0.47.

The ratio of income between the top 10 percent and the bottom ten percent, as well as the ratio of income between the top five percent and the bottom twenty percent show staggering divides in economic power that few other places in America, indeed the world, surpass.

IncomeIneqUSNeighborhoods2009

Source: Weinberg, Daniel H., “U.S. Neighborhood Income Inequality in the 2005-2009 Period,” American Community Survey Reports, U.S. Census Bureau, October, 2011.

The only states that compare to California’s harsh inequalities are deep southern states structured by centuries of racist fortune building by pseudo-aristocratic ruling classes, and the East Coast capitals of the financial sector.

StatesIncomeIneqCensus2009

Source: Weinberg, Daniel H., “U.S. Neighborhood Income Inequality in the 2005-2009 Period,” American Community Survey Reports, U.S. Census Bureau, October, 2011.

The economies of Louisiana, Mississippi, and Alabama remain bound by racial inequalities founded in slavery and plantation agriculture; the wealthy elite of all three states remain a handful of white families who control the largest holdings of fertile land, and own the extractive mineral and timber industries, and the regional banks.

Texas, with its sprawling cities, global banks, energy corporations, universities, and tech companies, is more like California in that its extreme economic inequalities are as new as they are old. Stolen land and racial segregation combine with unworldly new fortunes built on the Internet and logistical revolutions in manufacturing and markets to manifest a gaping divide in power and wealth between the few and the many. The Texas border, like California’s, opens up vast pools of Mexican and immigrant labor for super-exploitation by agribusiness and industry.

The same goes for New York, Connecticut, and Washington D.C. the other most unequal places in the United States. New York and Connecticut, like California, have become societies divided by an upper stratum of financial-sector workers and corporate employees whose salaries and investments simply dwarf the bottom half of the population’s earnings, and unlike the South, this extreme level of inequality is rather new in its source of valorization. Washington D.C. is split between the federal haves, mostly fattened contractors who run the military, or who represent the interests of the billionaires in California and New York, and the have-nots, mostly Black and immigrant service sector workers who wait on these technocrats of empire.

It’s a strange club, the super-inequitable states of the U.S. This exclusive list pairs the bluest coastal enclaves of liberal power with the reddest Southern conservative states. In terms of wages and wealth these places have a lot in common.

Picture 4

San Francisco’s real estate roller coaster. The Financial Crisis cut 20% off home values in San Francisco, but the U.S. Federal Reserve’s bond buying program, coupled with broader tax and fiscal policies, has created a rally in securities markets, handing the wealthiest Americans enormous gains in net worth. These economic policies benefiting the rich are evident in San Francisco’s real estate prices. Secondarily is the Tech 2.0 boom in San Francisco and Silicon Valley, pulling in thousands of new residents to work in Internet, biotech, and other industries where six figure salaries are the norm.

In San Francisco homes now routinely sell for millions. Not mansions. Not even particularly large houses. Just simple homes built decades ago. In most other markets they would fetch the national median home price of about $170,000. San Francisco, which locals like to call “the City,” sees dozens of real estate deals every month in which a cool million or two pass hands, and afterward the new owner, usually someone with freshly minted tech or finance money, has the modest structure demolished and scraped away. The new thing is to build upward, and lavishly, from scratch. Heated stone bathroom floors and wine cellars are popular. Securing a pad in Noe Valley or Bernal Heights for a few million is seen as a reasonable way to spend money.

In San Francisco the western end of Broadway is known as “billionaire’s row.” Quite a few of the side streets and parallel avenues like Jackson, Pacific, and Washington are lined with estates that trade hands on occasion for a few tens of millions. No tear downs here. The villas and manors along these avenues were built by sugar barons and banking tycoons of centuries past. Silicon Valley’s most senior executives, and the City’s hedge fund managers, buyout barons, bankers, and a few celebrities make up most of the neighborhood’s owners. Their children attend exclusive private schools in Pacific Heights where they are preened for Stanford and Princeton.

It is becoming hard to identify any part of San Francisco as an “elite” enclave. Tech 2.0, as the Google and Facebook-led regional boom is being called now, has vested thousands of twenty somethings as well as senior executives with billions in IPO cash and billions more in salaries to hunt for real estate, and they have chosen San Francisco, nearly all of it, as their preferred stomping grounds. Maybe it will only be another decade until Broadway starts getting called trillionaire’s row.

Picture 5

Sea View Avenue, Piedmont, California. 71 percent white, only 5 percent of Piedmont’s population is Black or Latino. Median household income is $200,000, and wealth holdings are much more. Piedmont supports its own public schools, police force, parks, and libraries.

Across the Bay is a slightly more modest version of billionaire’s row, probably better called a millionaire’s row running across the ridge line from Oakland north to Kensington. In the middle of Oakland, in fact completely surrounded by the scrappy industrial city by the Bay, is the city of Piedmont. When it was founded in the 1920s its first residents gave it the nickname “city of millionaires.” They restricted housing to single family residential homes on large lots from the start to prevent Black and immigrant families from moving up the hillside. Sea View Avenue is where the big money that wants to show off buys real estate, but the entire city boast a median home price of $1.4 million. The Berkeley hills are similarly rich and populated by an unusually high number of lawyers.

Lawyers, especially tort defense, corporate, and tax lawyers who serve the wealthy and defend corporate America from labor unions, environmentalist, and consumer advocates, also love Marin County. Across the Golden Gate from San Francisco, Marin is not much more than a bedroom community for corporate lawyers and CEOs who want a little more room and sun than San Francisco provides. If Piedmont was a city shelter to exclude the working class, then Marin is similar, but on the level of a county. Despite growing pockets of Latino poverty in older towns like Novato and San Rafael, Marin remains one of the wealthiest counties in the U.S. on a per capita basis. Marin’s Black population is segregated into the tiny Marin City, one of the only places public housing was allowed to be built. Marin City’s residents work in the retail sector and some of the industry along San Rafael’s waterfront. They earn near the bottom of the region’s wage scale and subsist on a fraction of the income their wealthy neighbors take in each month.

Picture 7

Hagenberger Road, East Oakland. Oakland is over 50 percent Black and Latino. Sections of the city such as the area pictured above are 90 percent non-white. In the typical pattern of environmental racism, residential homes are in close proximity to major roadways, highways, rail lines, industrial facilities, scrap yards, and utilities.

Unemployment stalks the working poor of the Bay Area, threatening to force them into insolvency and bankruptcy, foreclosure and displacement. During the first Dot Com boom of the late 1990s unemployment was at five percent for white Bay Area residents. For those living along the billionaire’s and millionaire’s rows, unemployment is a meaningless concept. The capital invested by the rich, by their clever advisers who run the hedge funds and private equity shops, earns interests and returns on equity far larger than any years honest wage labor can eek out. The tax code provides for this with carried interest and the lowest personal income tax rates for top earners in many decades. Hordes of tax lawyers, many who live in Marin, the Oakland hills, and San Francisco, will eagerly structure a family’s investments and bills to minimize taxes, so long as they possess a minimum of $5 million in liquid assets – preferably more.

Black men in the Bay Area have consistently suffered an unemployment rate double that of white men. Through the entire George W. Bush presidency, a period characterized by an economic policy to benefit the wealthiest with low taxes and interest rates, Black men endured double digit unemployment rates, reaching about 13 percent when Obama took office. The Financial Crisis sent Black unemployment rates skyrocketing in San Francisco, Oakland, Richmond, and Vallejo, upwards of 22 percent in 2010.

UnemploymentCAbyRace1999-2012Economic policies under Obama —both those he championed, and those he compromised on— have been very good for the wealthy, and that’s reflected best by the real estate and consumption bubbles frothing over places like San Francisco. The Federal Reserve Bank’s unprecedented purchases of bonds and its low lending rates have produced rallies in stock and debt markets which have greatly re-inflated the fortunes of the rich.

Pew_Uneven_RecoveryThe Pew Research Center recently summed up this polarizing redistribution of wealth from the bottom to the top by noting simply that since 2009 the wealthiest 7 percent of Americans experienced an increase of 28% in their net worth, while the bottom 93 percent actually lost 4 percent of their savings.

The San Francisco Bay Area’s current tech boom is further dividing the wealthy few from the impoverished masses. Companies like Google, Apple, and Oracle are among the least diverse workplaces places where men outnumber women, and white and Asian employees dominate the ranks of lowly programmers and senior executives. The need to hire thousands of engineers is drawing waves of college graduates to Silicon Valley and San Francisco, and they’re washing over the current residents like a tide of suffocating oil. Some of the tech buses —private transit systems operated by Silicon Valley’s largest firms to shuttle employees from San Francisco to their suburban campuses in Santa Clara County— now run lines into Oakland and Hayward, a sign that their employees are increasingly colonizing formerly undesirable zones of real estate.

The drift apart between the pale wealthy few and the impoverished multitudes of darker-skinned peoples is evident on the level of whole cities. San Francisco enjoys robust public finances, high credit ratings, low per capita debt to income ratios, and many well funded public services. However, two decades of intense gentrification mean that this healthy public sector increasingly caters only to those “citizens” who can afford to live in San Francisco.

Pushed out of the region’s urban core, in the 1990s and 2000s Black, Latino, and some Asian immigrants found themselves in the affordable locales of Vallejo, Stockton, Richmond and Oakland. Further out towns like Antioch, Brentwood, and Pittsburg became increasingly non-white and working class. In the Financial Crisis these cities hemorrhaged residents and revenues due to some of the highest foreclosure rates in the nation. Vallejo and Stockton went bankrupt after slashing the most basic services. Vallejo is 75 percent non-white. Stockton is 80 percent non-white.

The wealthiest Bay Area communities, the “towns” of Hillsborough, Woodside, Atherton, Los Altos Hills, and the city of Piedmont are three quarters white with median incomes in the six figures. Public finances barely flinched during the Great Recession. A few of these local governments in fact have no outstanding public debt.

Atherton and Los Altos Hills have zero bonded public debt.

Oakland has almost a billion just in bonded debt.

In the tony Marin hamlet of Fairfax the public debt burden resting on each resident is about 1.7 percent of their annual income.

In Richmond the ratio of public debt to personal income for each resident is 16 percent.

Richmond, a quarter Black and a third Latino, is a tangle of oil and chemical refineries run primarily by Chevron. Not a year ago a massive fire at one of the company’s plants spewed toxic vapors and smoke into the sky, poisoning thousands of residents.

Chevron is headquartered in San Ramon, another exclusive, mostly white suburban environment with low municipal debt and a household median income of $121,000 a year.

future-generations-debtCalifornia Watch published a very important story last month about the massive debt loads that capital appreciation bonds have heaped upon at least 400 school districts in California. Called CABs for short, many cash-strapped districts have resorted to these types of bonds in order to finance necessary buildings and infrastructure upgrades. Unfortunately without CABs, and because of California’s gutted property tax and slack economy, it would otherwise have been impossible to fund school construction over the last half decade in many regions.

Unlike normal bonds used by local governments to finance capital projects, CABs allow for repayment of interest and principal spread over longer time frames, often with no need to begin paying back principal immediately. This means easy money here and now, but it also means that the borrower will pay back much more over the term of the bonds than a regular loan, sometimes as high as 23 times the original borrowed sum.

There’s one error in how California Watch framed their story, however. Following State Treasurer Bill Lockyer, the reporters and editors imply that CABs shift the debt burden onto future generations – the kids. It’s right there in the story title, “Controversial school bonds create ‘debt for the next generation’,” and then it gets restated in the intro:

[School district administrators] have borrowed $9 billion that will cost taxpayers $36 billion to repay over the next 40 years, according to data compiled by California Treasurer Bill Lockyer. He called it “debt for the next generation.”

“The average tenure of a school superintendent is about three and a half years, so they aren’t going to be around in most instances to worry about paying that off,” Lockyer said in an interview. “Nor will the voters, probably, that enacted it in the first place.”

The idea that California’s children will be stuck paying the the debts of their irresponsible parents might be a catchy news frame, but it’s not economically accurate. It also de-politicizes the issue at hand and gives the story an uncontroversial gloss because it’s the “next generation” in the abstract that is losing out.

What’s actually happening is not a shifting of the burden to future Californians yet unborn, but rather an immediate transfer of income between classes and races, with the working and middle class residents of these various school districts being forced to pay out a greater share of their incomes to a small elite of rentiers who will come to hold these capital appreciation bonds when their investment managers purchase them in the bond market.

The idea that public debt is a burden to future generations rests on the idea that the current generation is acting as a spendthrift, carelessly buying what they want now in a fit of irresponsible pleasure seeking, and allowing the payments to come due in later years. This is wrong, however. We’ve known this generational theory of indebtedness to be wrong for over a century. One of the earlier logical refutations of the future-generations debt burden myth was provided by political economist Arthur Pigou. In his classic A Study In Public Finance Pigou wrote:

“It is sometimes thought that whether and how far an enterprise or enterprises ought to be financed out of loans depends on whether and how far future generations will benefit from it. This conception rests on the idea that the cost of anything paid for out of loans falls on future generations while the cost met out of taxes are borne by the present generations. Though twenty-five years ago this idea could claim some respectable support, it is now everywhere acknowledged to be fallacious.”

Twenty-five years prior to the time Pigou laid out this refutation was 1898.

Rather than constituting inter-generational transfers of wealth, Pigou explains how these are transfers of wealth in the present.

“[…]interest and sinking fund on internal loans are merely transfers from one set of people in the country to another set, so that the two sets together —future generations as a whole— are not burdened at all [….] it is the present generation that pays.”

Like a lot of liberal economists of his era, Pigou unfortunately also managed to obscure the inherently political nature of the problem by referring to “set[s] of people.” By “set” he really means that income and wealth is being transferred via debt between different classes. Large public debts tend to work as redistributive mechanisms that allow the truly wealthy to claim much larger shares of the total national income through the regressive taxes paid the working and middle classes.

This is exactly what’s happened with respect to California’s capital appreciation bonds. After decades of tax cuts, primarily via property taxes, and cuts to federal income and capital gains taxes passed on to local governments as cuts to federal aid to states, the wealthiest Americans now possess more of the income and wealth pie than they have since roughly the late 1920s. Lacking these untaxed dollars that have piled up in the bank accounts of the top 1 to 5 percent of America’s wealthiest residents, local governments have resorted to ever-increasingly desperate forms of debt financing to pay for everything from schools to healthcare. The wealthy have loaned their politically-gotten surplus of dollars to governments that no longer have the power to tax. The result is a current transfer of even more income and wealth to the rich in the form of higher interest rates paid back over longer periods.

Paul Krugman has commented on the fallacy of the future-generations debt burden trope also, and his take is worth reading for further clarity.

What the California Watch reporters did do well is name the names of some of the financial advisors and debt underwriters who have gotten rich off the fees they charge for recommending CABs to school districts. It will probably come as no surprise that the likes of Piper Jaffray and Goldman Sachs, among others, have made millions by facilitating the CAB boom. Financial advisors like Caldwell Flores Winters, Dale Scott & Co., and KNN Public Finance have reaped millions also.

Need I point out that the finance sharks who staff these companies are of course the same high net worth individuals who own the bond funds that gobble up CABs and other debt securities?

Frridayopd940 (32)

OPD “mug shots” displayed during a department reunion held in Reno, Nevada in 2005. Many of the shots are of officers employed in the 1970s and 1980s, hired before the PFRS pension system was closed to new members. OPD’s cops from that era were mostly white men.

I’ve been working on an article over the last two weeks about Oakland’s much talked about, but little understood Police and Fire Retirement System (PFRS).

Fiscal conservatives constantly cry that the sky is falling, that the PFRS obligation to Oakland’s retired public safety employees will bankrupt the city, especially because of the massive issuance of pension obligation bonds used by Oakland to finance legally required contributions since 1997. These conservative commentators are mistaken, I think. The underfunding of the PFRS is certainly a problem, but not for the reasons they say.

I’m interested in re-framing the discussion about PFRS, away from the anti-tax, anti-government rhetoric that has so far monopolized things, and toward what I see as the real problem with PFRS: Oakland has a billion dollar obligation to 1,000 retired cops and fire employees who served between 1951-1976, virtually all of whom are white and elderly. Oakland’s police department (and fire dept.) was characterized by overt racist exclusion of non-whites from employment during this era, thus the lucrative benefits of the PFRS pension were made accessible to white city employees. This select club of men (and yes a few women and a handful of Black, Latino, and Asian members) now predominantly live in retirement enclaves outside the city of Oakland. These communities have much different demographics than Oakland, being much whiter, more affluent, suburban and rural, but they benefit from the pension payments that go to the PFRS members who live and shop within their jurisdictions and tax districts.

The PFRS obligation therefore amounts to a $1 billion obligation of Oakland, which today is 2/3 non-white and half below the age of 36. To meet these obligations Oakland’s leaders have put the city into serious debt, and in some prior years even paid millions out of its general fund budget, dollars that could have been spent on services for the city’s residents, or salaries of current employees. This legacy municipal pension obligation is therefore a massive inter-racial and inter-generational transfer of wealth. Here’s the abstract of the article. I’ll post a full draft version with references soon.

In 1976 the city of Oakland, California closed its existing municipal pension funds to new members. New city employers were thereafter covered by the rapidly growing California Public Employees Retirement System. The Police and Fire Retirement System (PFRS), by far Oakland’s largest pension, remained an obligation of the city, however. It’s thousands of vested members retired over the next several decades drawing benefits tied to the salaries of current members of the police and fire departments.

Between roughly 1950 and the present, de-industrialization, white flight, and the tax rebellion decimated Oakland’s fiscal capacity, causing the city’s services to decline dramatically in quality and availability. Beginning in the 1970s the PFRS endowment began to fall short of accrued actuarial liabilities. To meet its legally imposed debt to the pension, the city was forced to pay into the retirement fund out of its general budget, further harming current city residents by imposing austere budgets and cuts during economic downturns.

In 1985 Oakland issued the first ever pension obligation bonds (POBs) to forward-fund the system through a complicated tax arbitrage strategy. The federal government quickly closed this loophole, but POBs remained a favored strategy for the city to finance its legacy pension obligations because they provided contributions “holidays” and were supposed to reduce the overall financial burden on the city caused by its retired cops and firefighters. Subsequent recessions in equities markets further eroded the value of the PFRS system in relation to its growing obligations to retired police and fire employees. By the 2000s a significant chunk of Oakland’s tax-override funds were used to pay retired police and fire benefits, even while the city was forced further to cut much needed services, social welfare spending, and economic development programs.

Because of institutionally racist policies, and demographic shifts after World War II, the majority of the retired city employees benefitting from the PFRS fund are elderly white men who live outside of Oakland, while Oakland’s population has become majority non-white, young, and low-income. The PFRS obligation of Oakland now amounts to a large racial and inter-generational transfer of wealth from the city’s current residents to a very small suburban and rural group of former employees.