What Is The Goal In The Gentrification Wars?

As if on cue from my article on February 19, the anti-gentrification warriors have sprung forth with a major offensive.  But what exactly is their goal?

Forgive me for thinking that the big problems in America today are "poverty" and "income inequality."  Where did I get that idea?  Maybe from Bill de Blasio (November 5, 2013: "That [income] inequality . . . is the defining challenge of our time."); or maybe it was from Barack Obama (December 4, 2013:  "[A] dangerous and growing inequality . . . is the defining challenge of our time.").  I could quote many other left-wing activists to the same effect; in fact, many use the exact same words.

And now we have the horror of real estate investors and white would-be homeowners going through Fort Greene, Brooklyn and offering $1 million and up for homes owned by mostly African Americans who bought these houses often decades ago for under $100,000.   The New York Times describes what's going on in an article from February 26 by Vivian Yee:

All of David Crouch’s longtime neighbors on stately Adelphi Street in Fort Greene, Brooklyn, have the same story: the phone calls or the mailings or the knock on the door, week after week, with the same coaxing question and the same shimmering offer.  How would you feel about selling your home?  What if we paid you more than $1 million for it? . . . . The real estate agents and developers who come knocking at Mr. Crouch’s four-story brick house have already won over most of his neighbors — most, like Mr. Crouch, the children and grandchildren of people who bought their houses for $60,000 or $70,000 when Fort Greene was crumbling and unwanted, except by black buyers. Now the holdouts on the block are him, his next-door neighbor and two across the street. Everyone else is a newcomer, and mostly white.

Hmmm.  A substantial number of newly-minted African American millionaires, making their money by smart and well-timed investment in a private market and without need for government assistance or subsidy.  How about that as a way to reduce income inequality?  Well, famed film director Spike Lee, himself a native of Fort Greene, reacted on February 25 in a speech at Pratt Institute (itself just a few blocks from Fort Greene Park).  In the speech, Lee launched for several minutes into what many have fairly described as a "rant" against gentrification and gentrifiers.  Here is an excerpt:  

Then comes the m . . .f. . .ckin’ Christopher Columbus Syndrome. You can’t discover this! We been here. You just can’t come and bogart. There were brothers playing m. . . f . . . ckin’ African drums in Mount Morris Park for 40 years and now they can’t do it anymore because the new inhabitants said the drums are loud. My father’s a great jazz musician. He bought a house in nineteen-m . . .f . . . kin’-sixty-eight, and the m . . . f . . . ckin’ people moved in last year and called the cops on my father. He’s not — he doesn’t even play electric bass! It’s acoustic! We bought the m . . . f . . . ckin’ house in nineteen-sixty-m . . . f . . . ckin’-eight and now you call the cops? In 2013? Get the f . . . k outta here!  Nah. You can’t do that. You can’t just come in the neighborhood and start bogarting and say, like you’re m . . . f . . . ckin’ Columbus and kill off the Native Americans. Or what they do in Brazil, what they did to the indigenous people. You have to come with respect. There’s a code. There’s people.

Ms. Yee of the Times, who describes the rant, says that Mr Lee "blasted a dictionary's worth of unprintable words."  Actually no, unless Mr. Lee's dictionary consists of only one word repeated over and over -- seven times in just the one paragraph quoted above.

The gist of the rant is well captured in the pithy phrase "Get the f . . . k outta here!"  How dare you offer an economic transaction that will turn an African American into a millionaire!  Meanwhile, of course, Mr. Lee thinks it's perfectly OK for himself to get rich by economic transactions, including specifically buying and selling real estate.  At this very moment, his Upper East Side Manhattan townhouse is on the market for $32 million. 

Oh, and the Daily News points out here on February 27 that in the 60s (when Mr. Lee's parents and other African Americans bought into Fort Greene at low prices) "[t]he area surrounding the park was largely Italian."  So should the African Americans have been allowed to buy then, or no?

Further to the gentrification wars, check out the news from Portland, Oregon.  There the trendy grocery store chain Trader Joe's planned to lease a new store in a strip mall to be built on a vacant lot in a predominantly African American neighborhood.  But then, according to the Pittsburgh Courrier here, the Portland African American Leadership Forum came out in opposition on the ground that the store would "displace residents and perpetuate income inequality" because it would "increase the desirability of the neighborhood for non-oppressed populations."  A letter from the group to city officials said that it would "remain opposed to any development in north-northeast Portland that does not primarily benefit the Black community."  Trader Joe's then withdrew the proposal for the store.

I think these people don't even realize that income and wealth are the result of economic exchange.  How are low income people, including many African Americans, expected to raise their incomes if they are not allowed to participate in economic exchange like everyone else?

How Worried Should We Be About Russia?

Let's face it, the world is an awful place, filled with awful countries.  I tend not to write much on the foreign policy front because there's not much more than that to write.

The unbelievably good news is that the more awful a country is, the faster and more thoroughly it fails in our modern world.  In fact, there's almost a perfect correlation between the awfulness of a country's government and the failure of its economy.  At the bottom, think North Korea, Cuba, Iran, Venezuela.  And at the other end, think Singapore, Switzerland, and even the United States (for now).  There's a very simple reason for this:  Economic success comes from investment and exchange.  The more a government asserts arbitrary control over the people, the less investment and the less exchange, and voila! -- failure!

There are always countries out there to worry about, and I'm certainly not advocating an end to diligence toward the threats of the world.  Recently at the top of the list of countries seeking to act as threatening as possible is Russia.    Here is an article today from John Hinderaker of Powerline on some recent behavior coming out of Vladimir Putin's regime.  Hinderaker chronicles antics including sponsoring armed insurrection in the Russian-speaking parts of Ukraine, openly looking for new military bases around the world to expand its military reach, and even sending a military intelligence ship full of eavesdropping equipment to dock in Havana, Cuba.  Most remarkable is the account of the invasion today of the parliament building in Crimea (part of the Russian-speaking portion of Ukraine) by what appears to be an armed Russian paramilitary force:

“More than 120 armed men entered the Crimean Supreme Council and the Crimean government. These professionally trained people are armed. They brought weapons – automatic weapons, grenade launchers, and machine guns,” Kunitsyn said….

Granted, Russia has some serious military capabilities, including a lot of nukes.  But when you get right down to it, they have an overwhelming problem, namely a limited crony-capitalist economy that doesn't look to be going anywhere soon.   If you invest money there, nobody trusts the government not to steal it; so investment is way below where it should be.   An article here at Ria Novosti Business quotes Putin in October 2013 as bragging that foreign direct investment in Russia had reached $55 billion for the first half of 2013.  Oh, but wait:  The same article cites figures for "capital flight" from Russia, peaking at $133.7 billion in 2008 and still continuing $80.5 billion in 2011 and at $56.8 billion in 2012.  Seems like, by the time you take everything into account, they're losing ground.

Economic "growth"?  They eked out 1.3% in 2013 according to Bloomberg here.  That represented the fourth consecutive year of economic "deceleration," according to the article.  It quotes Economy Minister Alexei Ulyukayev on January 29 as admitting that Russia "is struggling amid meager growth in investment." 

And then there's the small problem of population.  According to LifeNews.com, "Russia Suffers From Devastating Underpopulation."  The population peaked at almost 149 million in 1991 at the fall of the Soviet Union, and has since fallen to under 144 million.  The total fertility rate at 1.7 is better than much of Europe and Asia, but not enough to maintain population.

You need population and economic production to support military spending.  According to a Wikipedia list of military spending by country for 2013, Russia spent $90.7 billion, which was 4.4% of its GDP.  The U.S. spent $682 billion, also 4.4% of GDP, but 7 1/2 times what Russia spent because the economy is 7 1/2 times larger.

I can easily see why Russia's immediate neighbors, like Ukraine, have reason to be concerned.  For that matter, Russia can well cause some trouble in nearby places like Iran and even Syria.  But I don't see how they become an increasing player on the world power stage unless they can do something about their population and their economy.   To achieve those kinds of goals, Putin's power games and bullying are a serious negative.

New York City Already Massively Redistributes Income -- From Poor To Rich

Our new Mayor Bill de Blasio talks endlessly about the great challenge of income inequality, and how he is supposedly going to address it.  But I've never heard him mention the obvious fact that New York City is already engaged in the redistribution of income on a massive scale, and that that redistribution predominantly goes from (relatively) poor to (relatively) rich, rather than in the opposite direction as you might think.  Moreover, the biggest decision that de Blasio has to make in the next few months is highly likely to increase rather than decrease this reverse income redistribution.

The reverse redistribution of income arises from the combined effects of City taxing and spending.  On the taxing side, some parts of the tax system are progressive, but the bigger items are somewhat regressive, and the net is at best a little progressive.  On the spending side, the money predominantly goes to the City workforce, which is overwhelmingly far into the top half of the income distribution.  Thus, lots of money is extracted from private sector workers in the bottom half of the income distribution and paid out to public sector workers in the top half of the income distribution.  And the biggest issue currently facing de Blasio is the demand of the City workers for pay increases and retroactive pay to move them still higher in the income distribution.  Since these workers and their unions are mainly responsible for putting de Blasio in office, it is very likely that he will go along with their demand at least to some degree.

Let's first look at the tax side.  In New York City, people tend to focus on the City income tax -- an unusual tax for a local government to have, and one that gives our tax system an apparent patina of progressiveness.  According to the Economist magazine here from November 2013, the top 1% of earners, about 35,000 people, pay 43% of the New York City income tax.  Now that's progressive!  Well, but the City income tax accounts for less than $10 billion of revenue per year, which is well under 20% of City-generated revenue.  The big money raisers are the property tax and the sales tax, together generating over $25 billion annually, or about half of City-generated revenue.  How do those stack up in progressiveness?  The answer is, they raise proportionately more money from the bottom half of the income distribution.  Here is a 50-state study from the Institute on Taxation and Economic Policy from January 2013.  Data for New York appears at pages 89 - 90 of the report.  According to these data, people in the lower three quintiles of the income distribution pay a far higher percentage of their income toward property and sales taxes in New York than those in the higher two quintiles.  Actually, we didn't need this study to know that; it's kind of how property and sales taxes work.  

Now let's look at the spending side.  Well over half of the money spent by New York City goes for the cost of its more than 300,000 employees.  And those employees, on average, earn far and away more than do, on average, the taxpayers who pay their salaries.  The City's Independent Budget Office just came out, on February 5, with a report addressing just this issue.  According to the summary of that report here, the so-called "median base salary" of a City employee in 2012 was $65,299.  That compares to what they call "median earnings" in 2012 for everybody else in the City of $34,019.  Oh, but wait:  the "median base salary" of the City employee does not include "overtime, pension, or fringe benefit costs."  For a City employee, believe it or not, those extras are now closing in on 80% of base salary; for uniformed services like police and fire, they far exceed base salary.  Look here at the summary of the City's financial plan for 2014, and you will see that the budgeted amount for worker salaries is $22.4 billion, while the budgeted amount for pensions and fringe benefits is $17.1 billion, or 76.3% as much as the salaries.  So the real median pay of a City worker is 1.76 times the $65,229, or about $115,000.  These pension and fringe benefit costs for City workers are wildly more than just about anyone in the private sector can hope for.

According to federal tax data for 2011 reported at Kiplinger here, it took an adjusted gross income of $120,136 to put a taxpayer in the top 10% of earners for that year.  Granted, that is AGI, which also does not count pensions and many fringe benefits.  Nobody is going to have data to enable us to make an exact comparison between City workers whose pensions and fringes are almost 80% of salary, and private workers whose pensions and fringes might be more like 25% of salary.  But, adding back all pensions and fringes for everybody at cost, a fair estimate is that the median City worker is around the 75th to 80th percentile of an income distribution that includes these items as part of the definition of income.

And now of course de Blasio needs to settle the contracts for essentially all City workers, which were left open by Bloomberg on his departure.  The unions are demanding not just salary increases, but also some $7 billion in "back pay" that they claim they are owed since the expiration of their previous contracts.  Well, it's just a question of how much more income redistribution from the poor to the rich you are willing to allow.  The amount already paid City workers in excess of what they would be paid if they all received the median for private sector workers is about $20 billion in round numbers.  By comparison, de Blasio's pre-K program, projected to cost around $0.5 billion, is chump change.

They're Still Claiming That The "Stimulus" Worked

The government intentionally wastes $1 trillion.  Is this a good idea or a bad idea?  Put that way, I don't think that many people would say it's a good idea.  Yet dress up the intentional waste with the hocus-pocus word "stimulus" and you can get endless seemingly intelligent people to claim it is the only reason that our economy has not gone to zero.

Thus on Monday we had Chairman of the Council of Economic Advisers Jason Furman issuing this whopper on the White House blog:

[T]he Recovery Act had a substantial positive impact on the economy, helped to avert a second Great Depression, and made targeted investments that will pay dividends long after the Act has fully phased out.

It's been Furman's job to say a lot of ridiculous stuff lately.  Of course Furman's proposition that only the stimulus "avert[ed] a second Great Depression" is completely un-falsifiable.  But can we compare the current five-years-and-still-not-back-to-pre-recession-employment-levels to times like 1946-47 when the government cut spending by over 50% and the economy went into the greatest boom of all time?  With that kind of spectacular counter-example, how can anyone possibly claim that the "stimulus" was good for the economy, versus a major cause of its endless sluggishness?

Needless to say, the parroters of the administration's talking points promptly took up the cause.  Here's Ruth Marcus in the Washington Post yesterday:

The treatment helped. The patient is recovering. . . .  That, in a nutshell, is the story of the $800 billion stimulus package President Obama signed five years ago, the centerpiece of a code-blue effort to defibrillate the cratering economy.  Rarely in the annals of U.S. public policy has there been a greater disconnect between the real-world effect of legislation and its political-world perception.  Substantively, the stimulus was a success.

Well OK Ruth, if you are so confident that government "stimulus" spending is what makes the economy go, how do you explain Venezuela?  That is the place where the government has tried to buy a growing real economy by vast deficit spending.  They admit in official statistics to a deficit of 8.5% of GDP in 2012, although I suspect that it was a multiple of that given independent reports of a surge in government spending of 67% in 2012.  By the end of 2013 Moody's was saying that Venezuela's public sector deficit was running at 15% of GDP.  Now that's some real "stimulus"!  How's it going?  From the Huffington Post on Tuesday:

At 56%, inflation in 2013 is the highest in the region, and many of the most basic items like milk, sugar, and toilet paper are extremely difficult to find.

Oh, and Toyota shut down all automobile production last week, while Ford's output has fallen 75% in the fourth quarter of 2013 compared to the first three quarters.  The official GDP, calculated at the official exchange rate of about 6.2, is around $300 billion, but at the black market exchange rate of about 50 the GDP looks more like $40 billion, smaller than it was when Chavez first took over in the late 90s.  Oops. 

Lots more examples of the Venezuelan economy going into crisis from CNBC (in November 2013) -- a source not exactly known as a champion of free market economics.  For instance:

As things stand, the country is running out of tools to prevent an extensive economic crisis. International currency reserves are at an eight-year low, falling 26 percent between the end of 2012 and mid-September, to $22 billion . . . .  In addition, China—Venezuela's main financier—has become stingier after "earlier loans to promote oil production failed to produce results," Fuentes said.  Meanwhile, Venezuelan bond yields are spiking. Yields on the country's 20-year benchmark bond have leaped more than 100 basis points this month, to 13.23 percent Monday from 12.15 percent at the end of October, according to Thomson Reuters.

Oh, and there is endless rioting in the streets.  The place is completely coming apart.  Is this really where the U.S. should be heading?

[ORIGINALLY posted February 20, 2014; updated February 21, 2014.]

The Horror Of Gentrification

Here in New York City we have going on a long-running process known as gentrification.  This process is associated with general growth in population and in the business community.  Here are some demographic data on New York City from Wikipedia.  After a period of rapid decline in the 70s (the City lost about 10% of its population during that decade), our population started growing again in the 80s, and by 2000 had surpassed the previous peak.  Since then, the population has continued to grow, if slowly -- from 2000 to 2010, we gained 167,000 people, about 2% in ten years, or .2% per year.  This is not exactly a population boom.  For comparison, during the decade of the 1920s New York's population went from about 5.6 million to over 6.9 million, a gain of over 20% during that one decade, or some ten times faster than the current pace of growth.  But anyway, today's newcomers have tended to be of somewhat higher income on average than those previously here.  Also, it is famously hard to build new housing in New York, so the newcomers are moving into areas that are relatively fully occupied.

There have been several noticeable consequences of this trend, that in combination are described by the word "gentrification."  One is that neighborhoods formerly considered slums have become acceptable places for the upscale to live.  In Manhattan, such neighborhoods include Harlem and the Lower East Side.  Across the East River, Brooklyn has large numbers of such neighborhoods, many in the parts relatively close to Manhattan such as Williamsburg, Bushwick, Fort Greene, and Gowanus.  A second consequence has been much unsubsidized private investment in the building stock to bring it into a better state of repair.  A third consequence has been an influx into these areas of retail uses, stores and restaurants, catering to the new, somewhat wealthier residents. 

And a fourth consequence is that the market prices of housing, whether to rent or own, have gone up in these areas.  Remember that it's hard to build here.  Some of the obstacles are inherent in the situation of a dense city, such as the need to buy out previous occupants, but other obstacles are put up by the government, including rules covering things like zoning, landmarks, and the environment.  Increased demand with little increase in supply means that prices are going to go up.   Increasing property values are a clear positive for the existing owners, as well as for the government whose property tax base increases. 

There are plenty of cities out there that would love to have these kinds of problems.  Consider, for example, Detroit, where the population has shrunk by well over half from its peak 60 years ago.  Large houses there can be bought for $10,000 or $20,000.  Vast stretches are vacant, with many abandoned homes and little or no retail at all.  For the city government, there's almost no property value left on which to levy a tax.  Closer to home, we have multiple cities that, while not so bad off as Detroit, have suffered badly from falling population, low property values and abandoned housing.     Within a 100 mile radius we have places like Newark, NJ, Philadelphia, PA, Bridgeport and Hartford, CT, all of which continued to lose population through the 2000 census and have seen only slight recoveries since.  All of them have lots of low-value, badly maintained properties that generate little or no property tax revenue. 

So you may be surprised to learn that the official position of the New York City groupthink is that gentrification is horrible and that the gentrifiers should feel deep shame and guilt.  Thus in New York Magazine of February 2 we have Justin Davidson writing an article titled "Is Gentrification All Bad?"  To his credit, Davidson gives at least some of the other side of the argument, but here is his summary of the official position:

In the popular imagination, gentrification and displacement are virtually synonymous, the input and output of a zero-sum game. One professional couple’s $2 million brownstone renovation in Bedford-Stuyvesant equals three families drifting toward Bayonne in search of barely adequate shelter. And so a sense of grievance and shame permeates virtually all discussions of neighborhood change. Even gentrifiers themselves are convinced they are doing something terrible. Young professionals whose moving trucks keep pulling up to curbs in Bushwick and Astoria carry with them trunkfuls of guilt.

Davidson quotes the January 1 inauguration speech of our new super-progressive Public Advocate Letitia James (close ally of Mayor Bill de Blasio):

"We live in a gilded age of inequality where decrepit homeless shelters and housing developments stand in the neglected shadow of gleaming multimillion-dollar condos,” she cried.

It's just more of the mindset that I can't seem to understand.  Here is my question:  If the city-run homeless shelters and public housing developments are "decrepit" even with the substantial tax revenues provided by the multimillion-dollar condos, how exactly are the shelters and projects going to be better when we stop the gentrification and drive the condos and their owners, and their tax revenue, away?

For a particular Greenwich Village perspective on gentrification, consider the strange case of the William Gottlieb estate.  Bill Gottlieb was a true Greenwich Village character who spent his lifetime accumulating dozens of older and generally run-down properties, mostly in my neighborhood of the West Village.  He died in 1999, and his heirs spent the next dozen years fighting over control of the properties.  Here is a brief summary of Gottlieb's business approach from our local newspaper The Villager in 2010:

William Gottlieb was renowned for amassing more than 100 properties, mostly in the West Village, the Meatpacking District and the Lower East Side, and for not selling, improving or even maintaining them.

Failing to maintain a hundred or so buildings for decades -- can that be a good thing?  Actually, Gottlieb was something of a hero around the Village, where any acts of neighborhood improvement are looked upon with fear by the rent-regulated incumbents.  In the 15 years since Gottlieb's death, whether by intent or incompetence or failure to come to agreement, Gottlieb's heirs have largely continued the practice of letting his buildings decay.   Consider this from the Observer in 2010:

WANDER AIMLESSLY through the genteel corridors of the West Village and take note of the more ramshackle buildings. Chances are they belong to [Gottlieb's heir] Mr. Bender.

But wait!  The firm still called William Gottlieb Real Estate, run by his heirs, now actually wants to build something new.  They recently revealed plans to erect a 180,000 square foot office building on a property next to the High Line park at 14th Street and Tenth Avenue, former site of a one-story industrial building.  Needless to say, the Greenwich Village Society for Historic Preservation  (sometimes known as the Greenwich Villagers Against Everything) immediately sprang into action to block a zoning variance needed for construction of the proposed building.  You might think that in the West Village and Meatpacking District it's way too late to stop gentrification, but these people will fight to their last breath.   This building will easily generate a couple of million dollars of property taxes per year.  If anybody was willing to build such a building in Newark or Hartford, the government would kiss that person's feet and probably throw millions of dollars of tax incentives at him.  Here we fight to keep these people out, and nobody would ever be so crass as to mention the property taxes to be paid as any relevant part of the discussion.

Climate Policy And Keeping The Poor Poor

Fifteen years and more of no global warming, and President Obama and Secretary of State Kerry are doubling down once again on their anti-carbon energy policies.  I'm old enough to remember the time when the government thought that getting cheap electricity to the people was a good idea.  Now the idea is to make it more expensive.

So we have John Kerry speaking yesterday in Jakarta, Indonesia:

“We should not allow a tiny minority of shoddy scientists and science and extreme ideologues to compete with scientific facts,” Kerry told the audience at a U.S. Embassy-run American Center in a shopping mall.  “Nor should we allow any room for those who think that the costs associated with doing the right thing outweigh the benefits.  The science is unequivocal, and those who refuse to believe it are simply burying their heads in the sand,” Kerry said. “We don’t have time for a meeting anywhere of the Flat Earth Society,”

Well, as John Hinderaker says today about Kerry (in the context of yet other idiocies, his remarks on Syria), "He doesn't have a high enough IQ for difficult work."  My question is, can we at least acknowledge that the "costs" of the war against carbon energy include intentionally keeping the poor poor?

At the Center for Global Development, Todd Moss has a recent post that examines what has been going on at the Overseas Private Investment Corporation (OPIC) in the way of financing electricity-generating projects in poor countries.  Turns out that for multiple years OPIC has been almost completely forbidden to invest in fossil fuel projects.

Indeed, over the past five years, OPIC has invested in more than 40 new energy projects and all but two (in Jordan and Togo) are in renewables. 

Of course, because so-called "renewables" are more expensive than carbon-based energy,  the consequence of that policy has been that the same amount of investment provides access to electricity to far fewer people.

The CGD analysis shows that a $10 billion OPIC portfolio focused on 100% off-grid renewables would provide energy access to 70 million less people than if that portfolio was 100% natural gas.

And it's not just in the poor countries.  Here in New York City, Con Edison utility bills have spiked this month.  Why?  According to Bloomberg Business Week, even as fracking brings down the price of natural gas, there is inadequate pipeline capacity to bring that gas to the major cities of the Northeast.  So it's the transmission costs that have spiked.  Here in Manhattan we have the so-called "Sane Energy Project" fighting tooth and nail to prevent construction of pipeline capacity to bring "fracked" gas into the city.  Well congratulations guys, your electricity and heating bill just doubled!  OK, we can't blame this one on Obama and Kerry.  But will these guys ever figure out that there is cause and effect here?