Bubbles, rising rents, and the politicians who fuel them


After neither Mayor Ed Lee nor Sup. Jane Kim were willing to return my calls to discuss the implications of their economic development policies that favor big commercial landlords and tech companies – which I wrote about in this week's cover story – it was ironic to listen to their rhetorical concerns over local small businesses being hit with rising rents this week.

After all, rising commercial rents are a direct result of their Twitter/mid-Market payroll tax exclusion and other pro-landlord giveaways, just as City Economist Ted Egan told them a year ago when they were adopting it. Yet during the mayoral question time at Tuesday's Board of Supervisors meeting, Kim sang the praises of small businesses, rued the fact that “we are seeing more and more of these small businesses being forced out by the rising cost of rent,” and asked Lee what can be done.

In his answer, Lee spoke around the issue, using the chance to plug economic development programs that could actually exacerbate the problem, and offering vague platitudes. “Neighborhood begins to flourish when we make sure that the individual businesses grow along with them,” he said.

Now, this is a complex problem, to be sure. But that's exactly why the simplistic solutions that these and other city officials are pursuing – and unwilling to defend against reasonable criticisms – are so maddening. I would urge them to read my long article and the dozens of comments that people have made so far, and to engage in more open and honest dialogue about how to solve these tricky issues. My sources made some very good and interesting points, more than I could work into even that long article, so here's a bit more of what they had to say:

Why does economist Peter Donohue think city officials are unwilling to engage in more complex discussions of economic development and its impacts on city government: “These people don't give a shit about public equity and finances.”

Some just have a simplistic view that all economic growth is good and will help the city, he said, calling it “a glorified version of trickle down economics.” And many fiscal conservatives and other boosters of business tax cuts, he said, are actively hostile to the public sector and want it to shrink.

Donohue is dismissive of Lee's relentless boosterism on behalf of the wealthy interests who sponsored his election campaign, saying “he carries their water, that's just what he does.” But he's disappointed that even on the Board of Supervisors, “there doesn't seem to be much of a desire at the board level to ask these questions.”

He said that many public business subsidies can take 50 to 75 years for the city to recoup its investments, leaving the city stuck with rising budget deficits until then. Donohue said politicians don't ask these questions for a few reasons. He said that many are lawyers who simply don't have a good understanding of business or economics. And because most will only serve in city office for four to eight years, they don't have an incentive to consider the long-term implications to the city of their decisions.

“To have a 21st Century city, you have a 21st Century way to finance it,” Donohue said, arguing that the city instead operates on 19th Century funding models, simply accepting the crumbs of capitalism through low business taxes and no means of tapping the actual wealth that is created in the city. “Those forms of wealth aren't being touched.”

Donohue said the Tenderloin and mid-Market areas are the way they are not because of neglect or market forces, but as a matter of public policy. That's where the city decided to house its poorest residents under contracts with SRO hotels in the area and by allowing property owners to keep buildings vacant and blighted (which Egan recommended addressing through a tax on landlords that keep properties vacant, which Kim said she'd sponsor a year ago but never did).

“Certain parts of town are left to go fallow, or to even be destroyed,” Donohue said, so that investors can buy up the cheap properties and work with selected politicians to increase the value of those investments.

“It's really about remaking the city and transforming who lives in San Francisco,” said Chris Daly, Kim's predecessor on the Board of Supervisors and the current political director of SEIU Local 1021.

In the latest Harper's Magazine cover story, writer Barry Lynn praises markets and their democraticizing impact, calling them one of the basic foundations of the American political and economic systems. But he said modern American capitalism undermines basic market principles, which assume buyers and sellers are roughly equal in number and power.

“And so our new masters administer us in America today. They use their great nation-spanning and world-spanning corporations to isolate us as individuals, and then to pit us against our neighbors. They capture and hide away the information that until recently spilled from our open market,” he wrote.

“Even the most conservative economists don't like the idea of subsidizing businesses because they think it's a distortion of the market,” Donohue said.

Marc Salomon, a computer programmer and progressive activist, notes that the city has far more jobs than people. Yet rather than focus on attracting jobs to fit the skills of local residents, he said the city's housing and economic development policies are geared to attracting outsiders, thus driving up rents and other costs for the locals.

“That's the job market they're catering to, and the housing they're building for. That's their program,” Salomon said. “They're just ruthless 1 percenters who are trying to change the language and change the dynamics.”

Salomon draws the distinction between whether this is a bubble or a boom, and he said there are strong indicators it's the former. Just as the federal repeal of the Glass-Steagall Act banking regulations cleared the way for the housing bubble and subsequent economic collapse, he noted that last year's repeal by the city of taxing stock options – a law that was created less than 10 years ago so the city could benefit from growth in the tech sector – made San Francisco more attractive to speculators seeking short-term profits.

“You know you're in a bubble when they start repealing anti-bubble laws,” he said. “These people are rapacious and voracious.”

Or, more charitably, perhaps we have public officials in San Francisco who are failing to understand just how quickly and dramatically the economic system is changing, how much power the big economic players are accruing, and how that impacts the public sector, small businesses, and low-to-middle-income residents.

“Things are going to be changing very fast,” economist Tapan Munroe said. “The political, legal, economic, and social systems are all having a hard time catching up to the pace of technological change.”


Not my austerity, idiot. the same financial Stalinism that urges job creation all costs imposes austerity too. we need jobs that employ unemployed San franciscans and that pay taxes. Anything else does more harm than good.

Posted by marcos on Feb. 19, 2012 @ 8:35 am

Look at Mitt Romney's taxrate for an example of what I'm talking about. What's his tax rate? 14% or something like that? The guy's making hundreds of millions and he's paying hardly anything, % wise, because some rich folks convinced (bribed via campaign contributions) govt legislators to change the rules on investment income.

If anything, guys like Romney (and many others) should be paying higher than normal tax rates because they aren't working to receive that money. Then the higher taxes could be funneled into paying for kids to go to school and get an education and learn how to increase the wealth.

That you're bending over backwards to protect the extreme rich while dumping on public sector workers says everything about where you're coming from.

Are their abuses in public sector workers? Sure, mostly in what cops and fire-fighters are paid but there's many public sector workers beyond those two classes who have a great education and are using that education to improve society (engineers, nurses, doctors, administrators, building inspectors, teachers, etc).

In the 1950s, the highest tax rate was 90% yet somehow the world didn't end for the richest folks - in fact, financially they were doing better than everybody else. It's the fact that they own all the media in this country that they can fool voters into following their "let's make govt work for rich people" philosophy by using propaganda, very effective propaganda.

A big problem with democracy is that the propaganda scientists have become very adept at what they do and with unlimited funds due to the Supreme Court's corruption-inviting Citizens United decision, the amount of very effective propaganda unsuspecting voters are subject to is enormous and it works as the 2010 elections showed.


There I said it and lots more people need to say it.

Posted by Guest on Feb. 19, 2012 @ 2:04 am

No. Prosecuting financial fraud is the true path to prosperity and happiness. Rioting and burning is plan B.

Posted by Guest on Feb. 17, 2012 @ 2:57 pm

Why work when you can riot, right?

Posted by Guest on Feb. 17, 2012 @ 7:50 pm

didn't say anything.

The failed system is Greece's own fault.

Posted by matlock on Feb. 17, 2012 @ 1:47 pm

So true Matlock video is so much more direct...


"Greece is in chaos right now with hundreds of thousands rioting, 17 banks are on fire and the police are arresting other police who have defected."

Posted by Guest on Feb. 17, 2012 @ 2:08 pm

They have millions of government employees more than they need, these employees only work a few hours a day. The citizens don't like paying taxes, service workers often charge a on the books price and an off the books price. Everyone expects free things from the government but avoids taxes at every turn.

Why they are blaming anyone but their poor voting habits is a mystery.

The American left and their mono culture media makes them as informed as a Rush Limbaugh listener, they are a hoot around this also.

Posted by matlock on Feb. 17, 2012 @ 2:26 pm

Greece is in trouble because of the same international criminal element that is in SF inflating another bubble.


Goldman admits helping Greece 'fiddle books' to conceal public debt

Posted by Guest on Feb. 17, 2012 @ 2:51 pm

lazy, tax-evading, debt-addicted nogoodniks.

Posted by Guest on Feb. 17, 2012 @ 4:33 pm

There was a person who pointed out that Greek's had a Middle Eastern work ethic mixed with a European welfare state sense of entitlement.

From my experience with SF progressive in the workplace...

Posted by matlock on Feb. 17, 2012 @ 5:46 pm

Nothing a default and throwing some bankers in jail can't solve judging from Iceland.

Posted by Guest on Feb. 17, 2012 @ 5:54 pm
Posted by Guest on Feb. 17, 2012 @ 6:24 pm


Posted by Guest on Feb. 17, 2012 @ 6:58 pm


Posted by marcos on Feb. 17, 2012 @ 7:24 pm

And irrelevant.

Posted by Guest on Feb. 17, 2012 @ 7:49 pm

Once the people of Argentina began burning down banks the crisis by some odd coincidence seemed to get resolved?


"the devalued peso made Argentine exports cheap and competitive abroad, while discouraging imports. In addition, the high price of soy in the international market produced an injection of massive amounts of foreign currency (with China becoming a major buyer of Argentina's soy products).
The government encouraged import substitution and accessible credit for businesses, staged an aggressive plan to improve tax collection, and set aside large amounts of money for social welfare, while controlling expenditure in other fields.[citation needed]
As a result of the administration's productive model and controlling measures (selling reserve dollars in the public market), the peso slowly revalued, reaching a 3-to-1 rate to the dollar. Agricultural exports grew and tourism returned.
The huge trade surplus ultimately caused such an inflow of dollars that the government was forced to begin intervening to keep the peso from revaluing further, which would ruin the tax collection scheme (largely based on import taxes and royalties) and discourage further reindustrialisation. The central bank started buying dollars in the local market and stocking them as reserves. By December 2005, foreign currency reserves had reached US$28 billion."

Posted by Guest on Feb. 17, 2012 @ 7:53 pm

fixing our massive, structural deficit. That will take spending cuts and real hardship.

Posted by Guest on Feb. 18, 2012 @ 8:34 am

I love Greece like I love a puppy licking my face.


"A stray dog, believed to be called 'Loukanikos', who is regularly seen at demonstrations, stands in front of a line of riot police on February 17, 2012 in Athens, Greece."

Posted by Guest on Feb. 17, 2012 @ 8:33 pm

But at some point the Greek model fails, it's only a matter of time. Supporting millions of governmental do nothings who work three hours a day while being supported by a population of people entitled to all sorts of free shit who refuse to pay taxes. That is a fail. All the howling in the world isn't going to make that model a success. Try as you might.

Posted by matlock on Feb. 17, 2012 @ 5:42 pm

The situation in Greece is very similar to the debt relationship between the US and China. After the point of prudence is crossed and disappears in the rear view mirror, debt is not just the fault of the borrower, but of the creditor as well.

As China did not want to convert its USD import surplus into Renminbi as it would have driven the value of the currency up and made exports more expensive, Germany had too much of a EUR surplus because of its manufacturing advantage, and along with France's overfinancialized economies, both sought refuge for their EUR in the European periphery.

This was most prevalent in Greece and Italy through French and German capital seeking borrowers. The financialized housing bubble in Spain, Portugal and Ireland gave the public sector a dose of crack which resulted in increased services and debt, and after the music stopped and there were no chairs left, the end result is the same.

There is no free lunch. Economies have to make things that people use to make more money. Debt is an artifice and that money that is fabricated out of thin air by debt is just as easily extinguished. The time sponge economy that is driving speculative fueled inflation here, twitter, facebook and zynga, likewise do not reproduce capital, they extinguish it. It is similar to the fake economy in the first dot.com boom. It really doesn't matter, tulips or twitter, a bubble is a bubble, we've seen this movie before and we know how it ends.

Posted by marcos on Feb. 17, 2012 @ 5:34 pm

innovative enterprises and the productive part of the economy.

Greece's problem stems from the difficuly of integrating disparate national economies into a single fiscal regime. But the US and China don't have that problem at all. The US borrowed in it's own currency and so can devalue it - Greece borrowed in the currency of another nation.

Debt is bad and wrong but not for the reasons you cite, but rather because it must always eventually be repaid, either through distress, bankruptcy or a currency collapse.

Posted by Guest on Feb. 17, 2012 @ 5:47 pm

Idiot. Greece has total control of its fiscal policy, or did until the ECB and IMF intervened and changed that. What Greece did not have control of was its monetary policies so that it could devalue its currency to make its exports more attractive to generate jobs. Greece's monetary policy is Germany's monetary policy, idiot. Greece borrowed in its own currency, idiot, the Euro, that's why there's fucking Greek language on the damn money. Fucking idiot.

Your knowledge of economics could fit on the back of a matchbook, your misstatements profoundly disengaged from reality.

Debt need not always be repaid, that's what bankruptcy is all about, idiot. Repudiating debt works wonders, just ask Argentina or Iceland. Debt peonage is what we're seeing in Ireland, Greece and Italy, debt peonage imposed by banksters taking control of the states directly, just as the bankruptcy laws were rewritten in favor of creditors here in 2005.

To quote Michael Hudson: debts that cannot be repaid will not be repaid.

Posted by marcos on Feb. 17, 2012 @ 7:00 pm

ever takes responsibility for their debts and obligations.

Your wet dream, huh?

Posted by Guest on Feb. 17, 2012 @ 7:52 pm

If the banksters get anarchy, then it must be good enough for us all!

Posted by marcos on Feb. 17, 2012 @ 8:26 pm

You should be blaming the government not those who have successfully lobbied them.

Posted by Guest on Feb. 18, 2012 @ 8:35 am

Bankruptcy by definition means you don't have to repay.

Posted by Guest on Feb. 17, 2012 @ 7:00 pm

Idiot. Read the Bankruptcy act of 2005 and check out what happened to Chapter 7. Permanent debt peonage. Idiot.

Posted by marcos on Feb. 17, 2012 @ 7:21 pm

US Bankruptcy Court does not have jurisdiction over Greece, Marc.


Posted by Guest on Feb. 17, 2012 @ 7:32 pm

Nobody claimed that US bankruptcy court had anything to do with Greece.

Bankruptcy does not necessarily mean that one gets to walk away from one's debts.

It remains to be seen what happens when a sovereign state that has forfeited its monetary sovereignty defaults on its debt. Odds are, we'll find out soon, because the situation is intolerable otherwise. Greeks are not afraid to break more than windows.

Posted by marcos on Feb. 17, 2012 @ 8:27 pm

It is amazing how matches and gasoline can cut through so much BS.

Posted by Guest on Feb. 17, 2012 @ 8:46 pm

In Europe the government fears the people more than the people fear the government.

In the US, it appears that the people fear the government more than the government fears the people, but in reality, the ruling elites are so anal about maintaining total control that the prospect of losing a sliver demonstrates that they actually fear us more than we fear them.

Posted by marcos on Feb. 17, 2012 @ 8:52 pm

Look how meekly they left their camps when the cops showed up.

Your wet dreams about anarchy and riots changing anything are naive. The authorities have you by the short and curlies.

Posted by Guest on Feb. 18, 2012 @ 8:38 am

"I do not like violence. I do not think that very much is gained by burning banks and smashing windows. And yet I feel a surge of pleasure when I see the reaction in Athens and the other cities in Greece to the acceptance by the Greek parliament of the measures imposed by the European Union. More: if there had not been an explosion of anger, I would have felt adrift in a sea of depression."


Posted by Guest on Feb. 17, 2012 @ 1:16 pm

To see the rioters antics and economic ideas force Greece to dwindle down to the bronze age.

Posted by matlock on Feb. 17, 2012 @ 2:30 pm

Not sure how honest accounting is so radical it will force Greece to dwindle to bronze age. Don't you luv this business model:

Banks Bet Greece Defaults on Debt They Helped Hide


Posted by Guest on Feb. 17, 2012 @ 3:07 pm

Is there some way to verify the volume of CDS banks are buying on public and private debt like Zynga and Twitter and Facebook?

Didn't think so....

Posted by Guest on Feb. 17, 2012 @ 3:16 pm


znga p/e 174.73

Posted by Guest on Feb. 17, 2012 @ 1:33 pm

I am going to forward this thread to the producers of the show "portlandia" - you guys are writing material for them without even trying.

Posted by Greg on Feb. 17, 2012 @ 2:00 pm

Since I don't watch TV, because virtually all of it is garbage, I have no idea what some of these refernces are referring to.

Posted by Greg on Feb. 18, 2012 @ 11:52 am

And in today's dose of profound irony.. Portlandia is your life in five minute skits

Posted by Greg on Feb. 18, 2012 @ 1:48 pm

Looked it up on Wiki. Looks totally uninteresting. Another cookie-cutter TV show.

Posted by Greg on Feb. 19, 2012 @ 5:41 pm

“It’s like buying fire insurance on your neighbor’s house — you create an incentive to burn down the house,” said Philip Gisdakis, head of credit strategy at UniCredit in Munich.

Well if the banks are betting on it who are we to argue?

Posted by Guest on Feb. 17, 2012 @ 3:17 pm

SRSLY>we're next?

"As Greece’s financial condition has worsened, undermining the euro, the role of Goldman Sachs and other major banks in masking the true extent of the country’s problems has drawn criticism from European leaders. But even before that issue became apparent, a little-known company backed by Goldman, JP Morgan Chase and about a dozen other banks had created an index that enabled market players to bet on whether Greece and other European nations would go bust."

Posted by Guest on Feb. 17, 2012 @ 3:19 pm

"Why does economist Peter Donohue think city officials are unwilling to engage in more complex discussions of economic development and its impacts on city government: 'These people don't give a shit about public equity and finances.'”

"Some just have a simplistic view that all economic growth is good and will help the city, he said, calling it “a glorified version of trickle down economics.” And many fiscal conservatives and other boosters of business tax cuts, he said, are actively hostile to the public sector and want it to shrink. And many fiscal conservatives and other boosters of business tax cuts, he said, are actively hostile to the public sector and want it to shrink." [...]

"Donohue said politicians don't ask these questions for a few reasons. He said that many are lawyers who simply don't have a good understanding of business or economics. And because most will only serve in city office for four to eight years, they don't have an incentive to consider the long-term implications to the city of their decisions."

Posted by Guest on Feb. 17, 2012 @ 7:30 pm

is the elephant in the room and will the landlords of SF so powerful, and state law opposed will not happen. Kiss the old Mission goodbye. Greece is imploding because systemic tax evasion was the law of the land and now the country can only support itself with 'loans' and that pool is demanding repayment in proportion to the risk, making much of the public sector unsustainable

Posted by Guest on Feb. 18, 2012 @ 10:47 am
Posted by Guest on Feb. 18, 2012 @ 12:27 pm

when the '99%' calls for taxes that are more appropriate to the economy in which we are living, then this country will move forward

Posted by Guest on Feb. 18, 2012 @ 11:05 am

I believe that would have wide support.. Must be revenue neutral, overall.

Posted by Guest on Feb. 18, 2012 @ 12:28 pm

A VAT is merely a sales tax on steroids. Many more sales activities are covered by a VAT compared to the current sales tax, which means all income levels would be paying much more tax on purchases.

Since sales taxes are regressive (the poorer and middle income stratas pay a far higher percent of their income on sales tax compared to high income people), the economic elites and government enablers have been trying to get a VAT in the US for many years. By shifting the tax burden to a VAT sales tax, and by reducing the income tax paid that is mostly paid by wealthier people, the VAT is a wonderful multi-billion dollar gift to the economic elites from lower and middle income working families. I'm sure our government is studying its implementation as we speak, working with the lobbyists on how they can sell it to public in the name of "progress," or "job creation," "economic efficiency," or some other phony rationale.

Like the sales tax, a VAT is a terrible tax for lower and middle income working people, who instead should be supporting: (1) taxes on rents; (2) a 75% capital gain tax on any real estate sales other than a person's home (and no deductions for "capital losses"; and, (3) low gross business receipts (GR) taxes (1-5% tax depending on business size, exempting small businesses), with credits for any GR taxes paid to suppliers.

The last tax specifically benefits local producers over foreign corporations, so it is very positive tax for local employment. Mayor Lee should be incorporating a gross receipts tax in his "job creation" policies if he's truly serious about local job creation.

Any new revenue raised by the three taxes listed should be used to reduce regressive payroll taxes and eliminate regressive sales taxes, which will put billions of dollars back into the pockets of working people at all income levels, much of which will be spent in the real economy creating business income, creating jobs and boosting tax receipts higher.

Anyone interested in the topic should ignore the distorted and predetermined outcome oriented comments here and look at some of the difficult and nuanced questions that have to be considered when addressing tax systems. California recently (2009) went through a fairly decent review process, examing various tax systems along with their pros and cons.


The detailed reports and correspondance received by the committee are even more useful than their 400 page report, providing a deeper analysis of the many conflicting issues with any tax system.


And there are some excellent more generalized discussions of proposed tax reforms that are worth reading. Many of the issues considered apply equally to local taxing agencies as well as states.


Posted by Guest on Feb. 18, 2012 @ 2:45 pm