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Two Lawsuits Show What a Hot Mess California Housing Politics Is Right Now

California housing politics is heating up with a pair of dueling lawsuits that could make or break the state’s ability to force local governments to allow more housing construction.

Gov. Gavin Newsom kicked things off on Friday by announcing a lawsuit against Huntington Beach, a wealthier beach town in Orange County, claiming that the local government there had failed to zone for enough housing.

“Some cities are refusing to do their part to address this crisis and willfully stand in violation of California law. Those cities will be held to account,” said Newsom in a press release.

Longstanding state law requires California cities to produce what are known as housing elements, basically zoning plans that lay out how much residential construction the city is going to allow. Officially the state’s Department of Housing and Community Development (HCD) can reject these housing elements if they think they don’t permit enough housing, but that power has long been considered toothless.

At least until last year, when the California Legislature passed AB 72, which gives the state enhanced powers to sue localities that fall down on their housing responsibilities.

Which is exactly what Huntington Beach has been accused of doing. In 2015, the city backtracked on its state-approved housing element, cutting the number of high-density housing units it had zoned for from 4,500 to 2,100. That decision saw the state HCD retract its prior approval of Huntington Beach’s housing element. The city has technically been out of compliance with state law ever since, with the city council there rejecting multiple plans to zone for more housing.

Newsom’s lawsuit, the first of its kind, thus serves as kind of test for the new enforcement powers created by AB 72, and a way for the new governor to signal that he is willing to do what it takes to address the Golden State’s housing shortage.

There might also be an element of vengeance to Newsom’s lawsuit as well.

On Monday, news broke that Huntington Beach itself had filed a lawsuit against the governor over another state housing law, SB 35, which allows developers to opt into a streamlined state approval process for new projects if the locality they’re trying to build in has failed to zone for enough housing.

The law has already been invoked by a number of developers to get their projects passed by hostile local governments. Obviously local governments relucant to build more housing don’t like that.

SB 35 is “an unconstitutional overreach by the State into the City’s constitutionally protected local land use powers,” reads Huntington Beach’s lawsuit, arguing that its status as a charter city gives it a wide degree of autonomy over “municipal affairs” like housing development.

Defenders of SB 35 counter that the local control over zoning has produced a housing shortage so severe that these land use issues have essentially become a statewide concern.

“Huntington Beach’s dismissive approach to housing—claiming there is no problem and that the state should just mind its own business—is Exhibit A for why we have a crisis in this state,” said State Sen. Scott Weiner (D-San Francisco), the author of SB 35, in a statement.

It’s easy to get lost in the legal and policy weeds here, but the two lawsuit both hit at a basic (and pretty important) question: how much power does California’s government have to force municipalities to allow for more housing construction?

A decision in these cases would impact the scope of existing state powers, but could also make or break future efforts at reform.

Working its way through the state legislature currently is SB 50 (I know, I know, another bill number) which would forcibly upzone large swaths of California’s cities, paving the way for more––and more dense––housing construction.

Should Huntington Beach’s lawsuit succeed, that could prevent legislators from forcing this upzoning on the state’s charter cities.

To be sure, this whole legal fracas does not present a libertarian side to root for. Obviously local government limitations on residential construction boil down to limitations on both property rights and the supply of new, desperately needed housing.

That said, state-approved, court-enforced plans about how much housing the state needs, what form it should take, and where it should be built are not all that free market either—even if they are, on the whole, less restrictive.

That’s especially true when one considers that many see state-enforced upzoning as a way of allowing for more publicly-subsidized, rent-controlled “affordable housing” projects to be built. (A recent Reason investigation found that these kinds of projects are hugely expensive and can get easily get hijacked by political interests.)

Given how little of the conversation about housing in California revolves around property rights concerns, however, state-led efforts to peel back local restrictions on new construction—as messy and imperfect as they are—are probably the best hope the Golden State has of getting housing costs under control.

Newsom’s lawsuit, if successful, would thus prove to be a marginally positive development in the state’s housing politics; Huntington Beach’s would be a huge step back.

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The Real Problem Is The Politicization Of Everything

Authored by Kai Weiss via The American Institute for Economic Research,

The Covington Catholic High School fiasco that has developed over the last weeks has shown more than ever why many are skeptical about the media these days. Facts and context — the reality on the ground — were put in the background in favor of a fable that confirmed a political allegory.

What is most shocking is that in today’s world, this is not an exception anymore. Much blame may be shifted to social media as a phenomenon that makes people feel safe in the anonymity of the online world and thus less inhibited than they would otherwise be. Still, the Covington Catholic saga is simply a symptom of a much bigger problem: the politicization of society — or, indeed, everything in life.

Needless to say, politicization is not new. But it feels as though, in today’s dramatically polarized climate, it is more extreme than in decades before. The Gillette ad, perhaps the only other “news story” that has garnered as much attention as Covington Catholic this year, is a prime example: regardless of what one thinks of it in the end, the question needs to be put forward why Gillette even thought it necessary to make a political statement in a commercial for razors. One needs to ask, to mention another example, why Ben & Jerry’s ever felt the need to launch a new ice creamnamed for “the Resistance.”

Consumed and Blinded

These days, it seems almost an impossibility to meet family and loved ones and not discuss Trump, Brexit, or the European elections. It seems unavoidable to be quickly judged by other humans not by your character but your political views. Everyone who is generally a Trump supporter has to be a fascist with whom one cannot interact anymore. Everyone who is generally a Democrat has to be a socialist or member of the elite with whom one cannot interact anymore.

Everyone is defined merely by one’s politics, by one’s party allegiance – whether one voted Republican or Democrat or Libertarian in the last election, or whether one was in favor of Brexit. Every issue is framed in these terms. A case in point for this is certainly also the Covington Catholic boys, who, for some reason, wore MAGA hats at a rally that was supposedly about preserving life. Again, a rally on principle developed into the sanctification of a great leader.

Why We Care

All of this is not to say that politics should not be important. Politics influences all of our lives in innumerable ways day in, day out. And as Micah Watson notes in a must-read essay, it is quite natural to be worried when your grandpa is voting Trump or your niece is feeling the Bern.

“True friendship,” Watson writes, depends “on a shared understanding of what is good.”

And when our neighbors endorse a significantly different political vision than we do, we intuitively sense that this is more than a mere disagreement about how to solve a problem, like two college roommates on a road trip bickering over the best way to get to spring break. This is a radical (to the root) disagreement about what counts as a problem in the first place.

Thus, “we should feel some sense of alienation when our friends and our neighbors endorse a position we find wrong or even abhorrent.”

But when people threaten children, call their relatives at the Thanksgiving table racist white supremacists or naïve libs who need to be owned, and when someone like Hillary Clinton goes so far as to say that Democrats “cannot be civil” anymore with Republicans, it may have gone too far. As Karl Salzmann writes, when the occupant of the White House becomes more central to the way we treat people than our views on “morality, virtue, and imagination,” this is a problem. Politics, then, may have become too important indeed.

This is a problem the great C.S. Lewis also saw when he mused that we should focus on “a household laughing together over a meal, or two friends talking over a pint of beer, or a man alone reading a book that interests him.” Meanwhile, “economies, politics, law, armies, and institutions, save insofar as they prolong and multiply such scenes, are a mere ploughing the sand and sowing the ocean, a meaningless vanity and vexation of the spirit. Collective activities are, of course, necessary, but this is the end to which they are necessary.”

So what is a possible way out of this conundrum? A multitude of proposals have been made to detoxicate today’s climate, and it would frankly be pretentious for me to claim to know the solution. Nonetheless, one surefire way, as friends of liberty will quickly point out, is to get politics out of our lives. As Kristian Niemietz notes, “The most obvious antidote to a dysfunctional, adversarial political culture is just to do less politics.”

What does that require? It necessitates a dramatic reduction in the size and scope of the state, the building of a wall between the state (so long as it exists) and the rest of our lives, and the restoration of the conviction that society works best when it is left alone. In other words, we need desperately to resurrect the vision of classical liberalism and draw lessons from its modern heirs in the libertarian tradition.

As John Stuart Mill summarized in 1869: “The modern conviction, the fruit of a thousand years of experience, is, that things in which the individual is the person directly interested, never go right but as they are left to his own discretion; and that any regulation of them by authority, except to protect the rights of others, is sure to be mischievous.”

While on the market and in radically decentralized systems, disagreements and polarization are not a problem, centralized political decision-making has in its nature that only one view can prevail. Suddenly, who is in the White House or whether regulation X or Y is passed does matter a great deal, and those with a different opinion than you on it may seem like actual enemies. Within voluntary settings, one can live with people that one disagrees with. All parties curate a way of life that works while living in peace with others.

To regain civility in human interactions and finally treat other human beings as human beings again, we would do well to get politics out of human affairs.

via ZeroHedge News http://bit.ly/2Ga20m1 Tyler Durden

Kamala Harris Just Showed Why Bernie Sanders’ Medicare for All Plan Won’t Work

In its traditional form, a single-payer health care system would effectively outlaw private health insurance as we know it. The Medicare for All plan backed by Sen. Bernie Sanders (I-Vt.), for example, would end today’s private health insurance market in a period of four years, forcing nearly 180 million Americans off of their existing plans in the process.

To the plan’s most ardent backers, this is an objectively positive development. After Sen. Kamala Harris, who supports the Sanders plan, said at a presidential town hall Monday night that she favors eliminating all private health insurance, even for people who like their plans, a policy staffer for Rep. Alexandria Ocasio-Cortez (D-N.Y.) tweeted, “Yes, we’re going to get rid of the entire health insurance industry. That’s a feature, not a bug.”

But as Harris appears to have discovered, most people don’t see it that way. There is even resistance within her own party. In the 24 hours following her remarks, a number of prominent Democrats distanced themselves from the idea, including Sens. Dick Durbin (Illinois), Tim Kaine (Virginia), and even Harris’ fellow senator from California, Dianne Feinstein, with Feinstein saying, “Well, I’m not there.”

Harris, it seems, is not quite there anymore either; or if she is, she is also somewhere else. Last night, she gently moderated her position, with a spokesperson telling CNN that she is open to other policy paths, although she continues to support a single-payer plan that would end private health insurance as well.

It is not exactly a walkback, but it is a tacit acknowledgment of the resistance to her initial remarks. She continues to support a plan that would make today’s private health insurance plans illegal while forcing most everyone onto a government-run insurance system. But she supports alternatives as well, presumably ideas like creating a government-run insurance plan that would be sold alongside private plans, or allowing more people to buy into the existing Medicare system, or something like it.

In other words, she also supports plans that are not full-fledged single-payer, the entire point of which is to replace all existing insurance with, yes, a single government-run health coverage plan.

What Harris encountered was the obstacle that has bedeviled health care reformers on both the left and the right for decades: Although public satisfaction with the health care system writ large is often fairly low, polls consistently find that a majority of people like their own health insurance plans and doctors, and they recoil from plans that would cause them to lose their existing coverage arrangements.

That dynamic is what helped kill a planned health care overhaul under President Bill Clinton, and it is why President Barack Obama sold the Affordable Care Act on the false promise that it would not cause anyone to lose their existing health insurance coverage or doctor. It is also one of the reasons that the Republican effort to repeal Obamacare failed, and it remains a major impediment to overhauling Medicare. Similarly, recent surveys find that Medicare for All is only popular until people are told that it would eliminate private health insurance.

When it comes to health care, the public really, really, really does not like disruption. But the entire point of single-payer, which is to say the entire point of Sanders-style Medicare for All, is disruption on a massive scale. All of the other problems—the massive increase in federal spending, the administrative complexity, the job loss, and the medical provider reimbursement cuts—are in some sense secondary.

The incredible unpopularity of any plan that openly proposes to upend current coverage for tens of millions of people is a political barrier no one has managed to overcome. That is why Democrats have typically avoided advertising that their plans would do so, and why some are attempting to brand ideas that are not full-fledged single payer as Medicare for All.

Medicare for All is popular as a slogan, but much of its popularity stems from the ambiguity surrounding what, exactly, it means. That ambiguity can persist for a while, but it is harder to sustain when the plan is put front and center in a major presidential campaign. By foregrounding single-payer’s disruptive effects at the beginning of her presidential campaign, Harris provided as succinct a demonstration as you are likely to see of why, for the foreseeable future, Sanders-style Medicare for All is all but certain to fail.

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Venezuelan Army Defectors Coordinate Over WhatsApp; Ask Trump For “Freedom” Weapons

Defectors from Venezuela’s army who are now loyal to self-declared president Juan Guaidó have called on the Trump administration to arm them in what they refer to as their quest for “freedom,” and are strongly opposed to the United States conducting a broad military intervention.

Two former soldiers, Carlos Guillen Martinez and Josue Hidalgo Azuaje, who live outside the country, told CNN they are in contact with hundreds of willing defectors who want US military assistance in their revolt against the Maduro regime. 

“As Venezuelan soldiers, we are making a request to the US to support us, in logistical terms, with communication, with weapons, so we can realize Venezuelan freedom,” Guillen Martinez told CNN. 

Hidalgo Azuaje said: “We’re not saying that we need only US support, but also Brazil, Colombia, Peru, all brother countries, that are against this dictatorship.”

The appeal came as US national security advisor John Bolton on Sunday warned the Maduro government that violence against Venezuela’s political opposition—or against its leader and self-declared president Juan Guaidó—would be met with stern reprisals.

Bolton also appealed to the Venezuelan military to assist in the smooth transition of power from Maduro to Guaidó, whom the US has recognized as the legitimate head of state.

American officials have repeatedly warned that no options are off the table, in terms of US intervention. –CNN

Over a dozen defectors who appeared in one recent broadcast say that devastating hyperinflation, food scarcity and economic malfeasance have many rank and file soldiers enraged. 

The soldiers say that despite their efforts, they are seeing limited success in inspiring a true military revolt. On January 21 a military unit was arrested after they rose up against the Maduro government. 

Martinez and Azuaje showed CNN their WhatsApp chat groups, which they say are connected to “thousands of angry junior officers and soldiers.” They claim to be working to bring several factions of disgruntled soldiers into a cohesive group. 

They flatly reject any suggestion of a broader US military intervention in support of Guaidó. “We do not want a foreign government [to] invade our country,” Hidalgo Azuaje said. “If we need an incursion, it has to be by Venezuelan soldiers who really want to free Venezuela.” –CNN

Guaidó has called for demonstrations this week, which the military defectors say they will use as an opportunity to pressure soldiers they know into similarly flipping their allegiance. 

“There are soldiers in every unit that are willing to rise up in arms,” one soldier told CNN in an underground parking lot in Caracas. “They are preparing themselves and learning from past mistakes. They are waiting for the right moment, so they can hit even harder that people feel it.”

The soldier said that some units have reported missing weapons and ammunition which they suspect may have been stockpiled by opposition supporters to help stoke an uprising. 

“Past operations have failed because the higher-ranking officers were against it. They still control every area, and if an uprising happens, it’s swiftly neutralized,” said the man, who acknowledged that the messages sent by defectors outside the country were “very positive” and “give us hope.” 

“They are outside Venezuela, but feed our soul. They inspire us and raise the military’s self-esteem.” 

Last week 

Venezuela’s top military attaché at the Washington D.C. Embassy, Colonel José Luis Silva, broke with the Maduro regime, urging other members of the Venezuelan armed forces to recognize Juan Guaidó as the legitimate interim president, according to the Miami Herald. 

“As the Venezuelan defense attaché in the United States, I do not recognize Mr. Nicolás Maduro as president of Venezuela,” Silva told el Nuevo Herald in a telephone interview from Washington. 

“My message to all armed forces members, to everyone who carries a gun, is to please let’s not attack the people. We are also part of the people, and we’ve had enough of supporting a government that has betrayed the most basic principles and sold itself to other countries,” he added. 

via ZeroHedge News http://bit.ly/2Se0ohD Tyler Durden

The TBAC Is Suddenly Worried Who Pays For $12 Trillion In US Deficits… And The Dollar’s Reserve Status

Today at 830am the Treasury Borrowing Advisory Committee (aka the TBAC, which many years ago we dubbed the Supercommittee That Really Runs America, an assessment which 8 years later Bloomberg now generally agrees with) “released minutes of its Jan. 29 meeting held at the Hay-Adams Hotel in conjunction with the U.S. government’s quarterly refunding announcement.

First, the highlights from the refunding announcement revealed no surprises, with the Treasury announcing no increase in nominal coupon or FRN auction sizes in the coming quarter, and expects TIPS issuance of $22-27BN this calendar year. Specifically, the Treasury will sell $38BN in 3 Year notes, unchanged from December, $27BN in 10 Year notes, unchanged from last quarter, and $19BN in 30 Year Bonds, also unchanged from last quarter.  In total, the Treasury will sell $84BN in long-term debt next week vs $83BN last quarter, in the process raising $29.9BN in new cash.

In this context, the TBAC recommended keeping nominal coupon auction sizes unchanged for the coming quarter, while gradually increasing TIPS by $1b per auction, with the increases starting with the 30Y TIPS in February, 5y TIPS in April and 10y increases to be considered subsequently. Following were dealers recommendations for coupon auction size increases: $1BN in 5y and 10y, $2BN in 30y, noted increases could be gradual and 30y could at first be increased by just $1BN. Primary dealers also suggested increasing TIPS issuance gradually, resulting in $24b increase over rest of CY2019; committee agreed increase should be gradual, with bulk coming from new October 5y security

The treasury also said that Bill supply will increase gradually and will start moderating in early-April, while confirming that extraordinary measures can be used after the March 1 debt ceiling deadline, while noting that it is too soon to say how long extra debt-cap moves will last.

On the topic of the government shutdown, the TBAC members discussed the expected end of debt limit suspension period on March 1st, 2019 and agreed with former Chair Matt Zames’ statement that, “The debt limit should not be seen as a budget tool. It is simply a limit on Treasury’s ability to borrow to pay obligations that have already been incurred by Congress during the budget process.” In addition, the Committee noted sensitivity from one ratings agency due to the recent government closure. Though current uncertainty on the duration of extraordinary measures is high due to data availability, given the expected cash balance on March 1, 2019 will be significantly higher than in 2017, preliminary street estimates expect exhaustion of those measures in the third quarter of 2019.

The TBAC also discussed the recent electronic inter-dealer broker market outage, noting that given the timing of the outage on a Friday afternoon, the impact on liquidity was muted. It was noted that had this happened in the morning, around an auction or key economic release, the impact would likely have been far greater.

The committee also said the Treasury needs to retain flexibility in issuance path, given uncertainty over fiscal projections and SOMA normalization; it also discussed the When Issued market and noted that volumes have likely decreased amid volatility and reduced dealer award shares; said though that length of WI period appears sufficient for price formation and liquidity

* * *

While all of the above was protocol, the most interesting part of the TBAC minutes was the discussion of the “unique challenges” faced by the Treasury over the medium term, especially the possibility of significant financing gap over next 10 years amounting to over $12 trillion and the potential need for more domestic investor participation if foreign reserve growth slows.

Specifically, the TBAC cautioned that the Treasury’s financing needs are expected to increase significantly even without factoring in recession possibilities over the next decade. Here, the TBAC warns that deficits to the tune of $1-$1.5trn a year, and  cumulatively over $12trn, over the next decade, are coming and will have to be funded in the bond market. Meanwhile, as noted recently, the CBO stubbornly refuses to forecast a recession in the next decade, instead projecting a steady 1.5-2% real GDP growth over the next 10y. While the TBAC did not take a position on this laughable assumption, it warned that deficits typically rise 2-5% of GDP in recessions, which would translate to additional deficits of $0.5-1trn at current GDP levels, and warns that “these borrowing needs have to financed in the context of already high global dollar debt exposure.”

But the bigger problem is that in the context of soaring deficit funding needs, the TBAC is worried that “foreign investors already hold significant dollar debt” which is why the US will have to increasingly rely on domestic savings to fund its future budget deficits.

The TBAC notes, tongue in cheek, that while the “USD is still the dominant reserve currency“, reserve managers have been very gradually increasing allocation to other currencies, and that the USD share of FX reserves has steadily come down from 72% in 2000 to 62% now. It also pointed out that other countries with significant debt issuance needs (as a share of GDP) depend far more on domestic savings. As a result, “the Treasury should plan to meet financing needs more domestically than in the recent past.”

Even more concerning, the TBAC notes, is that global FX reserves growth has stalled and global trade, as a share of world GDP, appears to have peaked, while underscoring what may be the most important transition in the global economy in decades, namely that China is now running a flat current account with the rest of the world, something we discussed extensively in “A Tectonic Shift In China’s Economy Has Largely Gone Unnoticed By Investors.“

As a result of these transformations, there has been an even lower official foreign demand for USTs, which has been evident in lower foreign bids at 2-5y Treasury auctions compared to longer tenor auctions. Furthermore, foreign holdings of marketable Treasuries, as % of outstanding, have declined meaningfully from the pre-crisis peak (from 55% in March 2009 to 41% currently)

And while the TBAC admits that Treasuries look far less attractive on a FX hedged basis, something we also discussed recently, which is likely contributing to this decline in foreign demand, the TBAC believes “the decline might be more secular in nature.”

As a result, in order to address both the soaring future US budget deficits as well as the declining foreign demand for US bonds, the TBAC recommends “a greater focus on domestically financing more of the borrowing needs through thematic issuances” as well as “exploring channels to increase foreign holdings of Treasuries.” And as part of its specific recommendations, the TBAC proposes the following products targeting specific savings pools to diversify the investor base:

  • Financial institutions: Recommendation: explore further longer tenor FRNs issuance
  • Life Insurance and Pension: Recommendation: explore further perpetual horizon, zero-coupon and 15-20y issuance
  • Non financial businesses Recommendation: explore further healthcare/education inflation linked TIPS issuance

The TBAC also recommended several new bond type products, such as longer tenor (3Y and 5Y) FRNs, SOFR-linked FRNs, the issuance of 15 and 20 Year securities to “benefit from demand in the sector”, the issuance of “Perpetual Horizon debt” (noting that 14 OECD countries have issued ultra-long bonds with 40-100y maturities. Austria, Belgium and Ireland have issued 100y bonds in the past 2 years), and zero coupon issuance, but the most interesting recommendation: to launch a new product such as CPI subcomponent linked TIPS issuance, such as TIPS linked to healthcare and education CPI.

While there are no definitive answer to the very concerning questions brought up by the TBAC, keep a close eye on future TBAC presentations and especially any future reference by this all-important committee made up of the most important banks and hedge funds in the US…

… which appears to be increasingly concerned not only about how the US will fund its exploding debt deficits but also about the reserve currency status of the US Dollar.

The full TBAC presentation is below

via ZeroHedge News http://bit.ly/2B81Hos Tyler Durden

Ocasio-Cortez: Billionaires Like Howard Schultz Should “Work Their Way Up”

Rep. Alexandria Ocasio-Cortez says that Billionaires who want to run for president should work their way up – starting perhaps with city council. 

Referring to former Starbucks CEO Howard Schultz’s bid for President in 2020, the former bartender and Bernie Sanders 2016 organizer tweeted on Wednesday: “Why don’t people ever tell billionaires who want to run for President that they need to “work their way up” or that “maybe they should start with city council first”?” 

Ocasio-Cortez was referring to Schultz’s comment that she is the reason he’s running as an independent – a move widely seen by Democrats as ensuring a Trump victory in 2020. 

In a Monday interview with CNBC, Schultz called her proposal of a 70% tax on the rich un-American. 

“I respect the Democratic Party. I no longer feel affiliated because I don’t know their views represent the majority of Americans. I don’t think we want a 70 percent income tax in America.”

via ZeroHedge News http://bit.ly/2G9f4YQ Tyler Durden

So You Want To Get Rich…

Authored by Charles Hugh Smith via OfTwoMinds blog,

Wealth is flowing to those who earn money from their human capital and enterprise.

So you want to get rich: OK, what’s the plan? If you ask youngsters how to get rich, many will respond by listing the professions the media focuses on: entertainment, actors/actresses, pro athletes, and maybe a few lionized inventors or CEOs.

The media’s glorification of the few at the top of these sectors masks the statistical reality that those who attain wealth in these pursuits number in the hundreds or perhaps thousands, not in the millions. As in a lottery, the odds of joining such a limited group are extremely low.

There are 330 million Americans and 150 million people reporting income, so statistically, the odds of getting rich improve significantly if we focus on joining the ranks of the 11 million people who are getting rich from their human capital rather than on the few thousand people earning big bucks in music, film, sports, etc.

As I noted yesterday in The “Working Rich” Are Not Like You and Me, the nature of work and capital is changing. Markers that were once scarce–college degrees, for example– are now abundant, and have lost their scarcity value. What’s scarce isn’t credentials–what’s scarce are skills that generate productive problem-solving: human capital.

Work has been commoditized, that is, sliced and diced into processes that can be semi-automated or performed by workers anywhere in the globalized economy. Just as college degrees have been commoditized, so has the work the graduates are qualified to perform. The scarcity value of commoditized credentials and skills is low, and as a result, wages for commoditized work are low.

As noted yesterday, wealth is flowing to those who earn money from their human capital and enterprise: the income going to business owners dwarfs that going to the relative handful of highly paid CEOs or passive owners of stocks.

There are 11 million enterprise owners, and 1.1 million of these are reporting substantial incomes. These owners aren’t passively receiving dividends and interest; they’re running enterprises. When they retire or die, the profits of their company drop by 75%. It wasn’t the physical or financial capital they owned that was making the big money, it was their skills, values and experience.

I’ve described human and social capital at length in my book Get a Job, Build a Real Career and Defy a Bewildering Economy.

It’s very tough to make money competing against global corporations and cartels, and so it’s no surprise that many of the most successful business owners are in sectors that place a premium on skilled labor, i.e. labor that cannot be completely automated or commoditized.

As the research mentioned yesterday explained, having control of how your income is taxed is extremely advantageous. Employees earning big money in states with high income tax rates may be paying almost half of much of their wages in taxes: 7.65% in Social Security and Medicare taxes, 32% or 35% federal taxes and state income taxes of around 10%. (The details are in yesterday’s post.)

Business owners can elect to pass through some of their income as profits, which are taxed at roughly half the rate of total taxes levied on wages (20% compared to 40%). That 20% reduction in tax burden adds up, and is a key reason why business owners get rich while high-wage employees struggle to get ahead.

There’s another advantageous strategy to getting rich that is not politically correct, so it must be mentioned in whispers: marry someone who is highly skilled, ambitious, thrifty, kind and who has productive values. Getting rich on one income is much more difficult than getting rich on two incomes, especially if the savvy couple lives on one income and invests the other income in their own high-skill enterprise.

*  *  *

Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($6.95 ebook, $12 print): Read the first section for free in PDF format.  My new mystery The Adventures of the Consulting Philosopher: The Disappearance of Drake is a ridiculously affordable $1.29 (Kindle) or $8.95 (print); read the first chapters for free (PDF). My book Money and Work Unchained is now $6.95 for the Kindle ebook and $15 for the print edition. Read the first section for free in PDF format.  If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

via ZeroHedge News http://bit.ly/2G1G5hE Tyler Durden

WTI Jumps Above $54 After Small Crude Build, Biggest Gasoline Draw In 3 Months

WTI prices are higher overnight following a smaller than expected crude build from API and ongoing concerns about Venezuela sanctions disrupting supply.

Bloomberg Intelligence Senior Energy Analyst Vince Piazza comments that:

Uncertainty over U.S.-China trade talks and Venezuela possibly declaring force majeure on its exports add to an already-clouded oil-market outlook. Refinery utilization has retreated while U.S. crude production remains resilient, and recent rig counts suggest a rekindling of activity.

Slowing demand, an ebbing global economic growth outlook and ample gasoline supplies inform our reserved stance on balances, despite OPEC’s compliance with capacity curbs. The cartel and its partners will need to extend curbs into 2H to support benchmarks.

API

  • Crude +1.098 (+3mm exp)

  • Cushing -682k (+100k exp)

  • Gasoline +2.15mm (+2.4mm)

  • Distillates +211k (-2mm exp)

API

  • Crude +919k (+3.15mm exp)

  • Cushing  (+100k exp)

  • Gasoline -2.24mm 30

  • (+2.4mm)

  • Distillates  (-2mm exp)

After last week’s huge surprise crude build, expectations were for another big build but DOE reports a mere 919k rise in inventories (well below the +3.15mm exp). Additionally, gasoline stockpiles dropped for the first time since November, by the most since October…

 

Production flatlined Week over week at record highs.

U.S. Crude Imports from Saudi fall to the lowest since Oct. 2017

WTI traded just below $54 ahead of the DOE print and spiked above it on the small build…

“Geopolitics have returned with a bang,” said Stephen Brennock, an analyst at PVM Oil Associates Ltd. in London. “This latest attempt to tighten the financial noose on embattled President Maduro will further cement Venezuela’s supply outlook to the downside.”

via ZeroHedge News http://bit.ly/2DHSlSf Tyler Durden

Florida Man Jailed 41 Days Over 92 Grams of…Laundry Detergent

A Florida man spent 41 days behind bars after police found a powdery white substance in his van last month. Spoiler alert: It wasn’t drugs.

Matthew Crull, 28, of Port St. Lucie, was sitting in his newly purchased van on December 5 when Martin County Sheriff’s Office deputies arrived at the KFC parking lot where he had fallen asleep. Someone had reported the vehicle as suspicious, so police were investigating.

When deputies searched his van, they found marijuana, a beer in the cup holder, and a bag with 92 grams of a white powder in it. Deputy Steven O’Leary claimed to have conducted a field drug test on the powder, and said it tested positive for heroin.

“I just looked at him baffled and confused because I had no idea as to where 92 grams of heroin came from inside my van,” Crull told WPTV later.

“I really freaked out,” he added to WBPF. “I started panicking and didn’t really know what to think.”

Crull was right to be surprised. He says the alleged heroin was actually laundry detergent. But the truth wouldn’t come out until much later. After his arrest, Crull was jailed for 41 days and charged with trafficking heroin. Due to the severity of the charges, there was no way he could afford bond.

“It made the situation very real. [The judge] raised my bond to $100k to half a million dollars, so there was really no way I was getting out of jail,” he told WPEC. Crull admits that he’s been in trouble with the law before, but nothing this serious. “In the past, when I have gone to jail, it’s been something where I knew I wasn’t going to be there forever. It’s a lot different than going to jail and the charge of trafficking of heroin carries a penalty of 25 years in prison,” he explained to WPTV.

Crull was eventually released, though not before he spent Christmas and New Year’s behind bars, after the sheriff’s office tested the “heroin” again and discovered the truth. The trafficking charge was dropped, as was the count of marijuana possession.

This sort of story is more common than you might think. Reason has previously written about police misidentifying cotton candy and donut glaze for meth. In another case, North Carolina police bragged about a massive fentanyl bust, only to learn later that they had confiscated 13 pounds of sugar. The culprit in each of these cases were field test kits that provided false positives. Washington Post journalist (and former Reason staffer) Radley Balko even has a handy list of some of the things misidentified as drugs by field tests.

Crull’s case, meanwhile, may have been part of a larger scandal that had nothing to do with malfunctioning field drug tests. The arresting deputy, O’Leary, has been fired after the sheriff’s office discovered other discrepancies. In three recent narcotics arrests, O’Leary claimed field tests had revealed drugs. Further crime lab testing revealed that wasn’t true.

O’Leary, who had been a Martin County sheriff’s deputy since February 2018, had made about 80 drug arrests before being terminated. All of those are now under review, and 11 people, including Crull, have already been freed.

“It would have been a travesty to risk leaving anyone in jail,” Sheriff William Snyder said at a press conference Monday, explaining that some of those released did have drugs in their possession, just not as much as O’Leary had initially claimed.

“It’s better that 100 guilty people go free than one innocent person goes to jail,” Snyder added. “Our goal is always justice, and there was more than enough reasonable doubt on our part on all those arrests that we would not have left anyone in jail one more minute.”

from Hit & Run http://bit.ly/2sTG6f5
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In First Phone Call, Trump Congratulates Guaido On Becoming President Of Venezuela

President Trump started a Tuesday morning twitter storm with a tweet warning that Maduro will be “willing to negotiate” after the US starves his teetering regime of badly needed funding via the sanctions that were levied earlier this week.

But tweeting isn’t all the president did. According to Press Secretary Sarah Sanders, Trump spoke with Guaido for what appears to be the first time on Wednesday. A readout of the call revealed that Trump “congratulated” Guaido on his “historic assumption of the presidency of Venezuela,” and promised to keep in regular contact to “support Venezuela’s path back to stability.”

Roughly two dozen countries have recognized Guaido as the legitimate ruler of Venezuela, and a handful of European nations have demanded that Maduro either commit in the coming days to holding free elections or they too will officially recognize Guaido.

The conversation followed a crackdown by the country’s Supreme Court, which banned Guaido from leaving the country. Given Russia and China’s demands that the US refrain from interfering in Venezuela, President Xi and President Putin aren’t going to like this.

via ZeroHedge News http://bit.ly/2UqAk01 Tyler Durden