Challenging Capitalism: We’re Not A Rich Country; Just Some Of Us Are

Sometimes when I read the Wall Street Journal’s special section on real estate, aptly named “”Mansion”, where ostentatious multimillion dollar homes and their over-the-top owners are featured, I find myself muttering, somewhat in jest, “Next, the revolution.”

Economic inequality, in America, whether measured through the gaps in income or wealth between richer and poorer households, is widening and too many Americans are living on the edge.

If you want to see part of where America is headed, visit Manhattan’s 1,550-foot-tall 131-story Central Park Tower. 

Central Park Tower, 217 w. 57th St., New York City

With 179 luxury residences on so-called Billionaires Row, it’s “Above All Else – The Tallest Residential Tower in the world,” its promoters say. 

The condominium building contains an outdoor swimming pool with poolside food and beverage service, a cabana deck, ,a private park, a Living Room where residents can lounge with billiards, a dramatic movie screening room, a  double-height windowed sports court, an indoor pool and spa, a high-tech fitness center, a beauty lounge, the highest Grand Ballroom and private restaurant ever built in New York (no stranger to excess on the 100th floor, with menus created by a coterie of Michelin-starred talent, including Chefs Alfred Portale, Laurent Tourondel and Gabriel Kreuther, all overseen by lifestyle director Colin Cowie, a corner sky lounge featuring a wine cellar (how do you get a wine cellar in a sky lounge?) and cigar humidor (a potential Bill Clinton hangout?). To top, or bottom, it all off, there’s a retail partnership with a seven-floor 320,000 sq. ft. flagship Nordstrom store that sits at the building’s base. Whew!

And all this , according to StreetEasy, can be had for an average price of $21,888,000, based on currently active sales as of June 2022.  That’s $6,752 per sq ft.  

The team creating the building crafted “an Iconic Building and an Unmatched Living Experience” says its marketing site

From a slightly different perspective, the complex can also be a veritable cocoon for its super-wealthy clientele. They can, if they choose, exist almost entirely within the shimmering icicle-shaped supertall structure, avoiding rubbing against the masses, the hoi polloi, on the streets of New York.

In its self-contained exclusiveness, the Central Park Tower and Billionaires Row in general are much like an increasing number of other American geographies where the rich gather and mix only among their own kind. 

Take Malibu, CA, for example.

I rode through the coastal town a few years ago on a bicycle ride from Oregon to Mexico. It was a uniquely beautiful place.

Malibu from my bike.

The Wall Street Journal recently wrote about the shift in Malibu, once  a village with a bohemian character.

 “About three decades ago, Beverly Hills native Andy Stern moved to the nearby beach city of Malibu to raise his young family.,” the story noted. “He quickly came to know all his neighbors, he said, recalling block parties with children pouring onto the streets to play together. Now Mr. Stern…said he barely sees his neighbors in the Broad Beach area, because they are rarely there. The families that once lived in the neighborhood have largely been replaced by celebrities and billionaires…”

Malibu Beach Houses

So many rich people now own prime property in Malibu as just one of their many properties, but don’t really live there, that the town’s full-time population has actually fallen in recent years.

As for families with young children, forget it.  Public school enrollment has declined by more than half in the past 20 years.

And if you want to stay at a local hotel and mingle with the Malibu rich, the old low-key Casa Malibu Inn on a private beach has become the Japanese-inspired Nobu Ryokan Hotel, where rates start at $2,000 a night (BTW, I’ve stayed in ryokans in Japan and this is a faux ryokan).

Then there are other high-end US communities that serve as sanctuaries for the wealthy, such as Atherton, CA; Greenwich, CT; Highland Park, TX (a Dallas suburb); Jackson Hole, WY; and Paradise Valley, AZ.

But it is an illusion to think that only the filthy rich are isolating themselves into enclaves. The well-off-but-not-filthy-rich (WONFR) folks do, too. They live in places like Highland Park, Il, (Median family income: $147,067), Bow Mar, CO, Chevy Chase, MD and well-off but still far down the average median income list, Lake Oswego, OR (Median family income: $114,444).

But beneath this sheen of wealth are an awful lot of struggling Americans. 

With periodic interruptions due to business cycle peaks and troughs, the incomes of American households overall have trended up since 1970, according to Pew Research, but the overall trend masks how the gains were distributed.

Most of the increase in household income was achieved from 1970 to 2000. when median income increased by 41%, to $70,800, at an annual average rate of 1.2%. From 2000 to 2018, the growth in household income slowed to an annual average rate of just 0.3%, Pew said. Not only that, the growth in income  tilted to upper-income households while the U.S. middle class, which once comprised the clear majority of Americans, has been shrinking. In other words, a greater share of the nation’s aggregate income is now going to upper-income households while the share going to middle- and lower-income households is falling. 

In recent years, the share of all income held by the top 1% has approached or surpassed historical highs. In 2015, The top 1% took home 21% of all the income in the United States. By 2021, the share held by the top 1%, about 1.3 million households, had risen to 27% 

In 1980, households at the top had incomes about nine times the incomes of households at the bottom. The ratio increased in every decade since 1980, reaching 12.6 in 2018, an increase of 39%.

This isn’t exactly a new discovery.

In 2011, President Obama commented on the rise of inequality in a Osawatomie, KS speech. “…over the last few decades, the rungs on the ladder of opportunity have grown farther and farther apart, and the middle class has shrunk,” he said.

In Jan. 2012, Alan B. Krueger, Chairman of the Council of Economic Advisers, expanded on Obama’s remark in a speech to the Center for American Progress (CAP).  Using a graph showing the annualized growth rate of real income for families in each fifth of the income distribution over two periods, he explained that all quintiles (fifths) of the income distribution grew together from the end of World War II to the late 1970s, but since the 1970s income grew more for families at the top of the income distribution than in the middle, and shrank for those at the bottom.

“We were growing together for the first three decades after World War II, but for the last three decades we have been growing apart,” he said.

Krueger outlined what he called the Great Gatsby Curve, the connection between concentration of wealth in one generation and the ability of those in the next generation to move up the economic ladder compared to their parents.

The curve shows that children from poor families are less likely to improve their economic status as adults in countries where income inequality was higher – meaning wealth was concentrated in fewer hands – around the time those children were growing up,” a White House post explained later.

Not only that, but the largest shares of adults in upper-income households are congregating in certain areas of the country, particularly metropolitan coastal areas of the Northeast and California. They tend to be in high-tech corridors, or in financial and commercial centers, such as Boston-Cambridge-Newton, MA-NH,  Hartford-West Hartford-East Hartford, CT and San Jose-Sunnyvale-Santa Clara, CA.  

The New York Times recently reported that residents are increasingly being buffeted by economic tides that push them into neighborhoods that are either much richer or much poorer than the regional norm. In other words, a smaller share of families are living in middle-class neighborhoods. 

“In some ways, the pattern reflects how wealthy Americans are choosing to live near other wealthy people, and how poorer Americans are struggling to get by,” the paper reported. “But the pattern also indicates a broader trend of income inequality in the economy, as the population of families making more than $100,000 has grown much faster than other groups, even after adjusting for inflation, and the number of families earning less than $40,000 has increased at twice the rate as families in the middle.”

In Portland, OR, for example, the share of families living in middle-income neighborhoods changed from 70% to 56% from 1990 to 2020.

Even during the pandemic, when most Americans fared well financially, the rich saw most of the gain. According to the Federal Reserve, while American households overall saw about $13.5 trillion added to their wealth, the top 1% got a third of that and the top 20% 70% of it.

Meanwhile, some states are becoming pockets of poverty. According to the U.S. Census Bureau, states and territories with the highest percentages of poverty in the country in 2020 were: Mississippi, Louisiana, New Mexico, Kentucky, Arkansas, West Virginia, Alabama, the District of Columbia, South Carolina, and Georgia.

The new economic reality of reduced income – and even poverty –  for many Americans is all too familiar in many parts of the United States. For decades, small towns and cities across the country have been devastated by deindustrialization and job losses. In these places, incomes are generally low, poverty rates are high, and many residents depend on government assistance, like SNAP (food stamps), to afford basic necessities.

A particular challenge facing well-off areas of the country is that the people who provide all the services can’t afford to live there. 

I still remember a time early in my career, when I was working for a community development firm. A builder was planning a large-scale new town development in a largely rural area in the south, with shopping centers, restaurants and other amenities.  When I noticed it included only high-end homes, I asked him where all the service workers were going to live. He’d never thought about that.

We are seeing the emergence of this problem in Bend, OR, which has seen  skyrocketing growth in recent years. That has translated into skyrocketing home prices and rent increases, squeezing out those with modest incomes.

Booming Bend, OR

“Central Oregon’s housing affordability and availability crisis is comprehensive in scope and impact,” said a May 2019 Central Oregon Regional Housing Needs Assessment. And the situation has continued to deteriorate.

HUD defines affordable housing as total housing costs that are no more than 30% of a household’s total gross income. For rental housing, total housing costs include rent plus any tenant-paid utility costs. For homeowners, they include mortgage payments, utilities, property taxes, homeowners insurance, and any homeowners’ association fees. 

The 2019 Needs Assessment showed that more than half of renters in Deschutes County spent more than 30% of their income on housing and just over a quarter spent more than 50%.

Meanwhile, young working families are finding it ever harder to buy a home in Central Oregon. “Central Oregon has seen significant in- migration of people from the Bay area, Seattle, Portland and elsewhere, who sell their house and are able to buy a house here with money left over, said Jon Stark, Senior Director of Redmond Economic Development, Inc. “However, younger people who are starting out earlier in their careers are having a harder time. The wages people earn and the price to buy a home or rent is out of balance.” 

But why fret, say some. We’ve always had inequality in the United States, such as in the Gilded Age, in the late 1800s and early 1900s and we’ve always had people who flaunt their wealth in many ways. 

“Back then, it was about masquerading as European nobility at lavish balls in elegant hotels like New York’s Waldorf-Astoria, locked down to forestall any unpleasantness from the street (where ordinary folk were in a surly mood trying to survive the savage depression of the 1890s),” Steve Fraser wrote in Salon. “Today’s “leisure class” is holed up in gated communities or houseoleums as gargantuan as the imported castles of their Gilded Age forerunners, ready to fly off — should the natives grow restless — to private islands aboard their private jets.”

But economist Gabriel Zucman, whose doctoral advisor was the historical economist Thomas Piketty, author of “Capital in the Twenty-First Century,” released data in 2021 arguing that things are worse today.

In 1913, at the end of the Gilded Age, the Rockefeller, Frick, Carnegie, and Baker families – names all tied to monopolistic power – held 0.85% of the country’s total wealth, Zucman said.

As of mid-2021, the top 0.00001% richest people in the U.S., composed of just 18 families, held 1.35% of the country’s total wealth. Wealth concentration at the very top exceeded the peak of the Gilded Age, he said.  

The richest 0.01% — around 18,000 U.S. families — have also surpassed the wealth levels reached in the Gilded Age. These families hold 10% of the country’s wealth today, Zucman wrote. By comparison, in 1913, the top 0.01% held 9% of U.S. wealth, and a mere 2% in the late 1970s.

It’s too simplistic to say that the increasing share of income and wealth among the richest Americans is a threat to capitalism, but as David Autor, a professor at MIT put it in response to an Initiative on Global Markets survey, the widening split is a symptom of dysfunction. “It’s a threat to people’s belief in capitalism as an institution of economic governance. Absent shared belief, we are in trouble.” 

Even moreso if the next generation of highly civilized, excessively woke philanthropy activists are hostile to capitalism itself when they take charge and forget that the money they are so gladly using came from capitalists.

Compassion without limits: Multnomah County wants more money to address homelessness

homeless1daymaintrash

It looks like Multnomah County has a vested interest in sustaining homeless problems.

On Thursday, Dec. 5, the Multnomah County Commission is scheduled to vote on whether to send a steadily increasing amount of hotel, motel and motor vehicle rental taxes intended for spurring tourism in the Portland metro area to programs aimed at addressing homeless problems in the the county.

Portland’s City Council and the Metro Council have already given their OK to the plan. It would involve amending a Visitor Facilities Intergovernmental Agreement (VFIA) originally signed in 2001.

If you just looked at the agenda for the Dec. 5 Commission meeting, you probably wouldn’t know what’s going on. Agenda item R.6 says:

“Resolution approving the Second Amended and Restated Visitor Facilities Intergovernmental Agreement (Second Amended and Restated VFIGA) between the City of Portland, Multnomah County, and Metro Regional Government. Presenters: William Glasson and Eric Arellano. (10 min)”

What does homelessness have to do with tourism, you might ask.  Bureaucrats and politicians have an answer. The resolution says dealing with homeless problems will “improve the visitor experience”. Specifically, it says:

“The Parties recognize that the area’s economic success has not been uniformly shared by the community and a vulnerable portion of the population has been negatively impacted by rapid increases in housing costs. An increased allocation from the (Visitor Facilities Trust Account ) VFTA as an additive source of funds to support the significant existing regional investments in affordable housing and supportive services to address the root causes of homelessness and its associated livability and safety concerns is appropriate, and will (i) improve conditions for the community and people experiencing homelessness, (ii) improve the visitor experience, and (iii) help Portland remain a desirable travel and tourism destination.”

And without saying so directly, the resolution seems to assume the homeless problem won’t get better with the additional money because the amount going to Multnomah County would steadily increase, more than doubling by 2022. In other words, it looks like the county does better if homelessness persists.

An analysis of the resolution prepared by the Department of County Management says:

“This funding will pay for livability and supportive services, and related operations costs, supporting programs and projects funded by proceeds of the City and Metro bonds approved by voters in 2016 ($258.4 million) and 2018 ($652.8 million)  affordable housing bond measure , respectively, to create affordable homes for low-income individuals.”

Multnomah County already gets $750,000 a year. If the resolution is approved, that would significantly increase to:

  • $2,500,000 in fiscal year (FY) 2019-20 and FY 2020-21,
  • $3,250,000 in FY 2021-22
  • $3,775,000 in FY 2022-23
  • $5,250,000 for FY 2023-24 and beyond.

In other words, the Portland Metro Area is already stressed spending millions every year fighting homelessness, recent bond measures promise much more, and now Multnomah County wants to grab even more (from tourism revenue, no less) to grow its homelessness bureaucracy, feed social-services providers and hype its compassion.

Is this really necessary?

Today may be “Giving Tuesday,” but do we really need to starve other community priorities, bastardize the meaning of tourism promotion, and embrace compassion without limits by endorsing measures like this?

How not to do affordable housing: Denver’s folly

 

skyhousedenver

The new SkyHouse Denver high rise offers studios, one-, two- and two-bedroom + study luxury apartments. Available studios start at $1,390, one bedrooms at $1,485, two bedrooms at $2,480

Denver’s St. Joseph Hospital in central Denver is thrilled with a city plan that will subsidize the rent of lower-income residents at higher-end apartments. The program will pay the difference between what a lower-income resident can afford and the market rent of an apartment.

Denver Mayor Michael Hancock announced the plan in his July 10, 2017 State of the City address.

“I am excited to announce that we will pilot a new partnership to open 400 existing, vacant apartments to low- and moderate-

income residents struggling to find an affordable place to live,” Hancock said. “We have apartments sitting vacant because there’s a gap between what it costs and what people can afford. Working together with the Denver Housing Authority, employers and apartment building owners, we aim to fill that gap.”

“Denver has some of the highest inventories for apartments for families with the highest incomes and some of the lowest inventories for families with some of the lowest incomes,” Erik Solivan, executive director of the mayor’s Office of Housing and Opportunities for People Everywhere (HOPE), said to Denver station KMGH-TV.

Well, of course St. Joseph is thrilled with the program. What company wouldn’t be happy to see somebody else subsidize their lower-paid employees.

Think about it.

St. Joseph says it will contribute $100,000 to the program. The rest of the money needed will come from Denver, some other employers and some charitable foundations. The city says it expects to spend about $500 a month subsidizing a single person and $900 for a family.

St. Joseph’s president, Jamie Smith, told the Wall Street Journal on Jan. 8 that he hopes the program will help house dozens of employees.

Let’s be conservative and say 26 of those subsidies go to St. Joseph employees, 13 of whom are single and 13 of whom have families. Subsidies to St. Joseph employees alone will total $218,400 the first year. ($6000 per single, $10,800 per family = $78,000 for all the singles and $140,400 for all those with the families = $218,400.)

So St. Joseph invests $100,000 and gets $218,400 back for its employees, with $118,400 of that coming from other companies and charitable organizations.

 “These folks (medical technicians and newly graduated nurses) are in high demand,” Smith told the Wall Street Journal. “They’re driving by four or five other hospitals much closer to their home to get to us, and at some point it becomes a problem from a recruitment and retention standpoint.”

If St. Joseph’s Hospital is having a hard time recruiting and retaining medical technicians and newly graduated nurses, the answer is to pay them more, rather than pleading for public subsidies and contributions from charities.

“This is not a welfare program or anything like that,” said Mike Zoellner, a local developer who helped create the program.

Sure it is, for the hospitals, hotels and food service businesses Zoellner expects the program to help. Meanwhile, it puts St. Joseph’s competitors at a competitive disadvantage.

Whatever happened to the free market and business competition?