The Federal Reserve bank assures us that inflation is under control. This sign at University and 54th tells a different story.
Is it drunk outside? Or is it just me? San Diegans are asking a similar question: political and civic leadership appears perpetually besotted. Is this a local phenomenon, or is it happening elsewhere? You’ll be relieved to know that political/economic dipsomania is worldwide. The risk is that we’ll stumble back into the 2007–2009 delirium tremens.
For example, in San Diego, the mayor says that the deficit for the fiscal year beginning July 1 will be $56.7 million. But a group launched by the mayor, the Citizen’s Fiscal Sustainability Task Force, says it will be $130 million. That same group once suggested that the City consider bankruptcy. So did the San Diego County Grand Jury and the local League of Women Voters.
“San Diego’s finances are in worse shape than ever before,” says Norma Damashek, former president of the League of Women Voters, but the mayor and other civic leaders are pushing for a downtown football stadium in which the billionaire owners of the Chargers would put less than $200 million (when you consider naming rights and other scams) while the City would have to put in a minimum of $600 million. And according to that task force, the City needs to take care of deferred maintenance, or upkeep of the City’s rotting infrastructure, which has been ignored while the politicians were plunking money into sports stadiums, subsidized shopping centers, and condos, ad nauseam. The cost of that deferred maintenance: $600 million.
But Los Angeles is just as broke as San Diego. Los Angeles, too, wants to build a downtown football stadium — one that may lure the Chargers from here if it ever gets constructed. Anschutz Entertainment Group claims that the stadium will be privately financed. Balderdash. According to the LA Weekly, author D.J. Waldie, who writes about Los Angeles and Southern California, says that to make the stadium work, L.A. will have to pay off $445 million in existing convention center bonds at $48 million a year and, in addition, pay off $350 million in new convention center bonds at $29 million a year. Then the city, or somebody, will have to come up with $117 million for a parking structure. Bottom line: this stadium that will purportedly be financed with private funds will cost Los Angeles $86 million a year for the first ten years, says Waldie.
That brings us to convention centers. San Diego wants to build an addition to its center. It could cost $700 million, perhaps more. The City doesn’t know how to pay for it. Mayor Jerry Sanders says a surcharge on hotel rooms might be a start. It’s not clear that the hotel industry will fall into line, says Heywood Sanders, professor of public administration at the University of Texas at San Antonio and America’s leading expert on convention centers. (San Diego businesses typically want the public to finance their profit centers.)
Boston officials trumpet the success of the Boston Convention and Exhibition Center. They want to expand it. But they refuse to face the fact that much of the hall’s business has come at the expense of another Boston center, the John B. Hynes Veterans Memorial Convention Center. In the past five years, the number of visitor hotel nights to the two halls is up only 9 percent, says the Boston Globe. One hall is cannibalizing the other, points out Heywood Sanders.
Then there is Seattle. Taxpayers financed Safeco Field, where the Mariners play baseball. Later this year, those taxes will be ending. So politicians want to continue the taxes to expand the Washington State Convention and Trade Center. The pols started beating the drums in 2009, following a large drop-off in out-of-state visitors generated by the convention center. “In 2009 they had fewer out-of-state visitors than they had in 1997,” says Heywood Sanders. “In 2010, they had 85,456 out-of-state visitors; they were doing less than half the business they had done in 2007, but they still want an expansion.”
Says Heywood Sanders, “The impact of the recession has been absolutely enormous. Centers around the country have seen business drop by 20, 25, and 30 percent. In San Diego, the cost will be enormous, but it is not at all clear it will generate any substantial increase in business. These things are literally crapshoots. You can think you have a great center and a great destination, but everybody else believes the same thing. Yet cities up and down the West Coast are thinking of [expanding centers]. This isn’t driven by anything remotely like rational decision-making.”
San Diego’s long-delayed audit may be completed by August, nine months late. The City blames the delay on data-entry errors under a new computer system. What’s pathetic is that the bond-rating agencies seem to accept San Diego’s lame excuse. “Software-implementation delays are not unusual in other cities,” says Standard & Poor’s. “We don’t want to signal a problem if this is just a system-related problem,” says Fitch. Moody’s says the delay sounds “technical in nature.” These are the same outfits that gave AAA ratings to mortgage derivatives that were stuffed with doggy home loans.
Those egregious misjudgments almost drove the world into the abyss. And they serve as reminders that it’s not just state and local governments that make decisions while drunk as billy goats. Consider America’s reaction to world calamities. The Muslim Brotherhood gains clout in Egypt. There is violence in Syria and Libya. The Saudi sheiks are waving their sabers at Bahrain. So oil prices soar and gas prices in San Diego remain around $4. Meanwhile, the Japan tragedy, combined with food-supply shortfalls in China, will send food prices even higher.
But the Federal Reserve, America’s central bank, watches so-called core inflation, which does not include fuel or food prices. So it just keeps pumping liquidity into the financial system, assuring us there will be no inflation, although anybody who either eats or uses fuel (and who doesn’t?) knows better. The Fed has stated it wants to pump up the stock market to jump-start the recovery. But 80 percent of financial wealth (stocks and bonds) is controlled by the richest 10 percent. The Fed says as long as unemployment stays high and plant utilization stays low, all this liquidity won’t cause inflation. It appears that the Fed loves high unemployment and is blind to soaring food and fuel prices. And you think only San Diego officials are blotto?
Actually, there is a measurement that closely reflects the cost of living. It’s called the chained consumer price index for people in urban areas. It takes into account changing consumer habits — say, if pork is cheaper than beef, folks switch to pork. And this cost-of-living index, unlike inflation measures, is now at a record high. But don’t tell Ben Bernanke, head of the Fed. He’s working on his second martini and plotting more ways to make the upper 10 percent even richer.
Just remember: crapulence follows intemperance.