Despite surplus, California governor releases austerity budget

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By Dan Conway
23 May 2015

California Governor Jerry Brown released the so-called May Budgetary Revision on May 15, outlining proposed state spending for the 2015-2016 fiscal year. The measures included in the May Revision are typically adopted in the enacted state budget.

The May Revision incorporates larger than expected state income and capital gains tax revenue. It uses the expanded revenue not to restore past cuts but to create new school privatization schemes, expand the state’s rainy day budget stabilization fund and to otherwise insure continued hardship for the working class.

California is the most populous state in the country and also the poorest. According to the official federal poverty measure, which is based on an annual income threshold of three times the cost of basic nutritional requirements, the state’s poverty rate is 16 percent meaning 6.1 million residents are poor. Nearly 2.5 million of these have incomes less than half of the official poverty line and half of both these groups are children.

Using the US Census Bureau’s Supplemental Poverty Measure, however, which also factors in the price of other basic necessities such as shelter, clothing and utilities, California is the most impoverished state in the country with nearly a quarter of the state’s 38 million residents, or 8.9 million people in poverty.

The administration of Governor Jerry Brown has mercilessly used state budgets to impose austerity on the working class. Said Brown upon assuming office after a nearly 30 year absence, “If you’re looking for frugality, I’m your man.”

Brown has enacted massive cuts to the CalWorks Welfare to Work program, SSI recipients, funding for AIDs education and research and numerous other critical programs for the most vulnerable sections of the population.

The new budget does not restore a single dime to CalWorks despite the fact that 1.2 million impoverished Californians already use the program. 900,000 of those dependents are children. To qualify for the CalWorks Grant, recipients must receive an annual income of less than 50 percent of the federal poverty line and thanks to cuts imposed by Brown and Governor Schwarzenegger before him, CalWorks recipients receive $180 per month less, adjusted for inflation, than they did in 2008.

Funding will also not be restored to cuts made to the state’s Supplemental Security Income/State Supplementary Payment (SSI/SSP) program that provides payments to the disabled. The program has been cut to the legal minimum of $156 per month per recipient and cost of living adjustments or COLA, typically tied to the rise in the state’s Consumer Price Index, have not been restored.

The budget also maintains a ten percent cut to Medi-Cal, the state-subsidized health insurance program. The cut was enacted at the same time that the income threshold for Medi-Cal eligibility had been raised as part of the state’s implementation of the Affordable Care Act or Obamacare. This was meant to insure that more workers would be forced to move onto the Medi-Cal rolls in a time of diminishing benefits. Under Brown, the Medi-Cal program no longer offers dental and vision services.

The only areas in the state budget that will see a significant increase in funding are in public education and in the state’s rainy day fund, which itself is meant to capture increased revenues and insure that they are not used to restore prior cuts to social programs.

Passed by state voters in 2014, Proposition 2 sets aside 1.5 percent of general fund revenues to the rainy day or state budget stabilization account. It also requires an additional transfer of capital gains tax revenues exceeding eight percent of general fund revenues to the account.

Half of the existing rainy day fund balance may be used to pay down outstanding state debt, while the remaining balance may only be used in cases of emergency if the state is running a budget deficit.

Because of the release of a portion of the existing rainy day account in the May Revision, there is now a $6.1 billion increase in funding for Public Education compared with the 2013-2014 school year, provided that these provisions in the Revision are included in the enacted budget.

As made explicitly clear in the terms of the Revision, the majority of the overall education spending will be directed towards the newly-created Local Control Funding Formula (LCFF). Under the terms of the LCFF, local school districts receive a certain amount of funding per student with those districts with a higher percentage of disabled, minority or immigrant students receiving higher funding.

Those districts can spend the money as they see fit provided that they implement “reforms” tied to standardized testing, Common Core Evaluation standards and show significant improvement in performance on those tests and other key areas each year. An example of measurable improvement would be a one percent increase in high school graduation rates each year for eight years.

To the extent that such measures cannot be realized, districts so affected would not only lose LCFF funding but would potentially fall victim to pro-charter school conversion measures such as the so-called Parent Trigger law. Under this reactionary law, a “failing” public school can be converted into a private charter operation if a majority of parents support it.

The open backing by state government of private charter schools is also made abundantly clear in the May Revision’s lack of funding for traditional public schools. Despite the overall Proposition 98 funding increase, funding for traditional public schools is decreased by $224 million in the Revision.

Also, while Cost of Living Adjustments remain in place for LCFF programs, traditional public schools will see a COLA decrease from 1.58 percent to 1.02 percent or $22.1 million.

The California Community College System (CCC) will also see a significant reduction in traditional funding as a result of the governor’s May Budget Revision. Traditional Proposition 98 funding to the CCC will be reduced by $156.1 million and COLAs are likewise to be reduced from 1.58 percent to 1.02 percent. Energy efficiency projects at CCC in the midst of one of the largest droughts in state history are also to be reduced by $825,000.

In addition to a meager $75 million expenditure to increase full time faculty, the May Revision provides $626 million to repay outstanding state debt and also to implement plans for curricula redesign and start up costs to expand the career and technical education programs and reorient the community college’s overall educational missions accordingly.

$30 million is also designated towards creating “student success outcome” plans at CCC. These are designed to provide funds to underrepresented student groups to maintain “equity,” the current political buzzword employed as a smokescreen to distract attention from overall diminishing funding levels for education.

The CCC is the largest network of state community colleges in the country, with more than 2.3 million students enrolled.

The Brown administration also reached a well-publicized agreement with the University of California (UC) Board of Regents, freezing state tuition for the next two years in exchange for reducing course loads and the amount of time it takes for students to complete their degrees. Out of state tuition will continue to increase by as much as eight percent per year.

UC enrollment rates are at their lowest levels ever as more students apply for the same number of slots available. Enrollment rates at the UC are half of what they were in the mid-1990s even though the number of academically qualified students has not declined accordingly.

As a result, Brown, together with UC Board Regent and former Department of Homeland Security head Janet Napolitano are blaming the lack of UC access on unmotivated students who are taking too long to finish their degrees and are simply taking advantage of too many opportunities to educate themselves. As such, course credit requirements will be reduced and entire classes eliminated to push through UC students more quickly.

Similar measures would also be implemented at the larger California State University system (CSU) under the terms of the May Revision.

As the state faces a $72 billion liability for retiree health care, a major overhaul in how public pensioner health benefits is also now underway. This would involve state workers pre-funding their benefits, changing from a pay-as-you-go method towards paying into a prefunded, interest-accruing trust fund. The cost of this fund would largely be borne by state workers themselves.

Workers would not only have to rely on a static, inadequate funding source to pay for increasing medical costs when they retire, the minimum amount of time these workers must have on the job to even be eligible for the program is a full thirty years.

Perhaps the most significant portion of the May Revision is what it portends for future state budgets.

The introduction to the May Revision reads, “Despite stronger revenues, the budget remains precariously balanced and faces the prospect of deficits in succeeding years. The state has hundreds of billion of dollars in existing liabilities, such as deferred maintenance on its roads and other infrastructure and its unfunded liability for future retiree health care benefits for state employees and various pension benefits.”

There can be no doubt that future budgets will include further measures to address these “liabilities” at the expense of the working class. In this, the trade unions, including the SEIU and California Teachers Association will be willing partners.

While the most vulnerable sections of the population are being squeezed California is now home to 131 billionaires, nearly a quarter of all US billionaires and more than any other nation except for the US as a whole and China. This small collection of individuals has a combined wealth of $560.1 billion, more than the GDP of 49 countries including Argentina, Poland and Taiwan.

 

http://www.wsws.org/en/articles/2015/05/23/cali-m23.html

Bad Apple: 5 Ways the Computer Giant is Plundering America

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No amount of clever branding can hide these harsh truths.

An emotional response to any criticism of the Apple Corporation might be anticipated from the users of the company’s powerful, practical, popular, and entertaining devices. Accolades to the company and a healthy profit are certainly well-deserved. But much-despised should be the theft from taxpayers and the exploitation of workers and customers, all cloaked within the image of an organization that seems to work magic on our behalf.

1. Apple Took Years of Public Research, Integrated the Results, and Packaged it As Their Own

Apple’s stock market value of over $700 billion is about twice the value of any other company. It is generally regarded as innovative, trendy, and sensitive to the needs of phone and computer users all around the world. Many of us have become addicted to the beautifully designed iPhone. But the design goes back to the time before Apple existed.

Steve Jobs once admitted: “We have always been shameless about stealing great ideas.” And reaping most of the benefits. As economist William Lazonick put it, “The iPhone didn’t just magically appear out of the Apple campus in Cupertino. Whenever a company produces a technology product, it benefits from an accumulation of knowledge created by huge numbers of people outside the company, many of whom have worked in government-funded projects over the previous decades.”

In her revealing book, The Entrepreneurial StateMariana Mazzucato explains that “Apple concentrates its ingenuity not on developing new technologies and components, but on integrating them into an innovative architecture.” She goes on to describe 12 major technologies that have their roots in government research, including memory and hard disks, displays, cellular technology, GPS, and all the Internet protocols. Much of it came from the Department of Defense, the Department of Energy, NASA, the Air Force, and other U.S. agencies. The biggest expense in the iPhone is the touchscreen, which was developed at the CERN laboratories in Europe.

The “stealing of ideas” has not been accompanied by a reciprocal contribution to research. Apple spends much less than Microsoft and Google on R&D as a percentage of revenue.

It gets worse. Apple effectively takes all the credit for much of our public R&D by invoking the 1980 Bayh-Dole Act, which allowed publicly-funded work to be patented by companies. In 2011, for the first time, Apple spent more on patent purchases and lawsuits than on R&D. And worst of all, patents can make it extremely difficult for other researchers to continue work on the ideas behind newly developed products.

2. Even After Taking Our Research, Apple Does Everything in its Power to Avoid Taxes

In 2013 Apple CEO Tim Cook proclaimed, “We pay all the taxes we owe – every single dollar.” Delusion teams with denial. When questioned about the “Double Irish” scheme that allowed Apple’s Irish subsidiary to pay ZERO taxes from 2009 to 2012, Apple executive Tony King said he had “no idea” what the questioner was talking about.

Apple recently announced that its overseas, untaxed cash hoard, currently about $157 billion, is expected to reach $200 billion by 2017. But rather than pay taxes, Apple, along with other tech companies, has been part of a “fierce attack” on plans to crack down on tax avoidance, lobbying instead for a repatriation tax holiday to allow the billions of overseas dollars to come home at a greatly reduced tax rate.

3. Overcharging Customers 

The manufacturing cost of a 16 GB iPhone 6 is about $200, and with marketing it comes to about $288. But without an expensive phone contract with Verizon, AT&T, or one of the other wireless carriers, the cost to the customer is at least $650.

4. Underpaying and Mistreating Employees 

In response to criticisms of Apple, Rand Paul advised us to “apologize to Apple and compliment them for the job creation they’re doing.” The company claims to have “created or supported” over a million jobs in the United States. But in reality it has 66,000 employees in the U.S., about half of them retail store workers.

Apple has an efficient way of undermining workers, earning nearly $600,000 profit per employee while paying their full-time retail “specialists” less than $30,000 per year. Thus each store worker gets about $1 for every $20 in profits that he or she helps to generate. As for higher-level employees, Apple is alleged to have conspired with Google and other Silicon Valley each firms to hold down the salaries of engineers and analysts.

Regarding laborers at notorious Chinese factories like Foxconn, Apple CEO Tim Cook said in 2012: “We care about every worker in our worldwide supply chain.” The sentiment went deeper three years later in 2015, when Apple VP Jeff Williams assured us that “We care deeply about every worker in Apple’s global supply chain.” But investigations have revealed little change, with a continuation of low wages, forced overtime, safety hazards, employee abuse, increased production quotas, and manipulation of student interns. Before the launch of the iPhone 6 in late 2014, workers put in 15 hours a day for 10 weeks without a day off.

5. Apple Has Figured Out How to Spend Most of its Untaxed Money on Itself 

Much of Apple’s ‘offshore’ money is reportedly held in the U.S., in the form of U.S government securities, earning interest from U.S. taxpayers. When the company needs cash, it simply borrows the money at a near-zero interest rate, often using that cash to pay off shareholders with stock buybacks, which use potential research and development money to pump up the stock prices for shareholders.

After spending $90 billion on stock buybacks last year, Apple has now proudly announced a 2015 “share repurchase authorization” of $140 billion, almost the entire amount of its currently hoarded cash. Buybacks benefit company executives and investors. Beyond that, Apple’s ever-growing $.7 trillion stock market value is spread among relatively few Americans. The richest 10% own 91 percentof U.S. stocks.

Apple’s View 

The tax-avoiding, research-appropriating, cost-escalating, wage-minimizing, self-enriching Apple Corporation has, according to CEO Tim Cook, a very strong moral compass.

Paul Buchheit teaches economic inequality at DePaul University. He is the founder and developer of the Web sites UsAgainstGreed.org,PayUpNow.org and RappingHistory.org, and the editor and main author of “American Wars: Illusions and Realities” (Clarity Press). He can be reached atpaul@UsAgainstGreed.org.

http://www.alternet.org/bad-apple-5-ways-computer-giant-plunder-america?akid=13111.265072.ZtiMvx&rd=1&src=newsletter1036499&t=7

How ‘420’ Became the Big Day for Weed Smokers Across America

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The little known origins of the 4-20 holiday

This story originally ran on huffingtonpost.com and has been reprinted with permission by the author, Ryan Grim. He is the author of This Is Your Country On Drugs: The Secret History of Getting High in America.

Warren Haynes, the Allman Brothers Band guitarist, routinely plays with the surviving members of the Grateful Dead, now touring as “The Dead.” Having just finished a Dead show in Washington, D.C., the musician gets a pop quiz from this reporter: Where does “420” come from?

He pauses and thinks, hands on his side.  “I don’t know the real origin.  I know myths and rumors,” he says.  “I’m really confused about the first time I heard it.  It was like a police code for smoking in progress or something.  What’s the real story?” Depending on who you ask, or their state of inebriation, there are as many varieties of answers as strains of medical bud in California: It’s the number of active chemicals in marijuana; it’s tea time in Holland; it’s those numbers in that Bob Dylan song multiplied.

The origin of the term 420, celebrated around the world by pot smokers every April 20, has long been obscured by the clouded memories of the folks who made it a phenomenon.

An exhaustive search chased the term back to its roots, where it was found in a lost patch of cannabis in a Point Reyes, Calif., forest.  Just as interesting as its origin, it turns out, is how it spread.

It starts with the Dead.  It was Christmas week in Oakland, 1990.  Steven Bloom was wandering through the Lot – that timeless gathering of hippies that springs up in the parking lot before every Grateful Dead concert – when a Deadhead handed him a yellow flier.

“We are going to meet at 4:20 on 4/20 for 420-ing in Marin County at the Bolinas Ridge sunset spot on Mt.  Tamalpais,” reads the message, which Bloom managed to dig up for this story.  Bloom, then a reporter for High Timesmagazine and now the publisher of CelebStoner.com and co-author of Pot Culture, had never heard of “420-ing” before.

The flier came complete with a 420 backstory: “420 started somewhere in San Rafael, California in the late ’70s.  It started as the police code for Marijuana Smoking in Progress.  After local heads heard of the police call, they started using the expression 420 when referring to herb: Let’s Go 420, dude!”

Bloom reported his find in the May 1991 issue of High Times, which the magazine found in its archives and courteously offered up for this piece.  The story, though, was only partially right.  It had nothing to do with a police code, though the San Rafael part was dead on.

Indeed, a group of five San Rafael High School friends known as the Waldos by virtue of their chosen hangout spot, a wall outside the school, coined the term in 1971.  This reporter spoke with Waldo Steve, Waldo Dave and Dave’s older brother, Patrick, and confirmed their full names and identities, which they asked to keep secret for professional reasons.  ( Pot is still, after all, illegal.  )

The Waldos never envisioned that pot smokers the world over would celebrate each April 20 as a result of their foray into the Point Reyes forest.  The day has managed to become something of a national holiday in the face of official condemnation.

The code often creeps into popular culture and mainstream settings.  All of the clocks in Pulp Fiction, for instance, are set to 4:20.  In 2003, when the California legislature codified the medical marijuana law voters had approved, the bill was named SB420.

“We think it was a staffer working for [lead assembly sponsor Mark] Leno, but no one has ever fessed up,” says Steph Sherer, head of Americans for Safe Access, which lobbied on behalf of the bill.  California legislative staffers spoken to for this story say that the 420 designation remains a mystery, but that both Leno and the lead Senate sponsor, John Vasconcellos, are hip enough that they must have known what it meant.

The code pops up in Craigslist postings when fellow smokers search for “420-friendly” roommates.  “It’s just a vaguer way of saying it and it kind of makes it kind of cool,” Bloom says.  “Like, you know you’re in the know, but that does show you how it’s in the mainstream.” The Waldos do have proof, however, that they used the term in the early ’70s in the form of an old 420 flag and numerous letters with 420 references and early ’70s post marks.  They also have a story.

It goes like this: One day, in the fall of 1971 harvest time, the Waldos got word of a Coast Guard service member who could no longer tend his plot of marijuana plants near the Point Reyes Peninsula Coast Guard station.  A treasure map in hand, the Waldos decided to pluck some of this free bud.  The Waldos were all athletes and agreed to meet at the statue of Louis Pasteur outside the school at 4:20 p.m., after practice, to begin the hunt.

“We would remind each other in the hallways we were supposed to meet up at 4:20.  It originally started out 4:20-Louis and we eventually dropped the Louis,” Waldo Steve recalls.  The first forays out were unsuccessful, but the group kept looking for the hidden crop.  “We’d meet at 4:20 and get in my old ’66 Chevy Impala and, of course, we’d smoke instantly and smoke all the way out to Point Reyes, and smoke the entire time we were out there.  We did it week after week,” Steve says.  “We never actually found the patch.”

But they did find a useful code word.  “I could say to one of my friends, I’d go, ‘420,’ and it was telepathic.  He would know if I was saying, ‘Hey, do you wanna go smoke some?’ Or, ‘Do you have any?’ Or, ‘Are you stoned right now?’ It was kind of telepathic just from the way you said it,” Steve says.  “Our teachers didn’t know what we were talking about.  Our parents didn’t know what we were talking about.” It’s one thing to identify the origin of the term.  Indeed, Wikipedia and Urban Dictionary already include references to the Waldos.  The bigger question: How did 420 spread from a circle of California stoners across the globe?

As fortune would have it, the collapse of San Francisco’s hippie utopia in the late ’60s set the stage.  As speed freaks, thugs and con artists took over the Haight, San Francisco’s legendary hippie mecca and home to the Grateful Dead, the band picked up and moved to the Marin County hills just blocks from San Rafael High School.  “Marin Country was kind of ground zero for the counterculture,” Steve says.

The Waldos had more than just a geographic connection to the Dead.  Mark Waldo’s father took care of real estate for the Dead.  And Waldo Dave’s older brother, Patrick, managed a Dead sideband and was good friends with bassist Phil Lesh.  Patrick says that he smoked with Lesh on numerous occasions.  He couldn’t recall if he used the term 420 around him, but guessed that he must have.

The Dead, recalls Waldo Steve, “had this rehearsal hall on Front Street in San Rafael, Calif., and they used to practice there.  So we used to go hang out and listen to them play music and get high while they’re practicing for gigs.  But I think it’s possible my brother Patrick might have spread it through Phil Lesh.  And me too, because I was hanging out with Lesh and his band when they were doing a summer tour my brother was managing.”

The band that Patrick managed was called Too Loose to Truck and featured not only Lesh but rock legend David Crosby and acclaimed guitarist Terry Haggerty.  The Waldos also had open access to Dead parties and rehearsals.  “We’d go with [Mark’s] dad, who was a hip dad from the ’60s,” Steve says.  “There was a place called Winterland, and we’d always be backstage running around or onstage and, of course, we’re using those phrases.  When somebody passes a joint or something, ‘Hey, 420.’ So it started spreading through that community.”

Lesh, walking off the stage after a recent Dead concert, confirmed that Patrick is a friend and said he “wouldn’t be surprised” if the Waldos had coined 420.  He wasn’t sure, he said, when the first time he heard it was.  “I do not remember.  I’m very sorry.  I wish I could help,” he said.  Wavy-Gravy is a hippie icon with his own ice cream flavor and has been hanging out with the Dead for decades.  Spotted outside the concert, he was asked about the origin of 420 and suggested it began “somewhere in the foggy mists of time.  What time is it now? I say to you: eternity now.”

As the Grateful Dead toured the globe through the ’70s and ’80s, playing hundreds of shows a year, the term spread through the Dead underground.  Once High Timesgot hip to it, the magazine helped take it global.  “I started incorporating it into everything we were doing,” High Times editor Steve Hager said.  “I started doing all these big events – the World Hemp Expo Extravaganza and the Cannabis Cup – and we built everything around 420.  The publicity that High Timesgave it is what made it an international thing.  Until then, it was relatively confined to the Grateful Dead subculture.  But we blew it out into an international phenomenon.”

Sometime in the early ’90s, High Times wisely purchased the Web domain 420.com.  Bloom, the reporter who first stumbled on it, gives High Times less credit.  “We posted that flier and then we started to see little references to it.  It wasn’t really much of High Times‘ doing,” he says.  “We weren’t really pushing it that hard, just kind of referencing the phrase.”

The Waldos say that, within a few years, the term had spread throughout San Rafael and was cropping up elsewhere in the state.  By the early ’90s, it had penetrated deep enough that Dave and Steve started hearing people use it in unexpected places – Ohio, Florida, Canada – and spotted it painted on signs and etched into park benches.

In 1997, the Waldos decided to set the record straight and got in touch withHigh Times.  “They said, ‘The fact is, there is no 420 [police] code in California.  You guys ever look it up?'” Blooms recalls.  He had to admit that no, he had never looked it up.  Hager flew out to San Rafael, met the Waldos, examined their evidence, spoke with others in town, and concluded they were telling the truth.  Hager still believes them.  “No one’s ever been able to come up with any use of 420 that predates the 1971 usage, which they had established.  So unless somebody can come up with something that predates them, then I don’t think anybody’s going to get credit for it other than them,” he says.

“We never made a dime on the thing,” says Dave, half boasting, half lamenting.  He does take pride in his role, though.  “I still have a lot of friends who tell their friends that they know one of the guys that started the 420 thing.  So it’s kind of like a cult celebrity thing.  Two years ago I went to the Cannabis Cup in Amsterdam.  High Times magazine flew me out,” says Dave.  Dave is now a credit analyst and works for Steve, who owns a specialty lending institution and lost money to the con artist Bernie Madoff.  He spends more time today, he says, composing angry letters to the SEC than he does getting high.  The other three Waldos have also been successful, Steve says.  One is head of marketing for a Napa Valley winery.  Another is in printing and graphics.  A third works for a roofing and gutter company.  “He’s like, head of their gutter division,” says Steve, who keeps in close touch with them all.  “I’ve got to run a business.  I’ve got to stay sharp,” says Steve, explaining why he rarely smokes pot anymore.  “Seems like everybody I know who smokes daily, or many times in a week, it seems like there’s always something going wrong with their life, professionally, or in their relationships, or financially or something.  It’s a lot of fun, but it seems like if someone does it too much, there’s some karmic cost to it.” “I never endorsed the use of marijuana.  But, hey, it worked for me,” Waldo Dave says.  “I’m sure on my headstone it’ll say: ‘One of the 420 guys.'”

Ryan Grim is a staff writer for Huffington Post. This story originally ran on huffingtonpost.com and has been reprinted with permission by the author. Grim is also the author of This Is Your Country On Drugs: The Secret History of Getting High in America.

http://www.alternet.org/news-amp-politics/how-420-became-big-day-weed-smokers-across-america?akid=13020.265072.E_FP1q&rd=1&src=newsletter1035039&t=7

“BOYHOOD” THE MOVIE

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I watched “Boyhood” last night. Didn’t think I could deal with a film running nearly three hours focused on the reality-based coming of age theme. I was, however, much impressed by the epic technical achievement the film represents, and I was deeply moved by the genuinely human intimacies shared throughout. The ending was a powerful insight into the human condition.

Got me to thinking about the values of the tech-fueled Bay Area where I live.

I really loath, truly hate, the materialistic, money-fueled tech culture that has enveloped San Francisco. And it’s not the technology per se. I’ve been using and building computers since 1985. It’s the disgusting excess and glorification of same.

Interestingly, watching “Boyhood” last night reminded me that there are other, more appealing, lifestyles and choices still available in the country. The main character in the film was not obsessed with tech. He questions the value of the ubiquitous smart phone. He works after school. Middle class. He doesn’t dream of going to Stanford or MIT, etc., to get a degree in CS and code. Hell, he wants to be an artist. He’s interested in the meaning of life. Like people I used to know in school and throughout my life. He represents my American Dream. Not this SF version with conspicuous consumption and phony hipster culture.

 

 

Uber Investor: The Bay Area Bubble Will Pop This Year

…And More Than Tech Will Suffer

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Screengrab of attacking unicorn: The Cabin In The Woods

Less than two weeks after investor Mark Cuban warned us all that the Silicon Valley sky is getting ready to fall, another VC is making similar predictions: that the Bay Area is in a “risk bubble” and, when it pops, tech companies, companies that do business with those tech joints, and area real estate are all going to suffer.This time the doomsayer is investor Bill Gurley, who has money in Uber, DropBox, SnapChat and co-working real-estate play WeWork, among others. Gurley, who’s described with superlatives like “tech’s most prominent investor” by various tech pubs, was speaking at SXSW when he made his predictions, and they aren’t all that rosy. Some quotes:

“I don’t know that we are in a valuation bubble,” Gurley said. “We are taking on, in these startups, especially these so-called unicorns, a level of risk that we haven’t seen since 1999.” [Siliconhills]

There is no fear in Silicon Valley right now,” he said. “A complete absence of fear.” He added that more people are employed by money-losing companies in Silicon Valley than ever before. [Forbes]

Silicon Valley’s optimism could lead to the death of so-called “unicorn” companies — startups that reach a $1 billion valuation before their IPO. Those companies could face a turn in the market in the near future. “I do think you’ll see some dead unicorns this year,” Gurley said. [Business Insider]

By some accounts, there are more than 50 of these billion-plus companies in the Valley at the moment, with more added seemingly every other week. [New York Times]

The number of tech unicorns is thought to have doubled in the past 12 months, with data from Digi-Capital showing that there are now more than ever before. In 2014 there were 68 unicorns in mobile internet companies alone, with a total value of around $261 billion. [Business Insider]

Burn rates, the amount of cash companies are losing every month to operate, are higher than they have ever been, Gurley said. [Siliconhills]

If the free flowing capital, which is driven by low interest rates, ever dries up, it will affect more than just money-losing startups… it will affect a number of companies whose revenue is increasingly reliant on spending by venture-backed startups. Take Facebook, for example. A significant portion of their income now comes from venture-backed apps that are spending heavily to promote app downloads within Facebook, Gurley said. “As you get more of these dependancies, it increases the likelihood that if anything slows we’ll have [problems],” Gurley said. [Forbes]

If there is indeed a collapse, Mr. Gurley says, it will not just be the tech industry that feels the pain. Real estate, for example, could take a hit. Home prices in the San Francisco Bay area have appreciated by 97 percent since January 2000, according to a study published by the Paragon Real Estate group. If the influx of tech industry wealth begins to dry up, Bay-area property owners will have to deal with the potential drop in prices. [New York Times]

This isn’t the first time Gurley’s pulled the bubble alarm: in a January Forbes report entitled “The Age of Unicorns,” he said that “many” of these so-called unicorns were going to flame out this year, warning that “I think you’re going to see a lot of failure in 2015.”

Some of these unicorns (I wish we could find a better term that “unicorn,” any ideas?) will collapse under “their own overvalued weight,” Gurley predicts, and others will die after the failure of one leads to a trickle-down financial pullback. Those of you who were around in 2000 might recall that era’s collapsing companies and the resulting pullback panic, as VCs got scared and stopped handing out money to any fool who asked for it.

So is this a situation of those who don’t recall history being doomed to repeat it? According to Gurley, yeah. Per Siliconhills, Gurley said that, “A number of entrepreneurs today don’t even remember the Dot Com bust of 2000.”

“They were in 9th grade when that happened and the further they get away from that event, the more risk they are willing to take on.”

Previously: The New York Times Warns That Silicon Valley Bubble Might Be Ready To Pop And Ruin Us All
Shark Tank Billionaire Says ‘This Tech Bubble is Worse Than The Tech Bubble of 2000.’ Is He Right?

 

http://sfist.com/2015/03/16/uber_investor_the_bay_area_bubble_w.php

The sharing economy is a lie

Uber, Ayn Rand and the truth about tech and libertarians

Disruptive companies talk a good game about sharing. Uber’s really just an under-regulated company making riches

 

The sharing economy is a lie: Uber, Ayn Rand and the truth about tech and libertarians
Ayn Rand, Rand Paul (Credit: AP/Manuel Balce Ceneta/Photo montage by Salon)

Horror stories about the increasingly unpopular taxi service Uber have been commonplace in recent months, but there is still much to be learned from its handling of the recent hostage drama in downtown Sydney, Australia. We’re told that we reveal our true character in moments of crisis, and apparently that’s as true for companies as it is for individuals.

A number of experts have challenged the idea that the horrific explosion of violence in a Sydney café was “terrorism,” since the attacker was mentally unbalanced and acted alone. But, terror or not, the ordeal was certainly terrifying. Amid the chaos and uncertainty, the city believed itself to be under a coordinated and deadly attack.

Uber had an interesting, if predictable, response to the panic and mayhem: It raised prices. A lot.

In case you missed the story, the facts are these: Someone named Man Haron Monis, who was considered mentally unstable and had been investigated for murdering his ex-wife, seized hostages in a café that was located in Sydney’s Central Business District or “CBD.” In the process he put up an Islamic flag – “igniting,” as Reuters reported, “fears of a jihadist attack in the heart of the country’s biggest city.”

In the midst of the fear, Uber stepped in and tweeted this announcement: “We are all concerned with events in CBD. Fares have increased to encourage more drivers to come online & pick up passengers in the area.”

As Mashable reports, the company announced that it would charge a minimum of $100 Australian to take passengers from the area immediately surrounding the ongoing crisis, and prices increased by as much as four times the standard amount. A firestorm of criticism quickly erupted – “@Uber_Sydney stop being assholes,” one Twitter response began – and Uber soon found itself offering free rides out of the troubled area instead.

What can we learn from this incident? Let’s start by parsing that tweet:

“We are all concerned with events in CBD …”

That opener suggests that Uber, as part of a community under siege, is preparing to respond in a civic manner.

“… Fares have increased to encourage more drivers to come online & pick up passengers in the area.”



But, despite the expression of shared concern, there is no sense of civitas to be found in the statement that follows. There is only a transaction, executed at what the corporation believes to be market value. Lesson #1 about Uber is, therefore, that in its view there is no heroism, only self-interest. This is Ayn Rand’s brutal, irrational and primitive philosophy in its purest form: altruism is evil, and self-interest is the only true heroism.

There was once a time when we might have read of “hero cabdrivers” or “hero bus drivers” placing themselves in harm’s way to rescue their fellow citizens. For its part, Uber might have suggested that it would use its network of drivers and its scheduling software to recruit volunteer drivers for a rescue mission.

Instead, we are told that Uber’s pricing surge was its expression of concern. Uber’s way to address a human crisis is apparently by letting the market govern human behavior, as if there were (in libertarian economist Tyler Cowen’s phrase) “markets in everything” – including the lives of a city’s beleaguered citizens (and its Uber drivers).

Where would this kind of market-driven practice leave poor or middle-income citizens in a time of crisis? If they can’t afford the “surged” price, apparently it would leave them squarely in the line of fire. And come to think of it, why would Uber drivers value their lives so cheaply, unless they’re underpaid?

One of the lessons of Sydney is this: Uber’s philosophy, whether consciously expressed or not, is that life belongs to the highest bidder – and therefore, by implication, the highest bidder’s life has the greatest value. Society, on the other hand, may choose to believe that every life has equal value – or that lifesaving services should be available at affordable prices.

If nothing else, the Sydney experience should prove once and for all that there is no such thing as “the sharing economy.” Uber is a taxi company, albeit an under-regulated one, and nothing more. It’s certainly not a “ride sharing” service, where someone who happens to be going in the same direction is willing to take along an extra passenger and split gas costs. A ride-sharing service wouldn’t find itself “increasing fares to encourage more drivers” to come into Sydney’s terrorized Central Business District.

A “sharing economy,” by definition, is lateral in structure. It is a peer-to-peer economy. But Uber, as its name suggests, is hierarchical in structure. It monitors and controls its drivers, demanding that they purchase services from it while guiding their movements and determining their level of earnings. And its pricing mechanisms impose unpredictable costs on its customers, extracting greater amounts whenever the data suggests customers can be compelled to pay them.

This is a top-down economy, not a “shared” one.

A number of Uber’s fans and supporters defended the company on the grounds that its “surge prices,” including those seen during the Sydney crisis, are determined by an algorithm. But an algorithm can be an ideological statement, and is always a cultural artifact. As human creations, algorithms reflect their creators.

Uber’s tweet during the Sydney crisis made it sound as if human intervention, rather than algorithmic processes, caused prices to soar that day. But it doesn’t really matter if that surge was manually or algorithmically driven. Either way the prices were Uber’s doing – and its moral choice.

Uber has been strenuously defending its surge pricing in the wake of accusations (apparently justified) that the company enjoyed windfall profits during Hurricane Sandy. It has now promised the state of New York that it will cap its surge prices (at three times the highest rate on two non-emergency days). But if Uber has its way, it will soon enjoy a monopolistic stranglehold on car service rates in most major markets. And it has demonstrated its willingness to ignore rules and regulations. That means predictable and affordable taxi fares could become a thing of the past.

In practice, surge pricing could become a new, privatized form of taxation on middle-class taxi customers.

Even without surge pricing, Uber and its supporters are hiding its full costs. When middle-class workers are underpaid or deprived of benefits and full working rights, as Uber’s reportedly are, the entire middle-class economy suffers. Overall wages and benefits are suppressed for the majority, while the wealthy few are made even richer. The invisible costs of ventures like Uber are extracted over time, far surpassing whatever short-term savings they may occasionally offer.

Like Walmart, Uber underpays its employees – many of its drivers are employees, in everything but name – and then drains the social safety net to make up the difference. While Uber preaches libertarianism, it practices a form of corporate welfare. It’s reportedly celebrating Obamacare, for example, since the Affordable Care Act allows it to avoid providing health insurance to its workforce. But the ACA’s subsidies, together with Uber’s often woefully insufficient wages, mean that the rest of us are paying its tab instead. And the lack of income security among Uber’s drivers creates another social cost for Americans – in lost tax revenue, and possibly in increased use of social services.

The company’s war on regulation will also carry a social price. Uber and its supporters don’t seem to understand that regulations exist for a reason. It’s true that nobody likes excessive bureaucracy, but not all regulations are excessive or onerous. And when they are, it’s a flaw in execution rather than principle.

Regulations were created because they serve a social purpose, ensuring the free and fair exchange of services and resources among all segments of society. Some services, such as transportation, are of such importance that the public has a vested interest in ensuring they will be readily available at reasonably affordable prices. That’s not unreasonable for taxi services, especially given the fact that they profit from publicly maintained roads and bridges.

Uber has presented itself as a modernized, efficient alternative to government oversight. But it’s an evasion of regulation, not its replacement. As Alexis Madrigal reports, Uber has deliberately ignored city regulators and used customer demand to force its model of inadequate self-governance (my conclusion, not his) onto one city after another.

Uber presented itself as a refreshing alternative to the over-bureaucratized world of urban transportation. But that’s a false choice. We can streamline sclerotic city regulators, upgrade taxi fleets and even provide users with fancy apps that make it easier to call a cab. The company’s binary presentation – us, or City Hall – frames the debate in artificial terms.

Uber claims that its driver rating system is a more efficient way to monitor drivers, but that’s an entirely unproven assumption. While taxi drivers have been known to misbehave, the worldwide litany of complaints against Uber drivers – for everything from dirty cars and spider bites to assault with a hammer, fondling and rape – suggest that Uber’s system may not work as well as old-fashioned regulation. It’s certainly not noticeably superior.

In fact, prosecutors in San Francisco and Los Angeles say Uber has been lying to its customers about the level and quality of its background checks. The company now promises it will do a better job at screening drivers. But it won’t tell us what measures its taking to improve its safety record, and it’s fighting the kind of driver scrutiny that taxicab companies have been required to enforce for many decades.

Many reports suggest that beleaguered drivers don’t feel much better about the company than victimized passengers do. They tell horror stories about the company’s hiring and management practices. Uber unilaterally slashes drivers’ rates, while claiming they don’t need to unionize. (The Teamsters disagree.)

The company also pushes sketchy, substandard loans onto its drivers – but hey, what could go wrong?

Uber has many libertarian defenders. And yet, it deceives the press and threatens to spy on journalists, lies to its own employees, keeps its practices a secret and routinely invades the privacy of civilians – sometimes merely for entertainment. (It has a tool, with the Orwellian name the “God View,” that it can use for monitoring customers’ personal movements.)

Aren’t those the kinds of things libertarians say they hate about government?

This isn’t a “gotcha” exercise. It matters. Uber is the poster child for the pro-privatization, anti-regulatory ideology that ascribes magical powers to technology and the private sector. It is deeply a political entity, from its Nietzschean name to its recent hiring of White House veteran David Plouffe. Uber is built around a relatively simple app (which relies on government-created technology), but it’s not really a tech company. Above all else Uber is an ideological campaign, a neoliberal project whose real products are deregulation and the dismantling of the social contract.

Or maybe, as that tweeter in Sydney suggested, they’re just assholes.

Either way, it’s important that Uber’s worldview and business practices not be allowed to “disrupt” our economy or our social fabric. People who work hard deserve to make a decent living. Society at large deserves access to safe and affordable transportation. And government, as the collective expression of a democratic society, has a role to play in protecting its citizens.

And then there’s the matter of our collective psyche. In her book “A Paradise Built in Hell: The Extraordinary Communities that Arise in Disaster,” Rebecca Solnit wrote of the purpose, meaning and deep satisfaction people find when they pull together to help one another in the face of adversity.  But in the world Uber seeks to create, those surges of the spirit would be replaced by surge pricing.

You don’t need a “God view” to see what happens next. When heroism is reduced to a transaction, the soul of a society is sold cheap.

 

http://www.salon.com/2015/02/01/the_sharing_economy_is_a_lie_uber_ayn_rand_and_the_truth_about_tech_and_libertarians/?source=newsletter