A Proposal for Restoring Economic Vitality to Our Crumbling Cities

A Proposal for Restoring Economic Vitality to Our Crumbling Cities - Private Enterprise Zones
I. Introduction
We all know about Detroit. We know about strapped cities all across the land, scrambling to make ends meet. But let us take a close look at San Bernardino, and tease out what really lies beneath the mainstream press reporting. There is a solution, after all, but one must first be honest about the underlying problem, no? Dishonesty as to the underlying problem only means that the problem will not be identified let alone solved. So, let us ask the hard questions, and reason to a realistic solution.
The City of San Bernardino: this is the rosiest spin possible, straight from Wiki: "San Bernardino is a city located in the Riverside-San Bernardino metropolitan area (sometimes called the Inland Empire), and serves as the county seat of San Bernardino County, California, United States. As one of the Inland Empire's anchor cities, located 65 miles east of Los Angeles, San Bernardino spans 81 square miles (210 km2) on the floor of the San Bernardino Valley, and has a population of 209,924 as of the 2010 census.[3] San Bernardino is the 17th largest city in California, and the 99th largest city in the United States.
The California State University, San Bernardino is located in the northeastern part of the city. The university also hosts the Coussoulis Arena. Other attractions in San Bernardino include the Fox Performing Arts Center[citation needed], the McDonald's Museum, which is located on the original site of the world's first McDonald's (at 34.1255°N 117.2946°W ), the California Theatre, the San Bernardino Mountains and The San Manuel Amphitheater, the largest outdoor amphitheater in the United States. In addition, the city is home to the Inland Empire 66ers of San Bernardino baseball team, they play their home games at San Manuel Stadium in downtown San Bernardino.[4]
In July 2012, San Bernardino became the second-largest city ever to file for protection under Chapter 9 of the U.S. Bankruptcy code, exceeded only by Stockton, California, which filed earlier that same month.[5] San Bernardino is the poorest city of its population size in California, and the second poorest in the US next to Detroit."
The reality, is of course, different, and remarkably so.
II. Dearth of Economic Activity
The poorest city of its size in California; second poorest in the entire United States, next to Detroit. Wow, notoriety in a big way. Almost as poor as Detroit. That is a major understatement. Both filed for Chapter 9 federal bankruptcy protection; yet, both Detroit and San Bernardino are as different as night and day from an economic perspective, and still different from a demographic perspective as well. Not even their states are remotely similar in climate, population, or any of the traditional demographic comparison points. But, still, both are bankrupt. Why these two cities, at this point, now, and not others? Or, are these two cities just harbingers of things to come?
Let's try to unravel the puzzle.
What, if any, are the significant commonalities, between the cities of San Bernardino and Detroit, and what are the major differences? Let me say the obvious, and try to draw cultural and economic conclusions.
Demographics of San Bernardino show non-hispanic whites declined from 65% to 19% in 40 years. Correlation does not equal causation. But, the demographic changes show a dramatic shift in racial composition. Does this affect economic activity or not? I say it does, and obviously so. To say otherwise is to say that fiat dollars hold their value as compared to physical gold. Maybe some zealot will quibble with this, like Motley, but the facts are the facts, and there is no rational, logical way out of this inescapable conclusion. But why does the shift in racial composition affect the economic activity?
Are non-hispanic whites more likely to start businesses or increase economic activity than other races? Perhaps, perhaps not. If no, then the solution matters not as to racial demographics. If yes, though, the solution is to alter the racial demographics. This seems pretty straightforward as a proposition.
But, how, and even better still, why? Is this not pure racism gone awry? Is this not Brown v. Board of Education in reverse? How can our society so easily be classified and divided based on race? For me, I reject totally all race-based distinctions. The cop-out answer is to blame racism as a reason for economic malaise, air sound bites from race hustlers like Jesse Jackson and Al Sharpton, conjure up a grandiose government-based solution which involves forced taxpayer re-distribution lorded over by elected and appointed bureaucrats, which inevitably fails miserably and which everyone KNOWS will fail miserably, but yet the same trite and tired government-based, taxpayer-funded "solutions" are tried time and time again. Why? Why not something different?
Power, that is why. Getting elected to a government position in a poor community is a golden ticket to unimaginable wealth, through corruption, kickbacks, bribes, graft, glad-handing, extortion, what have you. The news stories about this are so regular, that when a new corruption scandal breaks, no one bats an eye. Why is that?
Not many citizens will fight "the man" of "City Hall," so it is easy to garner enough critical mass of voters to influence the outcomes. Look at the corruption that has so thoroughly infiltrated San Bernardino politics. Lawsuits are still pending, states' evidence has been unearthed, immunity waivers have been granted, but still, the corruption exists.
Have racial demographics been constant for 40 years? No.
Have other demographics been constant for 40 years? No.
Have business conditions been constant for 40 years? No.
Then what HAS been constant for 40 years?
What is a solid indicator, then, showing why economic activity has declined steadily over the past 40 years?
Simple: government intrusion (lack of freedom to pursue and engage in productive economic opportunities) coupled with rampant corruption, which has lead rational decision-makers like the normal middle class family to leave the area in search of a better existence. Left behind are those who either cannot leave for economic reasons, who chose to stay for the free govt transfer payments, or others who perhaps just do not think much about it. What is obvious, beyond argument, and that the government intrusion coupled with the corruption leads to decline. There is no other argument that is possible. And what do we know about government intrusion.
Government intrusion is far-reaching and never, ever pulls back save for revolution. Government red-tape and mind-numbing regulations and ordinances have killed business creation. Private business and private jobs create tax revenues. Government jobs and government regulations kill private business and decrease government revenues. Why is that so impossible to articulate or understand by those in power? Umm, simple. Admitting it means that those in charge are hopelessly corrupt. So here we are.
Corruption has poisoned the system from top to bottom, for a generation or more. Corruption has killed a once thriving, vital city like San Bernardino. I have seen this with my own eyes. No Ivory-tower, Washington elitist is going to be able to spin this otherwise. Does Bernanke live in San Bernardino? No, so why does he believe his ivory-tower prognostications are the solution? He cannot possibly be thinking in terms of his policies' effects upon regular folks like those who lived and still live in San Bernardino.
We know for sure that all politicians eventually end up beholden to the corruption of the system. Other politicians will come along, they always will, making the same, tired promises only to betray them, every time. For this, who is to blame? Ask who benefits from the corruption and the answer is obvious.
Who benefits from corruption, the people in charge of the local government offices, or the honest folks, like employers, businesses and tax payers?
Corruption enriches the few, at the expense of the many. The system will not change until the incentives are changed, by some means outside of the current insider-system.
Change the incentives and corruption will disappear like a bad dream at sunrise. Of this I am convinced.
For the citizens of San Bernardino, rooting out and eliminating corruption is now imminently possible, thanks to the courageous vote and the chapter 9 bankruptcy filing allowing the citizens and taxpayers to seek bankruptcy protection from decades of financial mismanagement and corruption. There will be suffering, of innocents, unfortunately, but so it goes and there is no other way to avoid it.
Before any praise is heaped upon those currently in office who voted to file bankruptcy, remember that had the city simply defaulted, those in charge would be blamed and may have been charged with crimes. Recognizing the imminent financial collapse, those in office did what politicians normally do: they voted to save their own skins at the expense of others, trying to deflect blame and kick the can into the future for someone else to deal with. In this case, thankfully, no more can-kicking could avoid the financial collapse, and they had no choice but to vote for bankruptcy. By all accounts, a payroll would have been missed, and then there would have been real accountability, and likely actual, physical violence. They avoided that for now, and the only game left is when will the game come to an end, and who will be blamed for the collapse. Stay tuned as bankruptcy litigation develops on that issue.
So, the solution, today, right now, as I see it, starts with the question of how to reduce government intrusion, and its effect, corruption. If this can marginally decrease, perhaps critical mass can be reached, and exponential change can occur.
So, the question simplifies itself: What can be done to fix or change the system right now which rewards corruption and penalizes honest effort? Change the incentives, that's what. I have an idea.
III. The Solution
The basic framework for a workable, immediate and long term solution to economic malaise is to penalize corruption, and reward honest effort. It seems obvious, but how to implement such a system?
First, political power must be dispersed. Second, competition, honest competition (as opposed to crony-capitalism and too-big-to-fail kleptocracy) must be encouraged with proper incentives. Third, the financial reward structure must be reformed to eliminate the present property-tax/sales-tax systems, in favor of a pure merit/profit-based economically efficient system. Fourth, proper political reforms must occur, or else the system will once again degenerate back into cronyism and kleptocracy. I address each of these in order.
A. First, political power must be dispersed.
What do I mean? Easy. Open up the local governance document to a citizen referendum, vote, convention, or something of the nature where all those folks living in the City get a chance to speak out on the issues. Here in San Bernardino, it is a City Charter, so the solution is to have a city charter convention. Let all the people have input on amending the governing documents. My proposal will create dozens of neighborhood political units, each with a single representative. The representative must actually LIVE in the neighborhood to be eligible to represent it or speak on its behalf. The entire assembly of neighborhood representatives will then, once every four years, vote on board of governors, containing at least eight but not more than 15 governors, who themselves will face the voters in a retention election every year. Each voter gets to vote for no more than the actual number of sitting governors. Anyone can run to be elected to the board of governors, too. The winners are the ones with the most votes, simple as that. There are no term limits.
Once elected, the members of the board of governors themselves vote for an executive board, which has a succession plan: President, President-Elect, Vice President, Treasurer, Secretary. An executive board member is first elected to the position of secretary, and the succession plan is then Treasurer, VP, Pres-Elect then Pres., whereby one starts on the executive board as the secretary, then each year, provided they are re-elected by the board, each executive board member rotates upwards into a new position. The outgoing president is then not eligible for reelection to the executive board, but can stay on the board of governors or resign. Past presidents are entitled to vote on the executive committee.
Transparency is also critical. The executive board alone hires various city government heads, at their own sole discretion. For example, if they want a police chief, funded by tax payer dollars, then the executive board can hire one. Same for fire, sewer, etc. If they want simply an executive director in charge of all administration, then the executive board can hire someone and some staff.
The executive board alone approves all contracts, for all city-funded expenditures. All proposals and contracts are published on the internet. Any individual or company receiving tax payer funds must be listed on the internet, including name, telephone number, address, email address, and service or product provided, and contract to which the tax payer funds have been authorized, as well as the contract duration and terms. Names, dates, places, all information not of a trade secret are required to be published on the internet. There is no municipal borrowing on a secured basis allowed. Any borrowing at all, for any reason at all, if pursued, is purely unsecured, non-recourse, privately funded and competitively bid. No more encumbering future taxpayers with bond payments for current expenditures. The fact of "no borrowing on a secured basis" means that the city must live within its means. This fixes the chronic problem of overspending. The city now has the choice to increase revenues or decrease spending to fund projects or services expenditures. Wow, what a radical concept? Living within one's means, simple as that.
The executive board alone is responsible for management, retention and disposition of all city-owned assets. If the executive board wants to sell an asset, they alone can do so. Same for buying or leasing.
All funding for current services is from current revenues. If revenues decline, then services must be cut, or revenues will have to be increased. Long term capital projects must require a revenue stream, funded with current revenues. All contracts for routine services are short, one year duration maximum. All contracts are competitively bid. There are no public employee unions. Those public employee unions that still exist are allowed to bid just like any other group. There are no publicly-funded retirement pensions.
This solution provides a steady governing body, with enough transparency to be workable. Runaway spending is curtailed, as there in no incentive to do it. Politicians are not able to trade votes for money, because there are too many others in the voting scheme. If there is corruption, all of the board members face expulsion in the next election. There are checks and balances. It is not perfect, but what is? It eliminates the graft, corruption and vote-buying. That solves most of the problems right there.
The solution is so simple, yet radical: open up ALL government-provided services to private bidding, with elimination of all wage, hour, union or any other restrictions upon bidding. Is it not obvious?
B. Second, competition, honest competition, as opposed to crony-capitalism and too-big-to-fail kleptocracy must be encouraged with proper incentives.
This solution naturally follows from elimination of cronyism and secretive, back-room deal making with public funds. Public employee unions must be forced to compete. If the public employee unions cannot win a competitively bid contract, then so be it. That goes for the police, fire, district attorneys, public defenders, all of them. How can it be that government jobs are so miserable and undesirable that no one wants one, yet there are no job postings at all? If public employee pensions are eliminated altogether, and the existing ones are dumped into 401k style, with no employer match, with no lifetime health care, with benefits payable as defined contribution as opposed to defined benefit, with early, lump sum payouts for anyone who wants one now, the costs would plummet, solving the problem overnight. Why has this not been tried? Easy, public unions are too powerful, and only a bankruptcy judge can match and defeat the unions' massive, perpetual power. So, bankruptcy is the first step in the right direction.
If the existing public employee union manages to win a contract, then the union dues must not be forcibly withdrawn from the paycheck. The employee must instead voluntarily pay the union separately. This would gradually diminish the strength of the unions, and would lead to reforms all over the place, since they would no longer have the ability to buy politicians who pay back their union-based benefactors with sweetheart deals that only drain the public coffers.
The incentive structure works perfectly. Since there is open, and I mean internet-based, open to the world transparency, contracts that get awarded will be fair for the world to see. If some competitor thinks they can do it better, or cheaper, then they can submit a bid and compete fairly, for a maximum of one year. If someone fails, or drops out, or fails during the term, then the next bidder steps right on up, and so on. For example, if the local county sheriff thinks his organization can do a better job of policing the city, then let the sheriff post a competitive bid. Let a competing jurisdiction bid for it. Let a private company, comprised of POST-certified employees bid. Open it up to competition. Won't competitive pressures upon the actual police officers lead to a more civilized patrol force? Who says this system will not work? Has it been tried anywhere else? If not, why not? If it was, why did it not succeed? Maybe the solution is to have a small, permanent staff of paid, salaried officers, supplemented by contract employees on an as needed basis? Why cannot a private company bid to staff-up during periods of overtime needs, instead of the public employees getting two and three times their annual salary worth of overtime (and additionally getting huge, lottery-style size lodestar amounts added to their pensions)?
Why cannot the fire department use volunteers, like the old days? Why are firemen making $100's of thousands of dollars every year when they fight not a single fire or respond to not a single call? Which private company would not bid HALF this amount to staff up DOUBLE the number of firefighters? Is it so radically difficult to be a fireman? Then why are there not TONS of job openings if the job is so damn difficult and miserable? Why are there plenty of job openings for soldiers, who risk their lives in a combat zone, living in tents and subsisting out in the elements, but none for fireman who live and sleep in air conditioned fortresses, and yet firemen get paid orders of magnitude more than soldiers and retire with lavish, King-like pensions and lifetime medical care?
Privatization and competitive bidding for year-long contracts are the solutions on this point.
C. Third, the financial reward structure must be reformed to eliminate the present property-tax/sales-tax systems, in favor of a pure merit/profit-based economic efficiency system.
Quite a mouthful here, I know, but this IS a radical idea.
Why can't the city create a special economic zone. I call it a Private Economic Zone ("PEZ"). I liken them to the fiefdoms of old. One square mile, at least in size, 640 acres, preferably larger. San Bernardino is 81 square miles. I have personally seen at least ten square miles of junk yards littering the landscape, so this is an easy start. I showed the current state of the City, with photo after photo of vacant lots and buildings, all within ONE mile of the City center. As the distance from the City increases, the vacant land increases as well. There are miles and miles of vacant land available, all over the place.
So, here is how it works. The City converts an existing parcel of land to a PEZ, by eminent domain. This has been done, and is Constitutionally permissible. There are countless parcesl, for example, the City could consider using one of the old junk yards, or dilapidated industrial buildings, or an abandoned, tax-lien encumbered lot, or an old unused, forgotten parking lot, one of those things will do nicely. Nothing too fancy to start, or too close to the City center. Eminent domain could be used inside this area, later, after the concept is proven effective.
There could even be a PEZ zone for agricultural use, one for industrial, etc., depending upon the wishes of the executive board. More PEZ's could be created for other needs as the executive board deems necessary. Remember, the citizens vote for individuals to sit upon the board of governors. The board of governors elects the executive board, which then determines which type PEZ's and how many to create. The public gets input on the PEZ's by way of voting.
Here is the rationale and my explanation for why I believe this concept is a winner. Cities have grown too dependent on taxing productive economic activity, (sales tax, business tax, hotel tax, etc.) to the point that no sane businessperson will open up in the city, and also to the extent that as economic conditions deteriorate, existing businesses leave. Look at Detroit, need I say more?
That run away taxation of the productive only ratchets up the tax pressures on existing businesses, who leave, and the cycle worsens. Does anyone rationally believe otherwise? If so, stop reading right now, and go gorge on some more Krugman-inspired Keynesian tripe and leave the rest of us realists alone.
If anyone doubts this premise, then please explain why both Detroit and San Bernardino filed bankruptcy? Was it because as taxes increased that revenues increased, or was it that as businesses fled, tax revenues decreased, prompting city officials to increase taxes, forcing more business to flee, etc.? Or was it because the tired, worn out model of taxing the productive to pay for expensive public services, expenditures not challenged by private, competitive bidding, including public employees who enjoy excessive compensation, benefits and job protections, finally pushed expenses beyond revenues–including borrowing revenues long into the future, thanks Wall Street!–and thereby bankrupting the city? Go look at the bankruptcy filings before sounding off with something stupid.
It is obvious that the former tax model is broken and needs to be revisited.
What is the harm of trying something new, in a small way, and see if it works? Why cannot the conventional "wisdom" be put to the test? What is there to lose?
Here is the nuts and bolts of the PEZ method, and how it works. The PEZ is set up by the city executive board. The PEZ is essentially an economic sovereign satellite of the city. The city exempts the PEZ from ALL local ordinances, every single one. There are no zoning restrictions. Any and all land use restrictions, limitations of any kind, are waived. The city's governing documents are amended to reflect these protections. The city is tasked to and must obtain county and state and federal waivers in similar fashion, before any other steps can be taken with respect to the PEZ. The city guarantees to defend and indemnify the PEZ against state or federal intrusion of any kind, either by lawsuit or otherwise. Any federal challenges to the PEZ's are rejected out of hand by the Tenth Amendment, state sovereignty arguments. The city actively protects the perimeter of the PEZ's from intrusion by the feds, or any others. The PEZ's are, basically sovereign zones, free from disruption by anyone.
Before some one complains and says this is not doable, think again. Go to any big city in the USA, and there you will find countless ethnic PEZ's all over the place. Inside these regions, yes, they are filled with crime, are dangerous, and strangers do not venture inside, the economic activity thrives, because the marketplace works based on exchange of value. The demand for products and services is real, and so is the exchange for value. There are no outside influences, and commerce occurs there every single minute of every day. Only, the city/state governing apparatus gets NOTHING in the way of taxes for it. My solution addresses this concept, and creates the incentives for the city/state to earn revenues from these areas, only in such a way as to be lawful and enduring.
Once the PEZ concept is in place, and protections from federal intrusion are in place, then the real miracle can occur. There may be only one PEZ, or multiples, depending upon how much real property there is available for use for a PEZ. There are no mineral rights allowed on a PEZ. The real property belongs to the city in fee simple. To the extent there are any real property taxes, they are waived or are paid by the city.
Here's where it gets fun.
The right to operate a PEZ is given to an individual, called a Director, by way of license, valid for ten years, non-revocable except for nonpayment of license fees. To obtain a a PEZ license, one must be the high bidder. The PEZ license is put up for auction, competitively bid, in person, solely by individuals. Entities are not allowed to bid. The winner is named the Director of the PEZ.
The winner of the PEZ license is listed in public, on the internet, including name, address, telephone number. The entire list and ranking of PEZ bids is posted on the internet. Any winner of an auction for a PEZ must immediately renounce and waive any public pension, benefit or position. Anyone holding a public office, whether elected or appointed or a board position is ineligible from bidding for a PEZ license for 20 years after leaving public office or a board position. Anyone receiving a public pension must renounce and forever waive any further benefits, for life, or be ineligible to hold a PEZ license. The winner is forbidden from thereafter holding any public office within the City, from serving on the board of governors, from bidding upon any city-awarded contract or holding an interest, at all, in any entity filing or winning a bid for any city-awarded contract, forever.
The winner of a PEZ auction is not allowed to hold more than one PEZ license at a time. The winner can bid again at the end of 10 years. A PEZ license cannot be encumbered, sold, loaned or hypothecated. If the holder of the PEZ license becomes incapacitated for any reason, death included, the PEZ license is revoked automatically and is awarded to the next bidder in line.
The holder of a PEZ license [the Director] is solely obligated to pay the yearly license fee. The payment can occur in any lawful currency, or physical gold or silver priced in terms of lawful currency, the currency of which is to be determined solely by city. (Any risk of deflating currency can be hedged by payment of the fee in ounces of physical gold or silver, thus allowing the holder of a PEZ license to manage risk of currency deflation, or collapse, or hyperinflation).
The yearly license fee amount is set at a sliding scale, with a minimum amount per year set by the city, such amount to be determined and announced before the commencement of the PEZ auction. If the PEZ reaches revenue targets, the license fee could be increased, thereby allowing the city to participate in the success, and giving the city a guaranteed revenue stream of at least the minimum license fee. Bidders at the auction bid to pay the minimum yearly license fee, which minimum license fee remains fixed at the minimum for the duration of the license, subject to a higher fee but only if revenues inside the PEZ reach the targets. The yearly license fee amount is due and payable one month after the completion of the calendar year.
Instead of taxes, which is just a disincentive, and operates to punish productive activity, the city earns revenue from the license fee. But, to encourage productivity, even though the PEZ license holder is obligated to pay the city a percentage of revenues generated within the PEZ zone, at a rate set by the city before commencement of the PEZ auction, the revenues are offset against the minimum license fee amount bid at auction. (Example: the minimum yearly license fee is bid and awarded to the high bidder at $10,000 per year. The PEZ rate is set by the City before the auction at 2%. If economic activity within the PEZ was $20,000, the license fee for that year would be $10,000. If the following year, the economic activity increased dramatically, and was $2,000,000, then the license fee for that year would be $40,000, calculated as two percent of the revenues, or $40,000. Since the revenues exceeded the minimum license fee, the city wins, while the Director wins as well because revenues greatly exceeded the minimum license fee). The City could further agree, before the commencement of the auction, to incentivize the Director and to create economic activity, by placing either a cap on the license fee, or a performance-bonus diminishing rate structure.
Economic activity within the PEZ is regulated solely by the Director, and no one else. All economic activity occurring within the PEZ is public record, and all merchants and individuals must post their balance sheets, income statement, and payment history of all fees to the Director on line. All records are open and available to public inspection at any time.
Any workers hired to work within the PEZ must pay hourly income taxes to the city at the rate of 2%. All paychecks are posted on line and are public record. The city thus generates revenue by the license fee, as well as daily from the revenues of the workers' paychecks.
Workers are all deemed employees, subject to mandatory w-2 wage withholding, payable hourly to the IRS. All workers are at-will, hourly employees, with no minimum wage rules, or hourly limits or restrictions, meal and rest breaks, or overtime or wage and hour laws. There is no workers' compensation system, or laws which apply in the PEZ, except at the sole discretion of the Director. There are no labor unions. There is no collective bargaining. There are no sexual harassment laws, discrimination laws, disability or accommodation laws, except at the sole discretion of the Director.
Think of the incentives! The workers enjoy the ability to work, at a straight 2% rate, with the same federal tax rates as everywhere else, except for the 2% city wage tax. There are no overtime laws, or work restrictions, so employees and employers can arrange flexible schedules that work for everyone. If the prospective workers do not like the tax rate, they can try to find work outside the PEZ. Fine. Everyone knows what everyone else makes, so wage competition will be fair. Performers will be rewarded with good pay, and will be sought after, creating upward mobility and pay raises. Promotions will leave vacancies, which will need to be filled, and those competing for the open positions will know the prior position pay rate so competition can fill the jobs, not cronyism and connections.
The federal government will still get their pound of flesh (render unto Caesar, after all), but there are no other taxes, such as state, county, sales, etc. The Director can spur economic activity within the PEZ by luring businesses to the PEZ by offering a hassle-free environment, boasting of a lower tax rate environment, free of burdensome rules and red tape. There are no building permits or fees. Any structures must only be approved by the Director.
There are no government bureaucracies intermeddling, slowing things down. There are no power-hungry government workers looking to enforce silly, job-killing rules or regulations. If workers do not like it there, they can leave. However, all payroll information is public record. If an employer is not paying a fair wage, everyone will know it. If employers do not like it there they can leave. If business owners do not like it there they can leave. One can invest capital, create an asset, and rent it to a productive business. The Director can establish rents, leases, etc., at the Director's sole discretion.
This creates the incentive for the Director to provide a proper environment for the capital investments, businesses and the workers. The Director still has to pay a license fee to the City, and the Director needs economic activity to occur within the PEZ in order to fund the license fee, so the Director has every incentive to address and meet all the needs of the workers and the businesses within the PEZ.
Since there is no local government red tape, or delays, or committees, or DMV-like indifference, and since there is but one person ultimately responsible to pay the license fee, the Director can cut through the red-tape and solve problems without delay, decisively, and run the PEZ however he or she sees fit.
Within the PEZ, no one can tell the Director what to do, or how to do it, or issue any regulations or taxes of any kind. Only the Director can set such rules within the PEZ. No liens can attach to any economic activity within the PEZ. No rule enforcement of any nature at all can occur within the PEZ, save for legal dispute procedures as enforced by the Commission. (More on this below).
There is no private banking within the PEZ. There is no fiat creation, or loans. The Director alone is empowered to set the legal tender, whether it be currency, gold or silver coins within the PEZ. Anyone wishing to conduct business within the PEZ, whether businesses or employees within the PEZ, or customers who come into patronize the businesses within the PEZ, can use the currency or gold and silver at the Director's sole discretion.
Currency for payment of employee wages is determined at the Director's sole discretion. To the extent wages are paid in physical gold or silver, the City agrees to indemnify and defend the Director for all IRS actions of any nature whatsoever and to make good upon for any IRS claim of withholding should then existing legal currency be devalued, collapse or hyperinflate.
The Director alone is responsible to measure economic activity in a manner determined by the city prior to commencement of the auction. For example, if the PEZ is deemed a physical product manufacturing zone by the city, then the economic value could be measured in gross sales priced in then existing legal currency. If the PEZ were an agricultural zone, then the economic activity could be measured in standard agricultural output terms, for example. Only productive output is deemed economic activity. Any economic activity that is in turn invested within the PEZ as a capital improvement is not subject to the licensing fee. There is no fee to be levied upon capital investment, building of structures, construction of works of improvement, etc. All works of improvement belong to the City at the completion of the PEZ. The bidder would know this in advance of the commencement of the auction.
Again, think of the incentives. If the Director is sitting on a huge cash position from the economic activity within the PEZ, some of the cash can be put to use for capital improvement, thus minimizing the licensing fee owed to the City. The decision to engage in a capital improvement rests solely with the Director, and not with elected, public officials who are corrupt and will steer projects to cronies or otherwise enrich themselves at the public's expense. The Director can either pay the license fee, or invest in a capital improvement. Either way, the City gets the licensing fee, or the capital improvement. The economic benefit devolves to the City, and does not leave the PEZ or the City. Think of an NFL stadium, for example. Think of the benefit to be had by a huge stadium, and all that revenue that would be created inside the PEZ, upon which a revenue fee to the City would be paid. Understand the power of this concept now?
The failure to pay the PEZ license fee in a timely fashion results in revocation of the license without further notice or hearing. To the extent the PEZ license fee is unpaid, for any reason at all, the next incoming PEZ license holder is obligated to pay forthwith the prior year license fee or relinquish the PEZ license to the next highest bidder.
The PEZ license holder is not allowed to encumber the PEZ in any way shape or form to pay the license fee.
So, why would one want to win a PEZ auction? Simple. Economic freedom. What if Apple's CEO put up an Apple factory within one of the PEZ's? What if GM or Ford, or Chrysler put up a factory within the PEZ? Or Google? Or a sports stadium?
What if a restaurant operator put up a restaurant within the PEZ? A movie theater?
What if the Director was libertarian? What if the Director allowed businesses to come pouring in, which could generate fantastic revenue, immediately, such as a brothel? Or a medicinal marijuana shop? Or an internet-based college with minimal admission requirements? Or a drug and alcohol in-patient rehab facility? Or a nursing home?
What if the Director allowed for controversial things, like a gay wedding chapel? Or a Mosque? Or an Anti-American, hatred spewing, overthrow the government free speech think tank?
Who cares? Is this not about economic activity, pursued with the desire for freedom, as the Declaration of Independence and the US Constitution supposedly guarantee? Why not let the market place sort it out, by creating a profit incentive free from corrupt politicians?
Would not the City and thereby, the citizens, gain from many PEZ's? From the revenues of the PEZ's, the City could then fund services to help the citizens, right? If any citizen of the City did not like the activity that was occurring within the PEZ, the citizen would be free from going there, so what is the harm? The citizen could move away to another city and not be bothered at all, too.
The citizens stand to gain the benefits from the economic activity occurring within the PEZ. Is it not time we give some freedoms to the productive instead of incessantly focusing upon the downtrodden and unproductive who only stand to benefit and not lose at all from increased economic activity anyway?
The PEZ license holder basically gets to operate the PEZ as a sovereign economic zone, with the upside economic benefits shared by the PEZ license holder and the City. Whatever happens in the PEZ is free from all taxation of any form. That, I am certain, is the only method to stimulate both job creation and increased productive economic activity.
The Director would also have to obtain a suitable police presence, and could either pay for outside forces, or do it in house, or bid it out. What's wrong with that? Same for fire protection, utilities, etc. All costs for the PEZ would be paid for by the Director. Hence the Director would have every incentive to keep costs low, rather than the bloated system we now have. If the Director was too cheap, and did not provide suitable services, business would either flee, or not come in the first place. If there were crimes committed, the Director would have to make good for the losses, or suffer revenue loss when the business owner left the PEZ, or from decrease in economic activity occasioned by the public's perception of the increase in crime.
The PEZ's are one solution, radical I know, but still, something worth looking at.
D. Fourth, proper political reforms must occur, or else the system will once again degenerate back into cronyism and kleptocracy.
This one is easy. To succeed, the PEZ concept must remove the revolving door between private enterprise and government. Those drawn to private enterprise should stay where they thrive. Those who wish to serve, should have no Eve-like enticements to stray from their choice to work in the public sector.
For those who chose government service, fine. But there will be no get-rich-quick method to turn those years of government service into lucrative slush funds or a cushy private position after leaving government service.
Similarly, those who wish to run a PEZ have to renounce all government benefits. There is no way to double dip. Public pension retirees should retire, period. If they can work, then they should not retire. Or if they do retire, they should not ask the taxpayers to fund their lavish lifestyle while others are struggling. Enough is enough. Public pension retirees can still work somewhere else besides the PEZ's if they wish.
Since there is transparency to all contracts and all economic activity within the PEZ, there should be no corruption, or almost none. If it emerges, then the citizens can vote the governors out, and redo the offending contract where the corruption exists, since contracts are limited to one year terms. Long term deals are only possible in the PEZ's, where maximizing profit is the order of the day, not rewarding crony politicians and their enablers. No one is forced to do business within the PEZ, so if there is corruption within the PEZ, the businesses and employees will leave.
No one gets to keep their capital improvement. The capital improvements belong to the city, so there is no incentive to overdo things, with lavish, luxurious furnishings or wasteful expenditures. The City benefits from the capital improvement no matter what. The graft, corruption, wasteful prevailing wage schemes are eliminated. Union employees must produce value, or find that they have no work. Those that are skilled, can freely engage in their craft, free from restrictive union bullying and arcane, unproductive work rules.
To the extent that the PEZ's prove workable, then they will increase in number and size, based on eminent domain takings under the 5th Amendment and the Kelo case. Where is the harm in this? Turning unproductive land into productive land, employing the able-bodied, and creating revenue for the City, what is not to like? Fairness? Screams that the system will unfairly hinder the downtrodden? How? More revenue to the City–like, for instance, a federal govt bailout–is like a big hit of crack to a junkie. The City will spend and spend so long as revenue pours in. But it is the productive spending of that revenue that is so important. Instead of the revenue being squandered, or benefits promised to future generations with no possible chance of any of that revenue actually materializing, the revenue will result in tangible, productive uses that benefit the citizenry presently.
If revenue keeps coming in, then do not the citizens deserve to have more and better services, including to the downtrodden? Raising revenues by increasing the incentives to the productive is what the USA is all about. Who said a rising tide lifts all boats? Why not truly embrace the concept then?
Notably what will be occurring, is economic freedom. Freedom from corrupt governments and crony capitalism. The kind of freedom that scares the elites, entrenched solely due to the manipulations and class warfare. Freedom from stealth taxes like inflation, or outright fraud, like fiat fractional reserve legal tender laws that only enrich the banker overlords.
Since there is no private banking allowed in the PEZ's, all merchants and businesses have to survive based on provable methods and operations, and not from speculation or risk taking. If lending occurs, it will be unsecured, non-recourse. Thus, there will be risk to the lenders. As such, the lenders will have some skin in the game, but they will have no rights to seize property or collateral. Who will lend then for capital formation, and deployment? Why, that is easy: entrepreneurs, that's who, who will do so for a fair return. They will lend at higher rates, to reap a reward for the risk taken. What is wrong with that? Nothing.
This PEZ alternative to the present fiat scheme, corruption and all, is that in a PEZ, a business owner can deploy his or her own capital, realize a reward, and not watch it all get confiscated and redistributed to the unproductive. The arrogant, socialistic call of "You did not build that business: some one else did" will instead serve as an exit memo that is well deserved.
The lenders will have to rely upon their own skill in selecting and managing risk, and not from crony first-access-to-conjured-fiat schemes.
Where there is risk, there is reward. One need not take any risk, and is free to do business outside of the PEZ with all the attendant rules and regulations, and so-called "protections" of the law. One can run to the safety of the government bosom. No one is forced to transact within the PEZ. It is purely voluntary. If the PEZ proves unmeritorious, that is, the Director fails to pay the license fee, and no one else wants in, then the whole concept can be shut down in only one year with minimal loss.
However, if the PEZ concept proves workable, that is, the license fee is timely paid, businesses are created and workers are hired, which workers make money and then buy things and support their families, while the City's coffers fill with the license fee, potential upside revenue as the PEZ revenues increase, pluc the 2% of the wages generated by the productive workers inside the PEZ, then why not support even more of these throughout the City?
Public union employees can still find work, but they will have to compete for it. Why is this a problem? If what they do for a living adds value, then there will be a ready place for them to work in the system. If not, oh well. Get on public benefits, then, or go somewhere else. Let the productive work in the PEZ's and support the idle then. At least this system is something that is sustainable rather than the broken tax system in place now that punishes productive economic activity and either forces it out of the area or state, or forces it into the shadows of the crime-ridden, ethnic neighborhoods too dangerous to police.
Since there is no effective means for the cronyism to survive, it will die off, once and for all. The kleptocracy will also fail, because only meritorious businesses will survive. There will be no government subsidies, or government choosing winners and losers. The Director can do that, if he or she wishes, but only for those that choose to participate in that particular PEZ. If the Director chooses to subsidize a business, fine. Who cares? The Director can make that choice, but the Director is still responsible to pay the licensing fee. Again, it is a win/win for all concerned.
If someone feels slighted, or that it is unfair in a particular PEZ, then they can ask the board of governors to open a new PEZ for public bidding, and then make a run at winning their own bid where they can be the Director of their very own PEZ. What's wrong with that?
E. The Commission
As for the Commission, this concept is critical to the success of the PEZ. Any system of governance to succeed must have due process in place and provide the perception of fairness. Otherwise, the productive will choose another location to take risk. Why take risk if there is no guarantee of fairness based on due process? I have created a solution for this as well.
The Commission is established as a dispute resolution tool. It is essential to the perception of fairness and the right to due process for a grievance. While the profit motive is powerful, those involved in the PEZ's must have a means to address inter-PEZ grievances.
The system I envision is modeled upon swift, yet fair process, from neutral, yet wise judges. It starts with the jurisdiction of the Director who exercises plenary power over the entirety of the PEZ, from top to bottom, including upon each and every person located within the PEZ. All persons and businesses physically present within the PEZ consent to jurisdiction by the Director and the Commission. No exceptions.
The Director sets rules and enforces them at his or her own discretion. If anyone inside the PEZ disagrees with a rule, or enforcement activity by the Director, the Director and all participants within the PEZ agree to resolve ALL disputes, of any nature whatsoever before the Commission.
The Commission is comprised of five sworn, sitting judges, each of which has to have not less than ten years of judicial experience as a bench officer. The costs of the salaries of the members of the Commission are to be paid by the PEZ, offset against the license fee (part of the license fee includes the costs for paying the Commission expenses, including a portion of the judges' salaries for their time spent on disputes arising inside the PEZ and requiring resolution by the Commission). The presiding judge in the County has sole discretion to appoint the five judges who sit on the Commission. The five judges who sit on the Commission vote once a year to establish a presiding justice of the Commission, who sits as presiding justice for one year. The presiding justice determines the order of deciding disputes, which Commission member will preside over the dispute, and in the event of disagreement, in any manner whatsoever, the decision of the presiding justice controls. There are no appeals whatsoever. All Commission hearings, meetings, of any nature whatsoever, will be open to the public and will be streamed in real time, to the internet.
All disputes must be in writing, and must be stated on a single sheet of paper, double spaced, no exceptions. All disputes are posted on line, with no confidentiality provisions at all allowed. All oppositions must be in writing, and stated on a single sheet of paper, double spaced, no exceptions. All oppositions are posted on line, with no confidentiality provisions at all allowed. The dispute will be set for hearing within one week of filing. All hearings will be conducted in public, with no limitations as to attendance or use of cameras or technology. The hearings will be streamed real time to the internet and a public viewing monitor, open to the public and for which there is no charge at all to view. There is a one month statute of limitations. If the dispute is not formally presented to the Commission in timely manner, it is deemed waived forever with no recourse. There are no rules relative to lawyers, or admission to practice before the Commission. A party to a dispute may retain a lawyer if desired. A non-lawyer may represent a party before the Commission.
At least one, and as many as five members of the Commission will hear oral argument, which is limited to fifteen minutes per side. The oral argument will be scheduled to be heard within sixty days maximum from the date of submission of the dispute. The Commission will render written judgment within one week from the oral argument. All decisions are final, with no right of appeal. A dispute may be settled before a decision is rendered by the Commission; however, all terms of settlement must be in writing and are published on line and part of the public record.
The Commission is empowered to render any and all legal remedies, including payment of money damages, or expulsion from the PEZ. In the event that the Commission adjudicates that a criminal act occurred, then the guilty party will be taken into custody by the Director, expelled from the PEZ, and remanded in custody to the County Sheriff, subject to criminal prosecution in State Court at the discretion of the District Attorney. If the guilty party is physically absent from the PEZ, the Commission can render judgment notwithstanding the failure to appear by the absent party. All decisions will be posted on line, maintained by the Director for viewing by the public.
The Director, in his or her sole discretion, may remove any person from the PEZ at any time, for any reason or no reason at all, subject to review by the Commission pursuant to the dispute procedure.
IV. Conclusion
So, there you have it. My proposed solution to the economic malaise stagnating any economic growth in San Bernardino, Detroit, wherever.
This is the framework, and subject to revision, and is a work in progress.
Please add to it and comment.
Maybe we can solve this mess together.

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Key Economic Events Week of 12/4

12/4 10:00 ET Factory Orders
12/5 9:45 ET S&P Services PMI
12/5 10:00 ET ISM Services PMI
12/5 10:00 ET JOLTS
12/6 8:15 ET ADP jobs report
12/6 8:30 ET US Productivity
12/7 8:30 ET Initial jobless claims
12/7 10:00 ET Wholesale inventories
12/8 8:30 ET BLSBS
12/8 10:00 ET Prelim UMich Dec.

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