Shock sells news. Slogans trump truth. Lies outlast facts.
The doom loop scenario originated in a November 2022 National Bureau of
Economic Research (nber.org) working paper entitled "The Remote Work Revolution: Impact on Real Estate Values and the Urban
Environment". The phrase first appeared on page 35 of the report as "urban doom loop", then shortened to "doom loop" twice in the next few
paragraphs.
It summarized a section of the report, Fiscal Implications for Local
Governments, which focused on the possible recurring impact of lost tax
revenue and used NYC as the primary projection model but stated that
conclusions were applicable to the majority of US urban centers. Yet,
Doom Loop now seems to be synonymous with only San Francisco.
The opening paragraphs of a recent New Yorker story,
What Happened to San Francisco, Really?, suggest the reason for this association is based in an American version of schadenfreude
(pleasure derived from another's misfortune).
Since the end of the industrial period, the main path of the U.S.
metropolis has been what’s often called urban renewal: transforming old
frameworks into beautiful, dynamic settings for prosperous middle-class
life. No city excelled at the assignment more than San Francisco.
It invested in lush, landscaped parks, tree-lined boulevards,
and world-class museums where there had been none. It grew rich, and seemed
to climb out of the Great Recession with both influence and a mandate.
“There’s a lot of pent-up envy of San Francisco from a lot of other cities
that think of themselves as more important,” one local told me recently.
The reporter paints this backdrop with a very soft brush neglecting to even mention the City's most recent and questionable economic revival effort, the
2011 "Twitter Tax Break".
The late Mayor Ed Lee had bet the tax break, which erased the 1.5% payroll
tax for companies that moved into certain Mid-Market buildings, would keep
tech jobs in the city and help revive seedy Central Market Street. At the
time, half the area’s offices and 30% of the retail shops were empty,
according to city data.
Filling vacant buildings with creative tech startups, Lee reasoned, would
attract hip, independent retailers...finally ushering in the Market Street
revival that had eluded San Francisco mayors since the 1970s.
“We’re on the move,” the mayor said. “This is all for real. No more
talk.”
Further down in this 2019 (pre-Pandemic Doom Loop) story, the San Francisco
Chronicle offers -
Mid-Market: Vision and Reality
- an overall assessment of the result:
Despite billions of dollars coming into the neighborhood, retail vacancies
plague the street. Thirty months after it was completed, a new
250,000-square-foot mall between Fifth and Sixth streets, branded 6X6, sits
vacant, the victim of rising construction costs and apprehension over the
drug use, homelessness and filth on the street, its developer said.
Longtime residents and business owners say more drug dealers work the area
now than six or seven years ago. Men with wads of cash in hand crowd the
corners at Eighth and Market, and Hyde and Golden Gate, openly selling
heroin, meth and crack.
Also noteworthy is the fact that Twitter's tax break was about to expire (May 20,
2019) just a few weeks after this Chronicle story appeared and a deepening
downtown exodus was once again threatening the City. Of course, a tiny virus
intervened, allowing the highest-tech heads to conflab under the
cover of quarantine, excluding even the fluffiest news coverage. And now X marks the
epicenter of the Doom Loop.
In this 2019 KQED story about the Board of Supervisors assessment of the tax
break,
'That's Just Really Sad': Supervisors Lament Results of Twitter Tax Break
they seem convinced that the policy was a mistake.
"This policy was poor policy that was poorly implemented by the city," said
Supervisor Gordon Mar at a committee hearing on Thursday to discuss the
community and economic benefits of the so-called Twitter tax break. "It
really just resulted in a handout to the tune of $70 million to a small
number of corporations."
The tax credit, officially known as the Central Market/Tenderloin Payroll
Tax Exclusion, was championed by city leaders, including then-Mayor Ed Lee,
when it passed in 2011 as a way to revitalize the dilapidated Mid-Market and
Tenderloin areas -- and simultaneously keeping and attracting corporate
tenants like Twitter, which was threatening to move to Brisbane at the time.
In exchange, those tech companies were supposed to invest in the community
and provide "robust community benefits," in the words of Supervisor Matt
Haney, who represents the area and called for the post-mortem hearing on the
credit after it expired last month.
But the consensus from supervisors throughout Thursday's hearing, as they
heard reports from several city departments on the tax break's impacts, was
that the tech companies did not deliver those benefits, in part because the
legislation that created the credit did not specifically outline what those
benefits should be.
"They got to decide what was important and how they were going to benefit
the community," said Supervisor Vallie Brown of the companies that took
advantage of the tax break, "and I think that's just really sad because they
didn't know the community, and they came in and said, 'This is what we're
going to do.' "
..."If we continue to do it this way, we're going to keep getting what we
get," said Haney. "A lot of feel-good stuff and a lot of impacts on the
community that are often not positive."
The story's opening paragraph even states a strong determination to avoid
repeating the same mistake.
It seems unlikely that San Francisco will ever again undertake a corporate
tax break like the one that allowed companies to avoid paying payroll taxes
in exchange for moving to and investing in the city's Mid-Market
neighborhood over the last decade.
So, what's the new magic public benefit Unicorn that San Francisco proposes
next? How about a tax break?
In her State of the City address Thursday, SF Mayor London Breed announced a
multipart plan aimed at revitalizing the city's beleaguered, seemingly
half-empty downtown, and it involves some Twitter tax-break-style tax
breaks.
Mayor London Breed Announces Tax Breaks, Other Incentives Aimed at
Reviving SF's Downtown
The spin this time is about focusing on small and "sensitive" businesses. A few
high-profile well-timed start-up spin-offs should do nicely.
Given the demonstrated repetition of these doom loop cycles, why is nothing done
to prevent them?
Like most puzzling questions regarding humans, the reasons are
complex and often deeply rooting in our very nature. History, in particular, is
especially challenging to unravel. Rather than ferret out causes, effects, and
patterns from the past, we prefer to wrap it in a satisfying but simple
narrative and move on. Like the title character sang in "Annie":
Just thinkin' about Tomorrow, Clears away the cobwebs, And the sorrow 'til
there's none.
Thus, the drivers of repetition have largely escaped scrutiny. That is, until
now.
In 2003, along with an international assembly of colleagues, historian and
data-scientist,
Peter Turchin,
opened a new field of historical inquiry called
Cliodynamics
- (Clio is the muse of history and dynamics is the process of change).
Consolidating the now immense bodies of accumulated historical and evolutionary
data, they began a new "mathematical" approach to the dynamics of history. On
his website, this paragraph explains the benefits of this method.
Mathematics is not just about quantities (it includes such fields as
mathematical logic, abstract algebra, and topology). However, if we are
interested in understanding the dynamics of such historical processes as
population change, territorial expansion/contraction, and the spread of
religions, we must get involved with numbers and rates. Furthermore, a
“naked” human mind, unaided by mathematical formalism and computers, is a
poor tool for predicting dynamical processes characterized by nonlinear
feedbacks, or grasping such complex behaviors as mathematical chaos.
On his website, the results outlined in Turchin's new book,
Elites, Counter-Elites, and the Path of Political Disintegration, are
summarized as follows:
The lessons of world history are clear, Turchin argues: When the
equilibrium between ruling elites and the majority tips too far in favor of
elites, political instability is all but inevitable. As income inequality
surges and prosperity flows disproportionately into the hands of the elites,
the common people suffer, and society-wide efforts to become an elite grow
ever more frenzied. He calls this process the wealth pump; it’s a world of
the damned and the saved.
...in America, the wealth pump has been operating full blast for two
generations.
The book's introduction offers a broad summary of the "wealth pump" dynamic that
played out in the 20th Century United States.
Wealth is accumulated income; in order for it to grow, it has to be fed by
directing a portion of GDP to the elites. The proportion of GDP consumed by
the government has not changed much over the past four decades. The main
loser has been the common American.
For two generations after the 1930s, real wages of American workers
experienced steady growth, achieving a broad-based prosperity for America
that was unprecedented in human history. But during the 1970s, real wages
stopped growing. While the overall economy continued to grow, the share of
economic growth going to average workers began to shrink. We can index the
operation of this wealth pump by tracing the dynamics of relative wages -
typical wages (for example, for unskilled workers or for manufacturing
workers - it doesn't matter as long as we use the same group) divided by GDP
per capita.
Before the 1960s, the relative wage increased robustly, but
after that decade it began declining, and by 2010 it had nearly halved. This
trend reversal in the share of economic growth going to workers also
resulted in the change of the fortunes of the wealthy. It's the Matthew
Effect: if you take from the poor and give to the rich, then the rich will
get richer while the poor get poorer.
When America entered an era of wage stagnation and decline, it affected not
only the economic measures of well-being but also biological and social
ones. I'll talk more about it in chapter 3, but for now it is sufficient to
note that life expectancies of large swaths of the American population
started to decline years before the COVID-19 pandemic. "Deaths of despair"
from suicide, alcoholism, and drug overdoses spiked among the
noncollege-educated from 2000 to 2016, while remaining at the same, much
lower level among those with at least a college degree." This is what
popular immiseration looks like.
And popular immiseration breeds discontent, which eventually turns to anger.
Popular discontent coupled with a large pool of elite aspirants makes for a
very combustible combination, as we have experienced in America since 2016.
Against this backdrop, let's return to why SF is the Doom Loop poster child.
Nowhere in the US, or perhaps the world, has the "wealth pump"
consolidated economic power more visibly than in the San Francisco Bay Area.
Although Atherton in Silicon Valley near Menlo Park consistently tops the list
of wealthiest US communities, it is San Francisco that, with good reason,
immediately symbolizes the entire region.
With its exquisite
geography, romantic history, and unparalleled examples of Art Deco architecture
(the Golden Gate is the most photographed bridge in the world), San Francisco
deserves to be the area's designated crown jewel. Yet, since the unprecidented
surge in nearby tech wealth, The City has pandered to that cohort with financial
incentives and the sprawling expansion of now vacant office space in order to
maintain its standing.
Beginning in the 1970's, which Turchin marks as the period where average US
worker wages stagnated then declined, Hewlett-Packard, along with cuts in
federal capital gains taxes, got the Venture Capital party started in what was
then referred to for the first time as Silicon Valley. But in 1995, the VC party
became a full on Rave with Netscape's IPO (Initial Public Offering)
Wikikpedia-Netscape
On August 9, 1995, Netscape made an extremely successful IPO, only sixteen
months after the company was formed. The stock was set to be offered at
US$14 per share, but a last-minute decision doubled the initial offering to
US$28 per share. The stock's value soared to US$75 during the first day of
trading, nearly a record for first-day gain. The stock closed at US$58.25,
which gave Netscape a market value of US$2.9 billion.
While it
was somewhat unusual for a company to go public prior to becoming
profitable, Netscape's revenues had, in fact, doubled every quarter in 1995.
The success of this IPO subsequently inspired the use of the term "Netscape
moment" to describe a high-visibility IPO that signals the dawn of a new
industry...The IPO also helped kickstart widespread investment in internet
companies that created the dot-com bubble.
The resulting dot-com bubble mentioned in this excerpt is a notable example of
another power "pumping" strategy, sometimes called "pump and dump", where
Venture Capital finances and heavily promotes an often shaky business model all
the way to a thoroughly hyped IPO, then sells before the stock price falls for
retail investors.
At this point, though, with so much wealth amassed at the top,
public trading is just too tedious for the Captains of Venture Capital. By
focusing solely on Private Equity, they now invite only the worthiest "power
players" to a gaming platform from which to truly rule in a
Winners Take All finale. As Supervisor Vallie Brown
foreshadowed in the earlier KQED quote:
"They got to decide what was important and how they were going to benefit the
community...they came in and said, 'This is what we're going to do.' "
As part of its latest image enhancement effort, City officials
adopted an ad campaign that itself is stirring controversy and even confusion.
San Francisco Has a New Slogan, and Not Everyone Is a Fan.
Its theme revolves around the slogan,
It All Starts Here SF and, in an interesting coincidence, it launched just a few days before the New
Yorker story, cited earlier. That slogan, it turns out, is a good fit for
underlining the national fear described in the article.
"In San Francisco, the nation saw its dreams, and now it thinks it sees its
nightmares."
So, is San Francisco on the verge of a doom loop collapse? No one really knows.
But it's worth noting that one of the loudest voices promoting the City's "post-apocalyptic" scenario now occupies a prominent Market Street address
(rent free it seems) made possible through the Twitter Tax Cut.
Meanwhile, down in Atherton, the luckiest conehead on Earth spews polemics like the Techno-Optimists Manifesto (Better called the Techno-Opportunists Playbook) from his conscience-free cranium. Unfortunately, San Francisco seems all too eager to once again twist its outstanding potential into a toady role, heavily touting Artificial Intelligence (AI) as its
next big impact on our digitally circumscribed lives.
In land area, San Francisco is actually quite small which could make it an ideal candidate for a this newfound savior: AI as the Ultimate Security Solution - The City as Gated Community! Relentlessly patrolled by darling droids! How safe will that be!
On the other hand, there could be a quake.
