The terms high-tech and venture capital conjure images of industries such as artificial intelligence and cryptocurrency. But the fact of the matter is that cities and urbanism represent the biggest new tech sector of all, what I like to call “urban tech.”

Some of the most important tech companies of the past decade essentially work on and in cities. Uber and Airbnb are probably the best-known. They are two of the select companies that tech industry analyst Scott Galloway believes may be able to join or compete with the “Big Four” at the upper reaches of the tech stratosphere: Apple, Amazon, Alphabet, and Facebook.

But they are far from the whole ball game. Uber, along with Lyft, has defined the huge space of urban mobility, which now includes a raft of other companies, including numerous bike- and scooter-sharing startups, such as Lime and Bird. Airbnb, of course, helped to define the room-sharing market. Then there is WeWork, which dominates co-working and has emerged as one of the most powerful real estate companies in the world.

Waze and other mapping startups provide information about how a city is organized, and real-time updates on its functioning. There is a multitude of companies operating in fields like real estate analytics, construction tech, and “smart” infrastructure (the latter group includes Spot Hero, a parking-tech company, and Enevo, a Finnish company that creates monitoring systems for urban waste). There is also a huge market in delivery startups, such as Instacart, Deliveroo (based in the U.K.), and Delivery Hero (based in Germany).

Urban-tech startups are some of the very largest venture-capital investments. Uber has attracted some $16 billion in venture capital, and Lyft, Airbnb, and WeWork have drawn between $4 and $5 billion each. Compare this to Twitter, the fantastically popular social media company, which secured $1.5 billion in VC funding.

A number of companies are explicitly addressing city-building and the urban tech space broadly. Perhaps the best known of these is Sidewalk Labs, the Alphabet (or Google) spinoff, which aims to build a new tech-enabled neighborhood on Toronto’s waterfront. Y Combinator, the very successful Silicon Valley accelerator created by venture capitalist Paul Graham, has also developed an interest in cities and urbanism with its New Cities program. UrbanUS is a fund that supports urban-tech startups and recently launched the accelerator URBAN-X. And the private-equity investor Jeff Vinik has created an urban-tech vertical at his venture-capital investment arm, Dreamit Ventures.

To get a handle on the scale and scope of the urban-tech space, Patrick Adler, my colleague at the Martin Prosperity Institute, and I used data from CB Insights on ventures that had both received investment during the period 2016-2018 and disclosed the amount. We defined urban tech as encompassing six broad industry sectors: co-living and co-working; mobility; delivery; smart cities; construction tech; and real estate tech. This is the first phase of a much larger project. Although our analysis remains provisional, we believe it generates some illustrative findings and trends.

Urban-tech investment totaled more than $75 billion over this three-year period, representing roughly 17 percent of all global venture-capital investment. Between 2016 and 2017, urban-tech investment more than doubled—from less than $20 billion to $44 billion—as its share of global venture investment surged from 13 percent to 22 percent. Urban tech may well be the largest sector for venture capital investment, attracting considerably more funding than pharma and biotech ($16 billion in 2017) or artificial intelligence ($12 billion in 2017).

The largest sector of urban tech is mobile tech, which includes behemoths like Uber, Lyft, and Didi Chuxing, and has generated more than $40 billion in venture investment between 2016 and 2018—more than 60 percent of all urban-tech investment.

The United States is the dominant player in urban tech, with more than 45 percent of all venture-capital investment in this sector. China comes next with roughly a third (although China has far fewer urban-tech startups than the U.S., 200 versus nearly 800). Singapore is third, with almost 6 percent of investment, followed by India (4 percent), and the UK and Germany (roughly 2 percent each). South Korea, the United Arab Emirates, France, the Netherlands, and Canada round out the top 10 with about half a percent each.

But startups and venture capital are incredibly spiky—geographically clustered in a relatively small number of global cities. The San Francisco Bay Area leads with roughly 30 percent of all global venture-capital investment in urban tech. Beijing follows close behind with 26 percent of funding. New York City is third, with 10 percent, followed by Shanghai, with nearly 7 percent. (That said, San Francisco and New York have produced far more urban-tech startups than Shanghai and Beijing.)

Singapore has 6 percent of all investment, trailed by Bangalore, Los Angeles, Berlin, and London, the only other global cities to attract more than 2 percent of global urban-tech investment. Other cities that are generating reasonable numbers of urban-tech startups include Seoul, Chicago, Dubai, Amsterdam, Madrid, Paris, Boston, and Toronto, although none of them accounts for more than 1 percent of total investment. This global group of cities that are key players in urban tech suggests that the “rise of the rest” is not occurring inside the United States but outside it, especially in China’s two largest cities.

The rise of urban tech reflects the growing role of cities and urbanism in the global economy. Cities have become the basic platforms for global innovation and economic growth, supplanting the corporation as the fundamental organizing unit of the contemporary economy.

But in this regard, cities remain terribly inefficient. They are indeed the last great frontier of inefficiency in capitalism.

A century or so ago, agriculture underwent a transformation. In 1900, more than half of U.S. workers worked in agriculture. Today, after huge leaps in agricultural technology and management, less than 1 percent of the workforce does. Farms have become incredibly efficient enterprises, with advanced technology and self-driving tractors.

Likewise, in 1950, more than half of the American workforce labored in manufacturing. Now only about 5 or 6 percent of the workforce is engaged in a direct production occupation. Factories are highly automated, managed on the principles of lean production, and can run 24-7 with little waste.

Contrast that to cities, where offices and homes sit vacant much of the time, where cars sit idle, and where congestion is rampant. The third great economic transformation, which we are going through today, is a shift to a knowledge economy that is concentrated and based on cities. Just as farms and factories of previous epochs were optimized for efficiency, the offices, apartments, cars, and other elements of cities that sit unused much of the time will be adapted for greater productivity.

This is the nexus for the rise of urban tech, which is unleashing a new round of creative destruction on cities. Like previous economic transformations, the rise of urban tech and the emergence of the city as the primary platform for economic organization will not be without growing pains. It will be up to urban leaders and the struggles of workers and citizens to channel this transformation in a democratic way, so that it respects the needs of all city dwellers and creates prosperity for all.

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Readers of CityLab have likely seen numerous arguments condemning the competition among North American cities to land the second Amazon headquarters. Urban policy experts are nearly unanimous in their opprobrium for the HQ2 selection process and their skepticism that the “winning” city will reap the rewards of economic growth and job creation that Amazon has promised. (And even if it does, the price tag for accommodating HQ2 may negate or severely diminish any fiscal benefit.)

For cities eager to lay the groundwork for long-term economic growth, what are better options? Can any single development gambit generate such a windfall of new jobs?

Yes, but it will not happen through a development strategy based on luring outside corporations with taxpayer incentives. Rather, this kind of big bang is far more likely to happen when a homegrown local startup gets acquired or goes public, transforming early employees and investors into millionaires.

These beneficiaries can become invaluable mentors and investors for a succeeding generation of local startups; many may use their earnings to become entrepreneurs themselves. A major business acquisition or IPO—not the HQ2 charade—is the kind of jackpot that economic developers should pursue.

I have seen how the effects of such a big bang rippled through the Washington, D.C., region, where I live. During the 1990’s AmericaOnline (AOL), then based in Tysons Corner in Northern Virginia, dominated the dial-up consumer internet market. AOL was valued at $125 billion when it merged with Time Warner in 2000, a transaction that made many executives and employees very wealthy.

City leaders are wise to stay close to startups that are starting to scale.

That merger was not ultimately successful, but the imprimatur of AOL remains visible across D.C.’s business landscape two decades later. Along with several AOL alumni, company CEO Steve Case went on to found Revolution, a Washington, D.C.-based venture firm with hundreds of millions in capital that has made numerous investments into local startups like Optoro. Case also founded Revolution Health, which employed hundreds of people in the early 2000’s, including Tim O’Shaughnessy, the future co-founder of e-coupon company LivingSocial, which at its peak was valued over $1 billion. O’Shaughnessy now makes venture investments as president of DC-based Graham Holdings, while LivingSocial alumni have founded local startups such as Framebridge and Galley. All of this activity loops back to one company: AOL and its merger with Time Warner.

Or jump to a city on the other side of the coast: Seattle. In his book The New Geography of Jobs, economist Enrico Moretti notes that in the 1970’s, Seattle was a struggling industrial city whose fortunes were closely tied to that of its major employer, the aerospace firm Boeing, which had downsized dramatically during that decade. But in 1979, the region became the beneficiary of what may have been the most consequential business relocation of all time: Microsoft’s move from Albuquerque to Bellevue at a time when the company employed just a couple dozen people. (Note that Microsoft received no public incentives to induce its move, and I’ve found no evidence that economic development officials took particular note of it). Microsoft thrived in the early days of personal computing, going public in 1986. Since then, its employees have founded a slew of companies that are today at the center of Seattle’s thriving tech scene, from Zillow to Inrix to Vulcan Capital.

These sorts of economic big bangs can happen anywhere, not just on the coasts. Just last December, Birmingham-based e-delivery startup Shipt was acquired by Target for $550 million. Shipt was founded by a Birmingham entrepreneur who managed a local team of over 200 and raised capital from Alabama investors—all of whom got a windfall. Birmingham is poised to reap the benefits of the Shipt acquisition for many years to come, including a bevy of new mentors and investors supporting a new generation of startups.

So what is the lesson for your town’s economic development boosters? City leaders are wise to stay close to startups that are starting to scale, meeting with them regularly, congratulating them on raising a new round of capital, and solving whatever issues arise regarding regulation, workforce, or infrastructure. Once a company has hundreds of employees, it’s likely that other states will dangle big checks in exchange for relocation. A company whose leaders and employees feel tied to its community is less likely to be tempted to jump ship.

And if an incentive battle does break out, the city where the startup is based will enjoy home court advantage, with employees already settled into their homes and commutes and their children enrolled into local schools. Meeting and maintaining relationships with fast-growing startups may seem obvious, but in my experience economic development leaders are often unaware which local companies have raised the most venture capital—an obvious indicator of future growth.

Last fall, 238 cities invested countless staff hours putting together proposals for Amazon, hoping to prevail in an economic development competition so intense and expensive it has earned comparisons to the Olympics. Most cities have been quiet about what it cost to draft their HQ2 proposals, but not all. Virginia Beach, for example, spent $100,000, not including staff hours that could have gone toward other projects.

But what if cities like Virginia Beach had instead invested those resources into outreach to learn about their five fastest-growing local startups and solve their most pressing challenges? Regulations could have been streamlined, new community college courses created, and zoning requirements tweaked—at a fraction of the cost of a corporate relocation incentive package. And the cities’ time and money would have been much more likely to spark an economic big bang than the frivolous pursuit of HQ2.

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This morning, the Labor Department announced that the national unemployment rate ticked up to 4 percent in June for good reasons, as hundreds of thousands more Americans sought work. For the first time in recorded history, the number of job openings is higher than the number of people looking for a job. That has raised hopes that wage growth might finally begin to pick up, with employers bidding more to attract new workers and offering raises to retain their existing staff.

Full employment—that magical economic state, in which everyone who wants work has it, and at a good wage too—finally seems to be near. In much of Iowa, it already is. Out of every 100 people who want a job, 98 or 99 have one. The rate of wage growth has doubled of late, and businesses are scrambling to find workers. “It does feel like things are a little different in the last year,” Elisabeth Buck, the president of the United Way of Central Iowa, told me. “Businesses are getting a little desperate.”

In that, Des Moines and the surrounding area stand as an example of what might be coming for the national economy, both good and bad. Full employment has a remarkable way of improving the lives of low-wage workers and drawing new individuals into the labor force. But it also exposes the scars that even a very hot economy is unable to heal.

Around the country, and especially in central Iowa, the low unemployment rate has slowly but surely tipped the balance of power away from employers and towards workers, who here in the Hawkeye State have been able to demand higher wages, better working conditions, more generous benefits, training programs, and myriad other perks. “From a per-capita [population] perspective, we are the fastest-growing metro in the entire Midwest,” said Mary Bontrager, an executive at the Greater Des Moines Partnership, a regional economic-development group. “In terms of GDP, we’re outpacing every other Midwestern metropolitan area.”

Competition for workers has gone crazy, Joe McConville, who co-owns a popular chain of made-from-scratch pizza restaurants, told me. “At almost every restaurant that I’ve worked at, you always had a stack of applications waiting,” he said. “You’d call somebody up and half the time they’re still looking for an extra job. That’s not happening anymore.” He said he faced a “black hole” in terms of finding more experienced twenty-something employees, and that to compete he has paid out higher wages and added vacation days.

More than that, Iowa’s tight labor market has forced employers to offer training, reach out to new populations of workers, and accept applications from workers they might not have before—expanding and up-skilling the labor pool as a whole as a result. “Their attitude really seems to be changing,” said Soneeta Mangra-Dutcher of Central Iowa Works, a workforce-development nonprofit. “They are looking at populations differently, who they should be looking at when they have jobs to fill, or people being screened out for things that really don’t have an effect on the job.”

Among those seeing more success getting hired are the formerly incarcerated. When the jobless rate is high, most businesses refuse to look at applications from individuals who have spent time in prison—even for non-violent offenses, or for incidents that might have occurred years and years earlier. That was what Clifford Salmond found after being released a few years ago. “I couldn’t find a decent job because of my background and my past. I’ve had alcohol problems, drug problems, incarceration problems,” he told me while he ate breakfast at a local McDonald’s. “Once I got that behind me, I still found finding employment pretty hard.” He found work washing dishes, but became unemployed again after the restaurant he was working at closed down.

But his daughter connected him with a training program, which he completed. In time, that led to a position at a factory in Des Moines. “I take the raw rubber and I break it down,” he explained. “I send it over to be [combined] in a machine with fabric. That leaves the machine, and goes to the tire builders, and they build the tire.” He said the work was hot, dirty, and physically exhausting, but still that he loved the job, where he now earns $21 an hour, as well as health benefits.

Younger and older workers have also found more success, labor experts in central Iowa said. Businesses are accepting applications from high-schoolers and retirees who want to come back to work — and are providing on-site education and accommodations like flexible schedules too. Mollie Frideres is the human-resources director at Green Hills Retirement Community in Ames, just north of Des Moines. The company normally hires a number of Iowa State students interested in healthcare, she told me. But of late, it has found that the good economy has meant fewer undergrads need a job. It has raised wages, but still found itself short.

Thus, it has started a program with the local high school, Frideres said, training the workers the business needs. The teenagers require a little more hand-holding, given that they are less experienced and perhaps a little less mature than college kids, Frideres told me. “We are in the process of developing some classes or training programs on social skills or soft skills for them,” she said. “You know: What is professionalism? What are our expectations?” But they had filled the gap, she said.

“The unemployment rate is really not a number that says we’re doing super great.”

Younger workers with more or harder barriers to the workforce were finding more luck, too. “What I’ve seen in the past two years is employers really forcing—and I really mean it when I use that word—forcing themselves to be more nimble,” said Laurie Phelan, who heads Iowa Jobs for America’s Graduates, or iJAG. It is an initiative that seeks to prevent drop-outs and help students transition to work, aimed at kids who have grown up in poverty. She said businesses were more willing “to grow their diversity IQ, and to look at their expectations for education and their willingness to spend time in mentoring and shepherding this new young workforce into their world.”

Refugee and immigrant workers—including those with literacy or language challenges, or a lack of credentials—were also getting drawn in and picked up. “A little over a year ago, I hired a woman that focuses on this kind of high-touch service,” Bontrager told me. “She has 40-some clients we’re working with, specifically on helping them work through some of their barriers, whether that's going back and recertifying in something [here in the United States], or working on the language skills, or working on how to present themselves—their resumes, how to interview. All of those kinds of things. Companies are really being very receptive to taking a little more time, if you will, in the hiring process.”

The fierce competition for hiring has led to both a drop in the unemployment rate and a rebound in the prime-age employment-to-population ratio in Iowa. It has also raised the specter of labor shortages, with businesses simply unable to find experienced workers to fill their positions. “There are not a lot of welders sitting around looking for work. The construction trades, the roofers, the framers, the dry-wallers,” said Dan Culhane, the president of the Ames Chamber of Commerce. “Those are [workforce] challenges that Ames and Story County and Des Moines face.”

Some analysts have started warning about the same issue happening nationally, in some cases in pretty overwrought terms. The “number one problem [for businesses] is finding qualified workers,” Mark Zandi, the chief economist at Moody’s Analytics, said in a statement this week. “At the current pace of job growth, if sustained, this problem is set to get much worse. These labor shortages will only intensify across all industries and company sizes.”

Yet the experience of towns like Ames and Des Moines show that such “labor shortages” might be due to insufficient wages and crummy working conditions—not an unwillingness of workers to switch industries or improve their skills for a job. The trucking industry is instructive here: Trade groups have argued that it is facing a shortfall of 51,000 workers, yet businesses have not yet shown much willingness to cut hours, boost pay, and improve conditions to lure workers in. Indeed, across the economy, companies have shown a remarkable unwillingness to boost wages, with growth barely keeping pace with inflation even as the unemployment rate has dropped to 4 percent.

Low wages continue to be an extraordinary problem preventing workers from connecting with a good job and keeping potential employees on the sidelines—in Iowa and across the country. “Even though we’re such a low unemployment state, we are also low-wage state,” Buck of the United Way said. “People think that when you have a state or a community that has low unemployment, that everyone's doing great. That is not the case. We still have about 34 percent of central Iowans who are not making enough to be financially self-sufficient.”

The state has relatively low housing costs, unlike in many big cities and coastal areas. But the steep and rising cost of child care has proven particularly daunting to young workers, single mothers, and families with multiple kids, experts said. “There are are a couple of companies here that do have child care on site, though I don’t think it’s easy to get your kids in there,” said Julie Fugenschuh, the executive director of Project IOWA, a training initiative for local workers. (That is where Salmond found his leg-up into the jobs market.) “But there’s still this cliff, around $13 or $15. If you are making less than that, you can’t take a job. And we are not seeing too many companies go over it.”

Plus, though central Iowa’s low jobless rate has helped workers of color, less-educated workers, younger workers, and others who face discrimination in the labor market, it remains true that it is the best-off that have done the best. Growth and low unemployment are not a cure for inequality, and it would take years and years and years of full employment to restore financial security to the middle class and to boost the fortunes of the poor. “There are many people who are working multiple jobs and are still living in poverty here,” Fugenschuh told me. “The unemployment rate is really not a number that says we’re doing super great.”

That is even more true for the economy as a whole, with hundreds of thousands of workers still choosing not to join the labor force and wages still flat—as the White House has kicked off a trade war and interest rates have started to rise, no less. Full employment stands to help, but only in time.

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Humberto Garces was a third-year medical student when, in 2000, he and his brother were forced to flee Colombia.

“I was shot the same day that my father was assassinated,” says Garces, whose father was a journalist and union leader in Colombia. Garces was shot five times and spent about six months in the hospital recovering.

“I couldn’t walk for about a year. As soon as I could walk, I came here to the States,” says Garces. He and his younger brother came to Washington, D.C., where a friend studying at Howard University took them in.

The two started building bridges between Latino and African-American communities and, with the help of local church members, they launched a landscaping company. That eventually led them into home repair work. In 2011, Garces struck out on his own, founding Green Construction Services Group.

“I decided that the vision of the company was to start implementing environmental and sustainable energy programs,” says Garces. “We as human beings have to understand that we have to take care of the planet.” He attributes his interest in the environment to the time he spent as a youth in the Colombian countryside.

Garces landed his first contract on an energy efficiency project with the D.C. Sustainable Energy Utility earlier this year, after a workshop hosted by the nonprofit tasked by the District’s Department of Energy and Environment to implement its energy efficiency and renewable energy programs.

“I’ve been working for the government for the last 14 years, but not as a contractor directly, as a sub-contractor,” says Garces. “This is the first project that I have ever been a contractor directly with the government, which makes me very happy because there wasn’t a lot of paperwork. It was simple for an immigrant and a small-business owner like I am.”

Garces is just one beneficiary of economic development work by the D.C. Sustainable Energy Utility, which gets its funding via a surcharge on all electric and natural gas utility ratepayers in the District. The nonprofit has spurred the creation of more than 500 jobs in the District since launching in 2011.

More than 70 percent of the District’s carbon emissions come from its built environment. Since its inception, the D.C. Sustainable Energy Utility has prevented the emissions of 3.8 million metric tons of carbon — the equivalent of taking more than 830,000 cars off the road for one year. As Garces’ story conveys, the nonprofit is also invested in generating economic opportunity for the District.

“A lot of the contractors that we were working with seven or eight years ago were small Mom and Pop shops,” says Ted Trabue, executive director of the D.C. Sustainable Energy Utility. Now, he says, those businesses are larger with greater capacity to provide services and hire other local D.C. residents.

“Our budget is about $20 million a year, so they know they can count on a large amount of money being spent in the energy efficiency space to meet the demands and to meet the workloads that we’re putting on them,” Trabue says.

In addition to workshops for resident D.C. contractors like Garces, the nonprofit also offers training for the people those contractors hire.

“It’s the people who are being trained to work inside of the buildings as building operators who are making sure that the heating systems and air conditioning systems in these buildings are operating at maximum efficiency,” Trabue says. “We’re training more people to do all of these things, bringing people into the green economy and helping people get jobs in this new workspace.”

The nonprofit offers ten weeks of basic training and then selects candidates for a four-month, paid externship with an employer such as the Washington Metropolitan Area Transportation Authority. The program has a 95 percent job placement rate, Trabue says, and it helps the nonprofit reach its annual mandate of creating 88 full-time jobs for Washington, DC residents.

“There are no other programs that we’ve found in the country that are combining energy efficiency goals and social equity goals,” Trabue says. “Not only are we pursuing energy efficiency and installing renewables, but we are also combining that with social equity work of working with low-income communities.”

Twenty percent of the D.C Sustainable Energy Utility’s budget goes to low-income households, working with local contractors and generating local revenue, according to Trabue.

“The D.C. Sustainable Energy program is one of the most effective I have ever participated in,” adds Garces. “[The program] is trying to encourage people to reduce energy consumption. and it’s also bringing opportunities to small businesses like mine that don’t have opportunities in other arenas because of all the competition.”

Learn more at Next City

Vacant and abandoned properties are a familiar part of the American landscape, from the boarded row house in North Philadelphia to the empty factory in Detroit to the collapsing farmhouse in rural Kansas. These structures can devastate the neighborhood, undermine the neighbors’ quality of life, diminish the value of nearby properties, and reduce local tax revenue. Yet vacant properties can also become community assets. Thousands of vacant commercial and industrial buildings have been converted to apartments and condominiums, and vacant lots have found new lives as community gardens and parks.

Perhaps the most significant vacant property strategy to emerge over the past decade is what has come to be known as “greening” vacant lots: putting them to such environmentally friendly uses as community gardens, vineyards, and tree farms. It’s not a fundamentally new idea. European allotment gardens — small plots for people living in high-density urban areas to cultivate — go back to the 19th century and are still widespread there. In the United States, the lineage of community gardens goes back to the “Victory Gardens” of World War II, if not earlier.

Today’s approach to community greening may not be new, but it is very different. While food security and recreation, which were uppermost in the minds of 19th-century European advocates of allotment gardens, still matter, today’s explicit connection between urban greening and the strategic reuse of vacant properties represents a new and significant departure from previous thinking.

IMAGINING LAND USES BEYOND COMMUNITY GARDENS

As vacant lots proliferated in older American cities in the 1980s and 1990s, community gardening was actively promoted by community organizations and agricultural groups and often encouraged by local officials as a temporary use for properties awaiting redevelopment. Community gardens, however, while valuable and productive, depend on a critical mass of neighborhood residents eager to till the soil, something that is both uncertain and fluctuating over time. With vacant lots continuing to proliferate, particularly in legacy cities, people needed to find other ways to use lots.

A critical step in moving from community gardens to a broader approach to greening vacant lots was the collaboration between Cleveland Neighborhood Progress (CNP), a citywide nonprofit intermediary, and Kent State University School of Architecture’s Cleveland Design Collaborative under the creative leadership of CNP’s Bobbi Reichtell and Kent State’s Terry Schwarz. This partnership provided Cleveland’s officials, nonprofits, and community leaders with a vision of how the city’s thousands of acres of vacant land could become an asset for their city’s future. One part of this effort was the publication of the Cleveland Vacant Land Reuse Pattern Book, a catalog of alternative green uses for vacant land with information on the costs and the materials needed to carry out each alternative.

In 2009, using the options in the Pattern Book, CNP and the City of Cleveland initiated Re-Imagining Cleveland, a competitive vacant land reuse grant program, to empower neighborhood residents and other community stakeholders to turn vacant land bank property into community assets and pilot projects. With $500,000 in grant funds, they awarded small grants to 56 projects on nearly 15 acres, including environmentally oriented projects such as pocket parks, rain gardens, and agricultural projects including gardens, orchards, and vineyards.

More recently, both Detroit and Baltimore have created even more detailed pattern books for reusing vacant land. Detroit Future City’s Field Guide for Working with Lots and Baltimore’s Green Pattern Book, created in partnership with the U.S. Forest Service, are invaluable resources for community organizations and activists not only in those two cities, but in any city in the United States.

Cleveland was not alone in exploring the potential of vacant lots. A second pioneering city was Philadelphia, where the nearly 200-year-old Pennsylvania Horticultural Society (PHS) took the leading role. Although PHS had supported community gardens in Philadelphia since the 1970s, in recent years their efforts have broadened to encompass a comprehensive and multifaceted citywide greening strategy. Two Philadelphia initiatives, one led by PHS, are particularly worth noting.

The PHS LandCare program recognizes that while vacant lots in legacy cities greatly outnumber the organizations or individuals willing or able to turn them into gardens, vineyards, or parks, allowing those lots to remain derelict condemns their surroundings to continued blight. To address this, PHS developed an inexpensive, low-maintenance approach to vacant lots that involves only basic sodding, tree planting, and erection of simple split-rail fencing on the lot. Today, PHS, with support from the city of Philadelphia, has installed and maintains LandCare treatments on more than 7,000 vacant lots across the city.

A second Philadelphia initiative addresses a concern shared by nearly all older American cities: combined sewer overflow (CSO) in sewerage systems where the same system handles both sanitary and stormwater flows. At times of heavy rainfall, sewer flows overwhelm the system’s capacity, leading to discharges of untreated or partially treated sewerage into rivers and lakes. CSO is a major source of water pollution in violation of the Clean Water Act, and the U.S. Environmental Protection Agency has aggressively pressed cities to comply with the act. Until recently, compliance was considered achievable by spending billions of dollars to build either separated sewer systems or massive underground tunnels and holding tanks.

Facing this problem, cities realized that their vacant land inventories offered an alternative. Instead of using the traditional method of channeling stormwater runoff into the sewers, the water could be channeled toward green spaces, where it could gradually filter through the ground and refill the aquifers under the city. Such a strategy would be far better environmentally and would also reduce the need for massive holding tanks and allow cities to comply with EPA requirements at lower cost. Philadelphia was the first city in the United States to turn the idea into a reality by developing a detailed plan and a 25-year implementation strategy, which was approved by the EPA in 2012.

As described on the city’s Green City, Clean Waters website:

We’re recreating the living landscapes that once slowed, filtered, and consumed rainfall by adding green to our streets, sidewalks, roofs, schools, parks, parking lots, and more—any impermeable surface that’s currently funneling stormwater into our sewers and waterways is fair game for greening. It’s going to take decades of work, but when it’s all done, we’ll have reduced the stormwater pollution entering our waterways by a stunning 85 percent (emphasis in original).

The city estimates that implementing this greening strategy will save Philadelphia $5.6 billion, compared to complying with EPA mandates through conventional engineering solutions. Similar efforts are now underway elsewhere, including Milwaukee, Syracuse, Cleveland, and Detroit.

The strategies pioneered in Cleveland and Philadelphia have been embraced by hundreds of towns and cities across the United States, while research has identified clear benefits from greening in the form of improved health, healthier food, lower crime and higher property values. Unresolved questions remain, however, including the most fundamental — is this a long-term strategy for legacy cities or only a transitional effort? If the latter, what is the expected outcome?

THE RESOURCE CHALLENGES OF VACANT-LOT GREENING

In the few years since the start of Philadelphia’s and Cleveland’s pioneering efforts, greening has begun to come of age as a multifaceted response to using vacant land to improve residents’ quality of life. Many cities, though, have barely scratched the surface; thousands of lots remain untreated and are at best intermittently mowed and cleaned. Looking to the future, two distinct, but closely related obstacles stand in the way of building sustainable greening efforts in legacy cities.

The first problem is lack of resources. Although the cost of greening or maintaining any individual lot is modest, the vast number of vacant lots in legacy cities means that the total cost can easily become substantial. The Cuyahoga County Land Bank spent $2.23 million from 2011 to 2015 simply to clean and mow the vacant lots it created through demolition. The cost to turn each vacant lot into a garden, a park, or a vineyard under the Re-Imagining Cleveland grant program typically ran between $3,000 and $6,000 — not much, but substantial if multiplied by the number of lots awaiting greening in the typical legacy city. Cleveland is having difficulty raising enough funds to expand their program.

Philadelphia devotes more public resources than almost any other city to greening, and yet the great majority of vacant lots in that city are still waiting their turn. In contrast to economic development projects, greening projects rarely yield direct cash returns and the benefits of increased property values, improved health, or reduced crime tend to be reflected indirectly if at all in municipal balance sheets.

Long-term sustainability of greening projects is another challenge. Maintaining attractive green spaces can be labor-intensive: While many neighborhood-based greening projects last for years, others tend to fade away as the individuals who provided the initial impetus move away or on to other things.

Many neighborhoods even lack the critical mass of concerned neighbors to get greening projects started in the first place. This is part of the reason that cities have begun selling side lots to individual homeowners, even while recognizing that these programs may have uncertain long-term outcomes. By the fall of 2017, the Detroit Land Bank had sold off more than 8,000 parcels to adjacent homeowners as side lots.

Cities have realized that to succeed, a greening infrastructure needs to be put in place to support the hundreds of individuals and groups that create and maintain green spaces around the city. Even in cities with strong support systems like Philadelphia and Baltimore, resources are limited and far more lots remain untouched than greened, while far too many cities lack even a basic citywide greening infrastructure.

Underlying these issues of cost and maintenance is a larger question: Should greening be seen as a short-term transitional activity or a long-term use of urban land? Cities like Detroit, Cleveland, and Baltimore have lost population for many decades and despite regrowth in some areas, they have no realistic prospect of regaining their peak population in the foreseeable future. Still, many local officials and others continue to see greening as, at most, a short-term interim step until “a more desirable type of investment presents itself, such as [the] construction of a new home,” as one Ohio land bank official put it.

From that perspective, many public officials view committing formerly developed urban land to permanent green uses that lead neither to new construction nor to population regrowth as the equivalent of relegating the land to nonuse. As a result, greening is often undervalued compared to other forms of public investment.

Large inventories of vacant land, however, will be a long-term reality in all but a handful of America’s legacy cities. Thus, viewing greening as no more than a short-term strategy handicaps the efforts of cities to rebuild their quality of life and ultimately their economy and market strength. At the same time, certain areas in each city have the potential for short- or medium-term regrowth. Planners in legacy cities need to assess which areas have the most potential for regrowth and ensure that vacant land in those areas is available for growth. They should also establish sound ground rules for long-term greening in other areas, recognizing that becoming a greener city can be a powerful impetus for economic and social revitalization.

A LONG-TERM STRATEGY FOR REUSE

In cities with few vacant lots where vacancy may be a temporary phenomenon, greening may be a short-term or transitional use. In others, greening should be viewed as a long-term strategy. As a recent report from Detroit Future City put it, “Too often, open space is thought of as a ‘consolation prize’ for disinvested neighborhoods that do not have the market to attract traditional brick-and-mortar development. Open space is a solution for Detroit’s future, not an unwelcomed result of Detroit’s past.”

Cities need to evaluate to what extent — by looking at market conditions, financial realities, demographic data, and economic trends — their vacant lots, both present and projected, can be reused for development within 10 to 15 years. If the answer is, as it often will be, that many lots will not be developed, that city should begin to plan for long-term green reuse, making what DFC calls a “green culture shift.” That demands thinking creatively about how long-term greening can be accomplished — reflecting the unique character of each area — and building the support system and infrastructure to ensure that green uses remain sustainable for the future.

Learn more at Next City

Who we are

The California Public Banking Alliance (CPBA) is a coalition of public banking activists in California working to create socially and environmentally responsible city and regional public banks.

Public banking serves as a powerful tool to keep taxpayer dollars in local communities.  

It is time to take power back from Wall Street banks, and reinvest in Main Street. It is time to fundamentally change how money flows through our local economies and start empowering our communities from the ground up. We must change from a model of financial stripmining and extraction, to one of sustainable growth and regeneration.

Charter

With a bank operating for the people instead of private shareholders, the flow of capital can better reflect the values of our local communities. This can be ensured by creating public banking charters based on a framework of responsibility, transparency and accountability.

People's Banks

Through locally controlled public banks, chartered with socially and environmentally responsible mandates, we can build a public banking model to become a nationwide network of People’s Banks, 100% responsive to the needs of our local communities.

Save Money

The banks would in turn provide credit to fund public infrastructure projects and reinvest in local communities, while simultaneously reducing expenses previously incurred from extractive private banks.

Community

The municipal bank model holds the potential to improve many areas that directly impact our communities including: low-income housing, small business development, infrastructure and energy, and serving the needs of unbanked and underbanked populations.

Learn more at California Public Banking Alliance

Our objective is to develop a network of public banks in California– local, ethical, and accountable to the people. Each public bank will follow socially responsible investment guidelines and support the economic development of their region.

Learn more at California Public Banking Alliance

The Los Angeles City Council is moving forward with a proposed ballot measure that would ask voters this fall whether they want to create a publicly owned bank.

In a unanimous vote, council members on Tuesday, June 26, gave the go-ahead to begin the process of adding a measure on the November 2018 ballot that would amend city charter in order to create a city-owned bank. The city’s code currently prohibits it from entering into a “purely commercial venture,” unless it’s approved by voters.

To advocates, this move is a historic one that can set the tone for other public banking movements happening across the nation.

“The outcome will reflect the pulse of the national movement,” says Trinity Tran with the Public Bank LA campaign.

In New York City, dozens of residents and community organizers in early June gathered in front of the New York Stock Exchange to launch the Public Bank NYC Coalition, a group calling for the creation of a New York City-owned bank. Oakland and San Francisco are exploring the idea. New Jersey and Michigan are also considering setting up state-owned banks.

A city- or state-owned bank would, for example, hold tax dollars and other fees or income for local or state governments. The Bank of North Dakota, created in 1919, holds all state government deposits and some local government deposits. Instead of competing with other banks for loans, it primarily makes participation loans — lending alongside other banks that don’t have the cash on hand to meet the credit needs of their clients. The model has allowed North Dakota to strengthen its local banks, resulting in having the highest number of banks per capita than any other state, according to the Institute for Local Self-Reliance.

“We would have more autonomy and more say in how our city resources are invested. San Francisco is one of the hottest real estate markets in the world but we’ve got an affordability crisis. Why are we not investing our dollars to solve that?” San Francisco Board of Supervisors member Malia Cohen told Next City. “What I’m also envisioning is how a municipal bank could better support small businesses, financing small businesses run by minorities, women, veterans — those who don’t have access to the same level of capital.”

In L.A., the city government has been exploring the creation of a public bank since Council President Herb Wesson spoke of the idea in a July 2017 speech detailing his priorities for his final term. Wesson said municipally owned banks can help develop affordable housing and handle the money flowing from the newly legal recreational marijuana market.

It has quickly picked up momentum with city officials and Public Bank LA advocates working hand-in-hand.

The Public Bank LA campaign is part of part of Revolution LA, the organization that also ran Divest LA, which pressured the city to stop doing business with Wells Fargo, reported to hold more than $40 million in securities for the city. Divest LA urged Los Angeles city elected officials to divorce the city from Wells Fargo over the bank’s phony accounts scandal and support of the Dakota Access Pipeline.

In April of this year, the Los Angeles County Democratic Party in a resolutionsupported the creation of state-chartered public banks.

And just this month, Public Bank LA helped launch the California Public Banking Alliance, a coalition of organizers in cities across the state including Los Angeles, Oakland, Santa Rosa, and Santa Barbara.

L.A. advocates envision a city-owned bank that would accept city deposits and also manage the purchasing needs the city requires. It would make loans to the city and to other sectors of the local economy, as well as investments in community banks or even credit unions. The Bank of North Dakota, until recently the only state-owned bank in the U.S., holds around $249 million in shares of local banks around that state.

However, obstacles remain for the city of L.A.

A city report in February listed a number of challenges Los Angeles would have to overcome in order to create a public bank. A big hurdle would be coming up with a substantial amount of capital to start a bank, the report said. The Federal Reserve Bank of Boston, for example, estimated that a public bank for the State of Massachusetts would need $3.6 billion in start-up capital, according to the report.

For now, Public Bank LA will be focusing on educating voters on the issue and “galvanizing support from stakeholders in the community, including grassroots groups, students, community leaders, and labor,” Tran says. “We need to mobilize for a critical mass of support, to ensure a majority win in November.”

Learn more at Next City

The tax cuts championed by President Trump are helping push the nation toward an unprecedented level of debt, heightening the risk of another financial crisis, according to the nonpartisan Congressional Budget Office.

The budget office’s annual look at the government’s long-term financial outlook paints a grim picture, projecting soaring deficits in the coming years, with debt ultimately peaking at more than 152% of the nation’s gross domestic product.

“The prospect of large and growing debt poses substantial risks for the nation and presents policy makers with significant challenges,” Keith Hall, director of the budget office, said in a statement.

The federal debt currently stands at about $15 trillion, or 78% of the size of U.S. economy. If current trends continue, it will roughly equal the size of the economy within a decade, the budget office said. The last time the debt burden hit that level was just after World War II.

The biggest problem in the coming decade stems from last year’s tax cut. It is estimated to increase the deficit by more than $2.3 trillion over the decade.

And that’s under an optimistic scenario. Under the tax law, individual income tax rates are slated to increase sharply at the end of the decade, while corporate taxes remain low. If Congress allows that individual tax hike to take effect, the tax cut’s long-term impact on the debt will begin to fade after the next 10 years.

But if Congress balks at that big tax increase — many members of Congress already have said they want to make the individual cuts permanent — the red ink would be even worse than projected, the budget office said.

The budget office did not offer a specific projection of the more pessimistic scenario, but the bipartisan Committee for a Responsible Federal Budget, an advocacy group, crunched the numbers and found that if the individual cuts were kept in place, federal debt would be twice the size of the nation’s economy, and annual deficits would exceed 13% of the GDP over the next 30 years.

The impact of the tax cut comes on top of a preexisting problem — the spiraling price of providing subsidized healthcare and Social Security for the huge baby boom generation as it moves into retirement, the budget office said.

Most of the rest of government spending is projected to decline, relative to the size of the economy, the report said. The one big exception is interest payments, which will rise as the debt increases.

Debt at the level the U.S. is currently piling up could have serious consequences, the budget office warns. The high level of red ink increases the likelihood of a fiscal crisis, threatens to reduce the income of average Americans, and gives lawmakers limited options to deal with big events that require a government response, such as another deep recession.

Rising debt also threatens to weaken the global power of the United States as it increasingly depends on foreign investors to lend money to the Treasury, the report noted.

What makes the rapidly increasing debt particularly striking is that it’s happening at a time when the U.S. is at peace and the economy is booming. The previous high point for the debt came when the nation was deep in the red from the effort to win the world war and the public works projects implemented in response to the Depression.

More recently, the U.S. plunged back into a high debt to combat the Great Recession, when Congress passed major spending increases to pull the nation out of it. But Washington not only failed to wipe out the red ink when the economy rebounded, after a few years of progress in President Obama’s second term, the government under Trump has reversed course, moving toward even higher debt levels.

Many economists feel that borrowing money to cope with an emergency of that sort makes sense — ultimately, the country emerges better off. But a big increase in the debt in the absence of any such emergency is more problematic and illustrates how the country’s intractable deadlock over taxes and government spending has led to a result — rising debt — that both parties claim to oppose.

For the next decade, the national debt is projected to surge, bringing the nation into uncharted territory unless the government adopts far-reaching policy shifts that could include deep cuts in spending on entitlement programs or significant tax increases.

The report lays out precisely what it would cost to keep the long-term debt from soaring.

To bring the red ink down to the historical average level, taxes would need to increase 17% -- $2,000 per household -- or government spending would need to be cut by 15%. Over the last 50 years, federal debt has average about 41% of the gross domestic product.

Just keeping the federal debt at its current, historically high level would require increasing taxes by 11% — $1,300 per household — or cutting spending by 10%.

The heavy level of debt is already taking a toll on taxpayers. The report projects that government borrowing costs are on track to exceed the amount the government spends each year on Social Security.

One of the biggest problems posed by rising debt levels is the way it handcuffs the government’s ability to respond to emergencies, the report notes.

Lawmakers had flexibility to respond to the Great Recession because the federal debt at that time was below 40% of the GDP — nearly half what it is now.

“If another recession or fiscal crisis occurred and federal debt was at its current level or higher, the government might have a more difficult time implementing similar costly actions in response,” the report warned.

Learn more at LA Times

On an average day at Self-Help Federal Credit Union’s branch in Fresno, Calif., ten or so people come in to sign up as new members, and around 20 people submit applications for home mortgages, car loans, small business loans or personal emergency loans (for as little as $500). Since opening in August 2015, this one branch has made more than 1,000 loans and counting. But these aren’t just any borrowers. At this branch, 70 percent of borrowers come from low-income households, and 91 percent are people of color.

Branch Manager Rosa Pereirra has witnessed those borrowers reclaim power over their financial lives in ways that still surprise her, even after 28 years in banking.

“Some of the folks coming in making $12.50 an hour, they’ve got $15,000 in their savings account,” says Pereirra. “I make a good living, but I don’t have $15,000 in my savings account.”

These borrowers and this branch are the exceptions and not, unfortunately, the rule. In the state of California alone, payday lenders make billions of dollars in payday loans per year, earning hundreds of millions in interest and fees — all largely targeted at low-income households and communities of color.

California-licensed payday lenders earned $458.5 million in fees on payday loans in 2016, according to the latest annual report from the state’s Department of Business Oversight. Nearly 75 percent of those earnings, $343 million, came from customers who took out seven or more payday loans. Some 77 percent of payday loan borrowers in California earn less than $40,000 a year — and payday lenders are more likely to set up shop in predominantly black or Latino neighborhoods, according to a separate study from the same department.

Self-Help’s Fresno branch, in the overwhelmingly Latino southeast part of the city, was the Federal Credit Union’s first “de novo” (the banking term for new) branch in the state. (Self-Help, based in North Carolina, had earlier merged with several other struggling credit unions in California.) Pereirra leaped at the chance to take on a leadership role at Self-Help, a financial institution created in 1980 to serve the underserved. She had 28 years of experience in community banking and credit unions in Fresno, as well as ten years of experience serving on the board of directors of a local food bank.

“Not to put other banks down,” she says, “But for the first time in my career, I really feel like I’m helping people.”

Pereirra realizes that other banks are still an important part of her work today, at a credit union branch that’s not yet three years old. As nonprofit organizations, credit unions can’t raise capital from traditional investors, so one of the biggest early sources of cash for a new credit union branch are other, larger banks and credit unions. Central Valley Community Bank, Fresno First Bank, and Educational Employees Credit Union (where Pereirra used to work) all have deposits at Pereirra’s branch. “They understand we’re not in competition for the same people,” says Pereirra.

Those big early deposits provide a source of cash to begin making loans, a necessary step for the branch to generate income. It’s especially important to get deposits from outside of your core market when your core market consists of underserved, low-income households and entrepreneurs who don’t have large deposits to start with.

So imagine Pereirra’s excitement last October, when, after a few months of conversations and standard financial due diligence, the Fresno-based Central Valley Community Foundation announced it was depositing $2.6 million into Self-Help Federal Credit Union’s Fresno branch, instantly making the community foundation the branch’s largest single depositor and growing the branch’s deposit base from $9.7 million to $12.3 million. Pereirra describes the $2.6 million as the equivalent to 20 home mortgages or 175 car loans. Since October, her branch has already made another $2.6 million in loans across its portfolio, she says.

Central Valley Community Foundation’s deposit is just one example of a growing trend, where community foundations venture beyond grantmaking to realize the difference they can make by moving the cash in their coffers out of Wall Street and into investments that support the same communities that give these foundations their names — and their dollars.

“This deposit, it’s not just going to help people now, it’s going to help people for years to come,” says Pereirra. “In families that I’ve touched, you have generations of non-homeownership, then all of a sudden you have one person buy a house, and it seems that the rest of the family starts to buy a home. It happens a lot in our low-income families. Once they buy a house, it makes a ripple effect with the rest of the family members.”

KEEP INVESTMENT DOLLARS CLOSE TO HOME

As of 2017, community foundations across the United States held more than $91 billion in assets, according to the latest available data from the Foundation Center, which surveys and monitors public, private and community foundations. That same year, community foundations took in another $9.7 billion, and gave out $8.3 billion in grants. It’s not uncommon for community foundation assets to grow every year.

Community foundations bring in money from a variety of different sources. Some of it comes from galas, celebrity golf outings or other fundraising events. Some comes from corporate giving programs, when companies match employee donations. Some gets bequeathed in a person’s last will and testament. And about a quarter of community foundation assets comes in the form of donor-advised funds.

Donor-advised funds are a financial instrument for people who want to take advantage of the charitable deduction on their federal income taxes, but don’t necessarily have the time to pick a specific charity to receive those funds. If you put the money you earmarked for donation in a DAF, you can take the charitable deduction on your federal income taxes for that year. Then at a later date, you can direct that donation to the charity or charities of your choice. Some people just give instructions to their donor-advised fund manager, such as “give my money away to arts and music education” or “give out grants to help beautify parks.” Some just let the fund manager decide what to do with it.

Donor-advised funds have become increasingly popular by themselves, and community foundations aren’t the only ones offering donor-advised funds as a service to those who can afford them. In 2016, the Chronicle of Philanthropy reported that Fidelity Charitable Gift Fund, a donor-advised fund managed by Fidelity Investments, knocked off United Way as the largest annual recipient of philanthropic donations.

As of 2016, donor-advised funds held $85.15 billion in assets, growing ten percent from the year before, according to the National Philanthropic Trust’s annual donor-advised fund market report. There were 284,965 donor-advised funds as of that year, up 6.9 percent from the year before. Also in 2016, $23.27 billion went into donor-advised funds, and $15.75 billion was granted out from donor-advised funds.

But where do the dollars go in between being gifted to a community foundation and being granted out later? The short answer is Wall Street, to big investment houses whose responsibility is to maximize the financial return on those assets, even though the owners of those assets can’t take them back without paying a penalty and taxes on those funds. In maximizing the financial return, donor-advised fund clients should later have more funds to give away. As Fidelity Charitable’s website reads: “Your donation is also invested based on your preferences, so it has the potential to grow, tax-free, while you’re deciding which charities to support.”

Some community foundation money does end up in community banks — in addition to the deposit it made into Self-Help Federal Credit Union, Central Valley Community Foundation also maintains its operating account at Central Valley Community Bank. But as with other community foundations, the bulk of Central Valley Community Foundation’s assets are managed by more traditional investment houses that invest those funds in stocks, bonds and other assets around the world.

All across the country, however, there’s been an uptick in the number of community foundations that are moving money out of big investment houses and into more local investment options.

As Next City reported previously, the Chicago Community Trust created the “Benefit Chicago” fund to pool its assets (including those from donor-advised funds) with assets from the MacArthur Foundation and invest that pool, totaling $100 million, into projects that benefit low- and moderate-income communities in and around Chicago.

In Grand Rapids, the city with the largest wealth inequality in Michigan, the Grand Rapids Community Foundation provided a $200,000 loan to a new loan fund that focuses on entrepreneurs who have been excluded from small business lending because of their income, net worth and other factors that often align with racial disparities.

In the Washington, D.C. metropolitan area, the Washington Regional Association of Grantmakers partnered with Enterprise Community Loan Fund to create the “Our Region, Your Investment” initiative, which provides loans to support tenants in purchasing their own affordable buildings in D.C., preventing those buildings from being sold to market-rate developers, most likely leading to displacement.

In Philadelphia, earlier this year, The Philadelphia Foundation partnered with Reinvestment Fund to create the PhilaImpact Fund, a commitment to invest $30 million in community foundation assets into neighborhood development projects that support regional growth and local initiatives benefiting low- and moderate-income households throughout Greater Philadelphia.

“We have had donors come to us saying they wished there were more opportunities for this,” says Mark Froehlich, chief financial officer at The Philadelphia Foundation. “Foundations hold so many assets that have yet to be tapped for this type of work.”

MAKE THE LAWS WORK FOR YOU, OVER TIME

People often give money to and through community foundations because they love the places they call home, and community foundations have oriented their entire operations around that premise.

“As a community foundation, we’re inherently place-based in our mission,” says Froehlich. “We put so much effort into making sure we’re spending those grant dollars well, that we’re supporting the region, making strategic decisions, but we understand there is so much more we can do with [the rest] that’s invested.”

But as much sense as it makes for community foundations to invest more of their assets into the communities after which they’re named, it’s not so simple in practice. The laws, regulations and informal customs governing community foundations are similar to those found in private foundations established by wealthy families or university endowments. Those laws, regulations and customs all typically require that the entity managing the philanthropic assets invest those assets responsibly, with a focus on optimizing financial return. It’s a concept known in shorthand as “fiduciary responsibility;” the idea is that following these protocols maximizes the amount that can be disbursed in grants every year.

The board of directors at each foundation has the final say when it comes to fiduciary responsibility. “We still have a fiduciary responsibility, so it was a board conversation and a board decision to open the account [at Self-Help Federal Credit Union] and make it available for the purposes that it’s available for,” says Elliott Balch, chief operating officer at Central Valley Community Foundation.

Time has been a key factor in moving more community foundation assets into more place-based investments. Time to educate board members and encourage them to learn about the potential to use both the grantmaking and investment sides of the community foundation to make a difference. And, even more crucially, time for entities like Self-Help Federal Credit Union or Reinvestment Fund to reach a point in their own life cycles that they’re positioned to pass the “smell test” of a community foundation board looking to judge the safety of its investment.

If you went back to 1980, when Self-Help was founded in North Carolina, many fewer organizations had committed to the specific mission to invest in historically marginalized communities. Those that did were generally very tiny — a credit union here, a community bank there. Reinvestment Fund wasn’t even founded until 1985, originally known as the Delaware Valley Community Reinvestment Fund.

Organizations like Self-Help or Reinvestment Fund would start to make real headway in the mid-1990s, thanks to a few key policy changes. One was the 1994 creation of the Community Development Financial Institutions Fund, or CDFI Fund, an arm of the U.S. Treasury that provides grants and other financial support to federally-certified community development financial institutions (CDFIs). One of the requirements for federal CDFI certification is that the entity, whether a bank, credit union, loan fund or venture fund, must have 60 percent of its lending, investments and other business in low-to-moderate income census tracts. Self-Help and Reinvestment Fund became two of the first federally-certified CDFIs.

Another key policy tweak was the new rules under the Community Reinvestment Act, put in place in 1995. The new rules emphasized that banks could meet their obligations under the Act by investing in or lending to federally-certified CDFIs.

With the CDFI Fund and the new Community Reinvestment Rules in place, federally-certified CDFIs started gaining traction all around the country. There are more than a thousand of them today, in all fifty states plus Puerto Rico and American Samoa. More importantly, some CDFIs, like Self-Help and Reinvestment Fund, started to grow larger. Bigger balance sheets and long-term track records of success are key to securing an investment commitment from a community foundation board.

Today, Reinvestment Fund has around $465 million in assets, having loaned or invested over $2 billion cumulatively since 1985. While it’s now financing projects all over the country, Reinvestment Fund remains committed to its home city: out of $203 million in new loans made in 2017, $62 million went to projects in and around Philadelphia. On top of all that, Reinvestment Fund is one of six CDFIs with a rating from S&P — the same ratings agency that Wall Street investors use to assess the risk of investing in corporations or state and local bonds. With an “AA” rating, Reinvestment Fund is rated as a safer investment than bonds issued by the states of Illinois, West Virginia, Pennsylvania, Michigan, Kansas, Connecticut, California, New Jersey or Kentucky.

Reinvestment Fund became one of the first CDFIs to use that rating to raise money Wall-Street style, going through a successful $50-million bond issuance last year, raising capital from mutual funds and pension funds the way corporations do.

“I’ve spoken with other chief financial officers, who have said it can be difficult to get approval for an investment fund like this,” says Froehlich. “Reinvestment Fund made my job easy, being so good at what they do, having that rating, having done a public bond issuance.”

Self-Help Credit Union in North Carolina and Self-Help Federal Credit Union (which has branches in California, Illinois, Wisconsin and Florida) hold more than $2.5 billion in assets combined. Self-Help has never lost a single dollar of any depositor since it was founded in 1980. Being a credit union also means being a regulated financial institution — the National Credit Union Administration (NCUA) regulates credit unions across the United States. In the same way the Federal Deposit Insurance Corporation (FDIC) safeguards banks, the National Credit Union Administration insures credit union depositors up to $250,000. In order to protect itself from having to pay out too much in insurance claims, the NCUA closely watches credit union bottom lines, seeking to prevent failure; the FDIC follows a similar protocol.

Given this backdrop, it was relatively easy for Central Valley Community Foundation to move some assets into a money-market account at the Fresno branch of Self-Help Federal Credit Union. The first $2.6 million was the easiest — that money came from donors who aren’t as concerned with growing their philanthropic assets over time through investing. Now that the community foundation has an established Self-Help money-market account, they can offer new donors the opportunity to have funds deposited into that account before granting them out later, and they can approach existing donors to see if they’d be interested in transferring previously donated dollars into the account.

“It was not a difficult conversation with the board,” says Balch. “For us, this is part of a range of investment options we offer our donors. From that perspective as a board member it’s not difficult as long as we are disclosing information, being transparent about providing options.”

PITCH THE MISSION TO INVESTORS

Even with a track record of success over time, it’s not automatic that place-based foundations will suddenly start pouring money into mission-driven financial institutions with a focus on place-based investments. It has also taken resources — people, to be specific.

Every year, in places like San Francisco’s Fort Mason Center for Arts & Culture or big hotels in Chicago or New York, people with an interest in using finance and investing to address social issues — often calling themselves impact investors — gather to discuss their latest projects and pat each other on the back for a job well-done. Over the past two years, one of the regular faces at these conference halls and cocktail hours has been Annie McShiras, who also works at Self-Help Federal Credit Union.

The credit union hired McShiras to work the crowd at these conferences and cocktail parties, securing investments for their money market account or certificate of deposits. At times, it’s a frustrating job; most self-proclaimed impact investors gravitate to newer, sexier-sounding ventures such as a more efficient solar panel or an easier way to purify drinking water. But McShiras has found traction among a subset of those who come to these conferences and cocktail hours — community foundations.

“More and more we’re seeing community foundations pay attention to the ways that their investments are having an impact on the communities where they work,” says McShiras. “We’re seeing a shift in terms of those foundations wanting to align their investments with their values, and start making more impact investments or socially responsible investments with money that would normally be utilized for market-based investments.”

Just last year, in addition to the Central Valley Community Foundation’s $2.6-million deposit, McShiras scored an $8-million deposit for Self-Help from the Silicon Valley Community Foundation, the largest community foundation in the United States (which currently faces its own #MeToo revelations).

Generally, McShiras begins conversations with community foundations that may already support the credit union’s free tax-preparation services, or its financial coaching and financial empowerment programs. Foundation grants may also support zero-interest loans for renewing DACA work/education permits, which cost $495; or for subsidizing naturalization fees, which, according to Pereirra, currently run around $1,000. Community foundations may already support downpayment assistance for homes, directly or indirectly connected to the credit union.

McShiras describes her approach this way. “Often [we] say, ‘we’re so happy to be working with you on the grant side of things, I want to draw your attention as well to this program we have called Mission-Supportive Deposits, where you can support the work that we do and make a good return on your cash savings by investing in our credit union through one of our cash investment options.’”

For foundations in the same community as one of the branches they invest with, such as the Central Valley or Silicon Valley Community Foundations, it’s easy to become a member organization and open up a deposit account. For those not based in a community where there’s a branch, it’s a bit more complicated.

“Also, because we’re a credit union, a member-owned financial institution, and we’re not paying outside shareholders, we actually pay a pretty decent return on our savings products that often beat out what some of those same investors are getting from big banks on long-term certificates of deposit or money-market accounts,” McShiras adds.

For bigger deposits that go well beyond the $250,000 deposit insurance limit, one key learning experience has been to understand the questions that community foundation boards may have about the relative risk of making a deposit larger than the insured amount.

As McShiras notes, being a regulated financial institution means being a safer investment than almost any stock or bond — just because they focus on the most vulnerable populations doesn’t mean they’re taking irresponsible chances, like a subprime mortgage lender. For 38 years, Fresno’s Self-Help branch has focused on how to make responsible loans to low- and moderate-income borrowers. The credit union’s delinquency rate, or the percentage of loans that are late or behind on payments, is just 0.86 percent, McShiras says. Other impressive numbers include the $2.5 billion in assets and 130,000 members across five states on both coasts and the Midwest.

“All of these reasons have helped make the case for investors like Central Valley Community Foundation to feel assured they’re making a safe investment above our insurance limit,” says McShiras.

Her job, while still frustrating at times, is getting easier. “Initially it was a series of questions we were getting from investors about what our risk profile is,” says McShiras. “Now, I make a proactive case.”

FOCUS ON WHAT MATTERS

A while back, Balch tells me, a Fresno merchant left Central Valley Community Foundation a few hundred thousand dollars in cash after he died.

“He was a big parks advocate when he was alive,” Balch says.

That money has turned into dollars to rally voters around a local ballot measure, scheduled for later this year, to increase funding for parks in Fresno through a sales tax.

“It’s a few hundred thousand dollars we’re putting in, but we’re hoping over 30 years that it becomes a billion dollars of investment in the fabric of our community — parks, art, trails, after-school programs,” Balch says. “Where before we were making grants of five or ten thousand dollars for parks programs and music programs, we’re trying to turn that into a return thousands of times over.”

The foundation’s Self-Help investment fits right into that vision, according to Balch. The loans that Self-Help makes — for a family’s first home, or for a car that gets a parent to a better job to pay the mortgage — help to ensure that the people who will vote for that ballot initiative can actually benefit from the parks it would help build, as would subsequent generations of their families.

“What Self-Help is doing is providing maybe a family’s first access to decent credit for a reasonable home loan or car loan that’s not usurious,” Balch says. “And that home, when they’re not worried about having to move, that [becomes] a base of stability for that family’s kids, that’s going to take the parents’ minds off where are we going to live next week and put it on how do I read to my kid and make sure they’re getting their homework done. The kid can focus on getting some homework done. When we’re thinking about one generation to the next, those are the key moments.”

Learn more at Next City

Two and a half miles of walking, two failed attempts to cash a $15 check, one toy left behind at a checkout counter and $14 in fees for financial transactions that ordinarily wouldn’t cost me a dime.

That was my tally after a recent, frustrating morning in Hollywood spent standing in lines, filling out forms and wondering if I’d have enough money or time to get it all done.

The exercise wasn’t for fun. Rather, I was participating in a sort of financial scavenger hunt that aims to replicate how life works for the millions of Americans — about a quarter of all households — who either don’t have bank accounts or still rely on storefront check cashers, payday lenders and prepaid debit cards to manage their money.

The event, called FinX — as in “financial experience” — was held this month during an annual conference organized by the Center for Financial Services Innovation and attended by executives from banks, credit unions and financial technology firms, as well as consumer advocates and even federal regulators.

The nonprofit think tank, backed by charitable foundations and major banks, advocates for better financial products, especially for Americans on the fringes of the financial system.

It hopes the exercise can teach just how expensive and time-consuming it can be to manage money for consumers who are known as the unbanked or underbanked.

“The basic idea is, for as long as we’ve been doing this and as dismal as the facts about American financial health are, we still talk to people who really don’t get it,” said Jennifer Tescher, founder and chief executive of CFSI. “Everyone walks away with the same reaction: that this is intensely frustrating, it's more expensive than it should be and they can’t believe millions of Americans have to deal with this.”

About 27% of U.S. households are either unbanked or underbanked, according to the Federal Deposit Insurance Corp. Despite economic growth and the proliferation of online services that have made it easier than ever to open and access bank accounts, those figures have remained little changed since the FDIC started tracking them in 2009.

What’s more, those households — which are more likely to be poor, less-educated, young, black or Latino — pay a lot for their financial services. CFSI estimated Americans spend more than $100 billion every year for products or services such as payday loans and check cashing, as well as overdraft fees, effectively a penalty for being short on cash.

On June 6, other participants and I gathered in a conference room at the Loews Hollywood Hotel at the Hollywood & Highland shopping center and were put in groups of three or four. Each team was assigned a different L.A. neighborhood and asked to complete several transactions, including cashing a few checks, getting a debit card, asking about a loan and buying a small gift.

There was an extra catch: It all had to be done in about two hours, a time limit many of us thought was generous given our own experiences with financial products.

I was teamed up with Ray Chay, director of operations at a high-interest consumer lending company, and Sybil Mulokwa, a manager at a company that develops software for small banks and credit unions.

Though all three of us work in finance to a degree — I primarily cover finance for The Times — none of us have much experience using the kind of alternative financial services we’d need to get from our list.

We all have bank accounts, we all have savings and we all manage our money online. For FinX, we tried to pretend that wasn’t the case.

We were assigned to an area close to the hotel and started out thinking we’d be able to cruise through our to-do list with time and money to spare.

“There was a general sense of optimism — misguided optimism,” Mulokwa said.

In the end we got through only about half our tasks and still blew past our deadline. Even if we’d had more time, we wouldn’t have had enough cash to finish.

“There’s a lot of fees associated with all these services,” Chay said. “And it’s all for stuff I don’t think about at all.”

Our first stop was on Sunset Boulevard at a Money Mart, an outlet that cashes checks, makes loans and offers Western Union money transfers.

We started with our checks — a payroll check for $70 made out to Chay and a $15 personal check made out to me. Chay and I had to create accounts with Money Mart, so we each provided a driver’s license, address, phone number and thumbprint.

Chay’s payroll check was processed relatively quickly, but it cost more than we’d expected. He had called another check-cashing shop, which quoted him a fee of 2.25% of the face value of a payroll check. That would have been $1.58 for his check.

But most shops also charge a minimum fee. In Money Mart’s case, it was $3, meaning we paid more than 4% of the check’s face value.

Money Mart charges substantially more to cash personal checks: 12% of the face value, with the same $3 minimum. For my $15 check, that fee would amount to 20% of the face value.

But Money Mart wouldn’t cash it. The check, written from a Chase checking account, had only the name of the account holder — no phone number or address.

The clerk, who asked not to be identified, asked if I had a phone number for the check writer. I didn’t. A few minutes later, the clerk returned to tell me she couldn’t cash the check. We’d have to try somewhere else.

Before leaving, we tried to cross a few more items off our list. We bought a $20 money order, for a fee of $1.29. We also asked the clerk if we could get a $500 loan — we weren’t going to borrow money, we just needed to ask — and were told we couldn’t borrow that amount. We’d have to borrow much less or much more.

Money Mart offers payday loans, which under California law max out at $255 with a $45 fee. It also offers installment loans, which are larger and are paid off over months or years. But, as with many subprime lenders in California, the smallest installment loan Money Mart offers is $2,500 — at an interest rate of either 139.9% or 224.9%, according to a form taped to the bulletproof teller window.

Loans smaller than $2,500 can charge interest of no more than about 30% under California law. But there’s no limit on interest rates for larger loans, so many subprime lenders simply don’t offer anything below $2,500.

“I was like, ‘This is highway robbery,’” Mulokwa told me a few days later. “Still, right now, I’m stunned.”

We left Money Mart at 9:50 a.m., having spent nearly 40 minutes there and accomplishing fewer tasks than we’d hoped. At our next stop, too, we’d lose precious time.

We headed for a Walgreens, where we’d try to buy a prepaid debit card — often the only type of noncash payment available without a bank account — and make some purchases.

We found the rack of prepaid debit cards and started to compare prices and fees of the five or six different offerings.

Chay had researched prepaid cards on our walk and found an American Express prepaid card with low fees and good reviews, but it wasn’t available at Walgreens and we weren’t in a position to spend more time shopping around.

We settled on the option with the lowest purchase price, a $1.95 card from Green Dot, a Pasadena company that was a pioneer in the prepaid card industry.

After choosing our card, we picked out gifts for a fictitious niece: Silly String, a knockoff Beanie Baby and a can of “noise putty,” which together should have cost a little less than our limit of $15. We grabbed a bottle of water and some gummy bears — buying snacks was on our list, too — and headed for the cash register.

First we bought the debit card and gave the Walgreens checker $20 to load onto it, then tried to purchase the rest of our stuff. But the card wouldn’t work.

The checker explained that we needed to activate the card. To do that we’d need to wait at least 15 minutes. It was already 10:25. We had less than an hour to go, and would spend a quarter of an hour waiting to be able to use our money.

Yes, we could have used cash. But what if we wanted to buy something online?And 15 minutes isn’t that long, but we’d later learn that other FinX teams had to wait an hour or more to activate some cards.

With a few minutes to kill, we left our snacks and toys at Walgreens and headed across the street to a Bank of America branch, where we’d check off a few more goals: asking about a checking account, a savings account and a $500 loan.

A teller said we could open accounts but would have to pay a monthly fee of $8 on either type unless we met minimum balance requirements or set up direct deposit.

Bank of America doesn’t offer personal loans, the teller said, but we could apply for a credit card and might even get a same-day approval if we qualify. If we have bad credit — or no credit history, more typical of the unbanked — we could apply for a secured credit card, which comes with a higher interest rate and would require us to make a security deposit of at least $300.

In either case, if we needed money today, we’d be out of luck: We’d have to wait at least a few days for the card to arrive in the mail.

“You need money or time to do these things, and we have neither,” Mulokwa said before we left.

We activated our debit card and went back to Walgreens, but realized we weren’t going to have enough money on our card to make all of our purchases.

The debit card cost only $1.95, but it also had a $7.95 monthly fee — charged the first time you make a purchase. So instead of $20 to work with, we really had $12.05.

We left the noise putty behind, paid for the rest and headed out.

“Leaving the toy behind, that felt like a real trade-off,” Chay told me later.

From Walgreens, we headed for Continental Currency Services, another check-cashing shop. It was already past 11 a.m., and we were supposed to be back to the hotel by 11:15.

We stood in line for a few minutes, all of us noting that the shop not only cashes checks and offers Western Union money transfers, but also sells lotto tickets, both from behind the teller windows and from a vending machine in the lobby.

When I made it to the window, the teller took one look at my check, asked if I had a number for the check writer and, when I told her I didn’t, said she couldn’t cash it.

Without that $15, all we had was 48 cents on a debit card and not quite $24 in cash — not enough to send a $30 money transfer, one of the remaining items on our list. And we’d run out of time for a few more goals, including reloading our prepaid debit card and visiting a pawn shop to see what we could get in exchange for a watch.

We headed back to Hollywood & Highland, knowing we’d be back late.

For Chay, the biggest lesson was that his customers — who are typically in some kind of financial bind — may be just as pressed for time as they are for cash.

“The customer I serve spends a lot of time, potentially in their off time after work or on the weekends, trying to accomplish these tasks,” he said. “Maybe the best thing I can do is to take as little of their time as necessary.”

Chay said he'd like his co-workers to go through FinX themselves. The program is a fixture at CFSI's annual conference, but the group also offers to run FinX for companies that want insight into this side of the financial world.

Mulokwa, too, said she has a new appreciation for the “time tax” of all these services, but her biggest takeaway from FinX is that she doesn’t know enough about how underbanked consumers live their lives.

“We haven’t really taken the time to immerse ourselves in that world,” she said. “And we need to learn before we go build. We’re going to talk to users who are in these situations and spend time observing them. That’s all I’ve thought about.”

Learn more at L.A. Times

Walmart Inc. has been aggressively building up its e-commerce site in the last two years as the nation’s largest retailer challenges online giant Amazon.com Inc. and other internet mass merchants.

But Walmart still operates 4,761 Walmart stores and 597 Sam’s Clubs stores in the United States that are susceptible to being undercut on price by online rivals that in some cases legally don’t have to collect sales tax.

That’s why Walmart cheered when the U.S. Supreme Court ruled Thursday that states and localities may require the collection of sales taxes on all purchases over the internet — whether they have a physical presence in the region or not. The ruling in effect standardized the basic sales-tax rules for traditional physical retailers and online stores.

“We applaud the Supreme Court for closing a loophole that has existed for over two decades and produced an uneven playing field for Main Street businesses,” Walmart said.

“Local communities are also the winners because they will now be able to collect sales-tax dollars owed and needed to fund public services,” the chain said.

Other bricks-and-mortar retailers joined Walmart in welcoming the decision on grounds that the ruling brings a level of fairness to the marketplace, where physical stores aren’t placed at a competitive disadvantage simply because they must add sales tax to products as required by law.

The tax discrepancy is just one reason why dozens of retailers, facing an onslaught of competition from Amazon and other online stores, have folded, filed for bankruptcy or scaled back their operations in the last two years. They include Toys R Us Inc., Sports Authority Inc. and Gymboree Corp., and their troubles have resulted in hundreds of store closures and gaping holes in many U.S. shopping centers.

Indeed, S&P Global Ratings said the Supreme Court ruling “may also help local retail malls avoid a competitive disadvantage, potentially supporting local government assessed values and downtown commercial cores.”

“Today’s decision is a positive step toward creating a level playing field for retailers,” Tom McGee, president of the International Council of Shopping Centers, a trade group, said in a statement.

With the ruling, physical retail stores have one less reason to cite for their financial problems, said Edward Yruma, an analyst with KeyBanc Capital Markets.

“They have, in some ways, been hiding behind excuses like a tax differential,” Yruma said, noting that many consumers now prefer online shopping as much for convenience as for price.

U.S. consumers in the future might see a higher tab for goods bought on the internet as a sales tax becomes more uniform for online merchants.

Amazon, for example, now collects sales taxes across the country in states that have a sales tax and where Amazon has a physical presence with distribution centers or other facilities, such as California. Until Thursday’s ruling, that physical presence was a key criterion for collecting a sales tax.

“Amazon had pretty much decided to start charging, collecting and remitting sales tax for those jurisdictions that imposed a sales tax,” said Gregg Wind, a partner at the accounting firm Kallman, Thompson & Logan in Los Angeles.

But a sales tax often was not collected on purchases made from third-party sellers that appear on Amazon's website, and critics contended that gave the web platform a price edge over other retailers that are required to collect a sales tax.

The ruling will have a major effect on Amazon’s third-party sellers, who will now have to calculate sales taxes from locality to locality for each transaction. Those third-party sales account for about half of Amazon’s total sales, according to S&P Global Ratings.

“This is not good for small businesses” operating online, said Mark Faggiano, chief executive of TaxJar, a Boston company that helps e-commerce sellers manage sales taxes. “It’s a huge burden.”

Amazon offers sellers software that helps them calculate sales taxes for each customer depending on their location. But Faggiano said the software helps those sellers remit the collected taxes to government agencies in only three states: Washington, Oklahoma and Pennsylvania.

Amazon did not respond to a request for comment.

The effect of the ruling “is likely going to be substantial” on internet firms, said Jeffrey LeSage, Americas vice chairman for taxes at the audit and tax advisory firm KPMG.

“Businesses will now need to prepare to closely examine and retrofit their operations to determine where they have to collect tax, whether their goods are taxable, and how they are going to handle the new tax computation, filing and remittance obligations,” LeSage said in a statement.

Regardless, the high court’s ruling is unlikely to put Amazon — which had sales of $178 billion last year — at much of a disadvantage, said Tuna Amobi, an analyst at CFRA Research.

“We see a relatively limited exposure” for Amazon, “which already collects a sizable amount of sales taxes across many states where it qualifies as taxable due to its sufficiently large physical presence,” Amobi said in a note to clients.

Amazon, he added, “is unlikely to cede a meaningful portion of its market share to traditional retailers as a result of the ruling, which could leave smaller online retailers more exposed.”

Amazon’s shares slipped $19.86, or 1.1%, to $1,730.22 on Thursday, while EBay fell $1.25, or 3.2%, to $38.01 and Walmart edged up 60 cents, or 0.7%, to $84.21.

The U.S. Government Accountability Office said in November it estimated that state and local governments could have gained as much as $13 billion in 2017 “if states were given authority to require sales tax collection from all remote sellers.”

The ruling might create more legal questions as states pass their own statutes to raise more of that online tax revenue, said Bruce Ely, a tax attorney at the law firm Bradley Arant Boult Cummings.

In addition, the ruling might spur Congress to pass a law setting federal standards for all retail tax collections. Walmart said it expects to “work with Congress and state legislatures to help ensure a level playing field exists for all retailers.”

Learn more at L.A. Times

On May 24, a multi-racial gaggle of Congress members wriggled for prime positioning around Donald Trump as he prepared to sign the Economic Growth, Regulatory Relief, and Consumer Protection Act into law. The bill considerably scales back the Dodd-Frank Act reforms passed in 2010 in response to the financial crash and was passed with the votes of 33 Democrats in the House and 17 in the Senate. It essentially frees small community banks and credit unions from many of the Dodd-Frank regulations, including reporting requirements that would help identify racially discriminatory banking practices.

“By liberating small banks from excessive bureaucracy,” said Trump at the signing, “we are unleashing the economic potential of our people.”

It also unleashes a greater potential for small banks to financially burden people of color and people with low incomes. Under Dodd-Frank, banks large and small were subjected to stricter regulatory monitoring, but the new law exempts small banks from much of that oversight. During the Occupy Wall Street protests, many activists pushed for people to close their accounts at large, corporate banks and to, instead, open accounts in smaller community banks and credit unions, under the premise that they are less prone to exploitative banking practices. That reputation is not well deserved, though, according to a study released today on the “Racialized Costs of Banking” by the D.C.-based think tank New America.

Analyzing data collected from surveys from over 1,300 financial institutions, the study finds that community banks—or “Main St. banks,” as they’re identified in the report—also discriminate against black and Latinx customers, particularly when it comes to the fees associated with opening, maintaining, and closing checking accounts. Not only that, but the relationship-based character that neighborhood banks often sell themselves on—where bank staff use discretionary power to assess or waive fees and penalties based on their relationship with the customer—has been a driving force for discrimination at the teller window.

For example, the study finds that overdraft fees are higher in banks located in predominantly black and Latinx neighborhoods when compared with the overdraft fees assessed in white communities. Not only that, but banks in black and Latinx neighborhoods are more likely to use credit-screening agencies for opening accounts than they are in white neighborhoods.

Other findings from the report:

Banks in predominantly African-American neighborhoods require higher opening deposit charges for starting a basic checking account.

The average minimum balance needed to maintain a checking account without incurring fees is $625.50 in majority-white neighborhoods. In Latinx neighborhoods, it’s $748.80. In black neighborhoods it’s $870.50. In some non-white neighborhoods it’s $957.10.

Because of racial wealth and income gaps in the U.S., people of color end up needing to deposit a higher percentage of their paychecks into their checking accounts to avoid fees or closure. African Americans and Latinx Americans usually have to deposit 6 percent of their take-home checks, on average. For whites banking, that amount is only 3 percent of their checks.

There is essentially a tax on being black and brown when banking in America no matter the size of the financial institution. Segregation only exacerbates that tax, according to the study. We know that in cities like Atlanta, segregation allows for shady payday loan and check-cashing counters to be concentrated in black neighborhoods. These maps created for a prior New America study on where financial institutions are located, show what that looks like in other cities.

The red dots in the first map are alternative services like check-cashing counters, the shading in the second two maps shows where minority and low-income residents are concentrated.

According to the “Racialized Costs of Banking” study, segregation also ends up costing people of color when they use the traditional banks in their neighborhoods. For black people, that means paying, on average, $190 more in costs and fees for maintaining checking accounts than do whites. Latinx pay an average of $262 more in costs when banking.

These are not marginal expenses, especially for those on the lower ends of the payscale who have far less disposable income to work with. As the study’s authors write, “These practices powerfully illustrate how banks can engage in racially discriminatory practices that effectively siphon wealth out of communities of color through the very financial products and services that are considered to be tools for wealth and investment.”

Learn more at CityLab

Coming soon to Slovenia: a brand new city that runs completely on cryptocurrency.

If all goes according to plan, BTC City will rise from the ashes of a former commercial shopping district in the country’s capital of Lubljana, offering wallet-less shoppers and wide-eyed tech enthusiasts a chance to engage in a more modern brand of conspicuous consumption. Every store in the 1.5 million-square-foot plot will stop accepting cash and start accepting crypto.

It’s a big deal for the small, former Yugoslav country. But it’s small potatoes compared to some other municipal efforts to wade into the world of digital financial systems. BTC City’s aim is to get people to use the dozens of digital currencies that already exist. Elsewhere, cities are vying to create new ones from scratch.

The list of cities experimenting with cryptocurrencies is diverse, and so are their goals. Dubai launched emCash in 2017 to flex its high-tech prowess as a “smart city.” Berkeley, California, is exploring a city-branded cryptocurrency effort to fund municipal bonds, making up for inadequate outside investment. Cities in Venezuela are bartering with Petros in a desperate—and questionable—attempt to raise funds amid the country’s economic crisis. And Seoul’s mayor has floated the idea of creating S-coins to fund social welfare programs for the sake of efficiency and advancing technology.

What’s less clear, though, is how exactly a city-specific cryptocurrency would work—and what cryptocurrencies can do for a city that cash can’t.

Why go crypto?

The first thing to understand is that there’s a major distinction between government-backed cryptocurrency and the more well-known financial instruments like Bitcoin or Ripple. Those virtual currencies are essentially “built by air, and backed by air,” said Sheila Warren, project head of blockchain and distributed ledger technologies at the World Economic Forum. In other words, their value is determined by the complicated coding it takes to mine them, in the case of Bitcoin, and how much people are willing to pay for them.

When a city launches its own cryptocurrency, however, the digital tokens are likely backed by some sort of city asset. Most local cryptocurrencies aren’t trying to disrupt money. They’re just opening up more (and more efficient) avenues for citizens to invest in their cities and buy goods. In turn, they aim to create more ways for cities to fund projects they previously couldn’t afford.

Berkeley’s cryptocurrency, for example, is meant to offer citizens an easier way to buy municipal bonds, which could help the city build affordable housing, rebuild transit systems, and support social services.

“At some point in history we had to invent municipal bonds, and now we’re just taking it to the next level.”

It’s still in its proposal and development stages, but if implemented, it would be “like a non-profit, special-purpose vehicle, meant to fund social good,” Berkeley Vice Mayor Ben Bartlett told CityLab in February. Instead of selling bonds to underwriters, who resell them to brokers and institutions at mounting prices, the government would sell bonds directly to citizens, who would essentially crowdfund each one. It’s a cheaper and easier system than traditional municipal bonds, and less volatile than traditional cryptocurrencies: The tokens would be digitized and blockchain-based, but they’d act as a security, not as a speculation tool.

“This proposal is an important step in taking power from Wall Street and giving it back to the people,” Bartlett said in a press release in April.

A cheaper way in

It’s that spirit of accessibility that many crypto-advocates highlight. “If you tokenize these bonds, then it’s possible for the average person to make a small investment,” said Campbell Harvey, a finance professor who teaches cryptocurrency at Duke University. An actual bond may be issued at thousands, even millions, of dollars, which is out of reach for most of the community—and the process of buying one is cumbersome.

By switching to a tokenized system, a college student who cares about poverty in the city can buy $20 worth, knowing his contribution is going toward, say, an affordable housing project. He can then use his tokens on other city goods, like transit rides or groceries, or he can hold on to them as an investment.

“So he’s able to enter the game with the amount of disposable cash he’s got,” Harvey said. “It essentially brings people that wouldn't usually be investors into the market.”

Warren sees this as just the next logical step in the future of city financing. “At some point in history we had to invent municipal bonds, and now we’re just taking it to the next level,” she said. What cities like Berkeley are doing is taking a well-known system that people are comfortable with and securitizing it, or backing the bond with a new kind of currency.

After Bartlett formally proposed developing a “blockchain-based micro-bond” at an April city council meeting, five out of nine city council members expressed support, which means Bartlett is moving forward with designing an implementation plan. Other hypotheticals have been floated, too. Prosperous cities could back their currencies with property values, as Fouad Khan, an associate editor at Springer Nature, imagines in his vision of an “NYCToken.” Each digital token could be worth the market value of 1 square centimeter of New York real estate. At a current cost per square foot of around $1,500, that’s about $1.60 per token. “If it’s valuable to live in the city, then the currency would be valuable,” said Khan, who has previously been a consultant for the World Bank.

After all, the primary investors in a city-based cryptocurrency should be the citizens who want to buy into their city, Khan said. “Every time the price of currency goes up, not only are they getting more services, but they’re also getting a better living experience for themselves,” he said.

Dubai’s emCash is a different animal altogether, more akin to Slovenia’s BTC mall than Berkeley’s crypto-funded social investment plan. The city’s goal is to transition into a cashless society, giving residents the ability to buy goods with emCash just as easily as they’d use cash or, say, ApplePay. Trading one kind of money for another may seem superfluous, but if the ultimate goal is to become completely “smart,” Warren said, hosting even the smallest transactions on a city-backed blockchain brings the city one step closer.

What could go wrong?

There are unique drawbacks to each city’s methods of leaning away from traditional money. In developing a cryptocurrency that acts as an investment vehicle, cities are creating the potential for another bubble, experts say. “You’re going to have trillions and trillions of dollars coming in that are, maybe in the short term, great for [your city],” Khan said. “But at the same time, that’s a lot of money coming in that’s being diverted from other places.” As Bitcoin investors (and armchair speculators) have seen, cryptocurrencies can be extremely volatile. Once the novelty and excitement has worn off, investors could engage in a digital run on the bank, or there might just be fewer interested ones down the line.

There’s always the possibility for panics, Warren said. But traditional financial institutions have safeguards to keep that from happening, and future crypto-cities others could implement similar ones to make their currencies less risky.

Then there’s the security concern. Cities that want to launch their own cryptocurrency will need have a better grasp on blockchain and cybersecurity—which, as CityLab has reported before, isn’t often the case. “If it’s not secure, then it’s going to be hacked,” said Harvey. “There’s a lot of variables here in terms of how [cities] set up their blockchain, but essentially think of somebody going in and stealing the tokens, creating transactions for residents who don’t know their tokens are being taken, and then dumped.” Berkeley’s city council, for example, is teaming up with UC Berkeley’s Blockchain Lab, as well as an online municipal finance group, to develop their plan.

Of course, all this effort is moot if cities can’t get their residents to trust cryptocurrencies. Harvey thinks that shouldn’t be difficult, given how quickly interest has grown. Colleges are now teaching blockchain—Harvey’s own class jumped from a few dozen students to more than 200 over the last four years. And cryptocurrency has come a long way since its early days. “These cryptos have a different reputation now, and people are very open to the blockchain idea,” he said. “There’s a lot of hype, and a lot of positive PR.”

Warren is more skeptical, arguing that there’s still a good amount of anxiety around cryptocurrency, making it a double-edged sword. “There is quite likely a class of person who would go forward with it because they’re attracted to the idea that it is innovative,” she said.

Certain cities are more adept to experiment, and better-suited to support their own financial markets. New York and California, for example, are brimming with tech geeks and hedge fund managers who are savvy (and wealthy) enough to invest. Likewise, their cities are trustworthy (and prosperous) enough to be good bets. But a growing economic polarization along geographic lines means effective local currencies could simply end up helping rich cities get richer, leaving their smaller counterparts behind.

And even within cities, the new investment model could unwittingly exacerbate inequality: in the process of funding projects that help disenfranchised communities like the homeless, cities create wealth for the wealthy.

“At this point I tend to be in favor of any solution that’s going to alleviate the plight of the most vulnerable,” Warren said. “But I do think over time we have to think about what it means if we’re really creating and adding to stratification of society through the processes we’re using to alleviate those issues.”

Learn more at CityLab

For most Americans, access to decent, affordable rental housing remains cruelly beyond reach. Only in 22 counties in the United States is a one-bedroom home affordable to someone working 40 hours per week at federal minimum wage.

That’s from the National Low Income Housing Coalition (NLIHC) report, which outlines the mismatch between wages and rent every year.

For people earning minimum wage, the situation is untenable. At $7.25 an hour, they would need to put in roughly 122 hours per week, every week of the year—or magically, work 3 full-time jobs—to afford a two-bedroom home at the national average fair market rent; for a one-bedroom, they would need to put in 99-hour weeks, or the equivalent of two and a half full-time jobs. (Fair Market Rent is an annually updated government estimate, typically the 40th percentile of the gross rent in an area.)

But this isn’t just a problem for the poor. NLIHC estimates that the average renter’s hourly wage in the United States is $16.88. The average renter in each county makes enough to afford a two-bedroom in only 11 percent of U.S. counties, and a one-bedroom, in only 43 percent.

The national “housing wage” in 2018 is $22.10 for a modest two-bedroom rental home and $17.90 for a one-bedroom, the report estimates. (That’s how much an average renter in the U.S. would need to make to afford a modest apartment at fair market rent, without paying more than 30 percent of their income towards housing.)* Of course, there's widespread geographical discrepancy in rents and wages across the country. You'd need to earn $60.02 to reasonably afford a two-bedroom in San Francisco, California, but in Little Rock, Arkansas, it's about $15.60. Still, in not a single state, city, or county can someone earning federal or state minimum wage for a 40-hour work week afford to rent a two-bedroom home at fair market rent.

NLIHC’s first map below shows the wages a person would have to make to afford a two-bedroom in each state. (Keep in mind: HUD’s Fair Market Rents, when aggregated across an entire state, may obscure highs and lows in local markets.)

The second map shows which counties a person on minimum wage would have to work more than 80 hours a week—double the standard workweek—to afford a measly one bedroom. Here, the variation within a single state is more evident:

It’s notable that in all of the 22 counties where a one-bedroom is affordable, that minimum wage is set higher than the national minimum of $7.25. Still, raising wages alone cannot dissolve this mismatch. The incredible shortfall in affordable units remains the more stubborn, intractable problem.

The rental demand has been swelling, in particular since the Great Recession, and the supply hasn’t kept up. What’s more: While including 10-15 percent affordable housing in a new development can yield profits, the new units created in the last decade or so have overwhelmingly catered to the rich. Between 2005 and 2015, apartments costing $2,000 and more increased by 97 percent, according to Harvard University’s Joint Center for Housing Studies; Meanwhile, those under $800 decreased by 2 percent. The most vulnerable renters are languishing in dire need, largely overlooked by the market.

Ushering in an an era of affordability, therefore, hinges on government subsidies—and on that front, things aren’t looking so good either. Even though Congress bumped up the 2018 Department of Housing and Urban Development (HUD) budget by a little, the additional funds still fall way below the 2010 levels:

And the future looks even bleaker. The Trump administration has proposed massive cuts to subsidized housing programs. HUD Secretary Ben Carson has taken it even further. In an attempt to promote “self-sufficiency,” he has backed a bill that raises rents for households getting housing assistance and tacks on mandatory work requirements. A recent analysis by the Center on Budget and Policy Priorities (CBPP) found that low-income renters would have to pay roughly 20 percent more if the bill were to be passed. Via the Associated Press:

That rent increase is about six times greater than the growth in average hourly earnings, putting the poorest workers at an increased risk of homelessness because wages simply haven’t kept pace with housing expenses.

Whether or not this bill goes through (and it’s very possible that it won’t) it’s clear that the affordable housing crisis is at risk of escalating—at least till it becomes a real political issue.

Learn more at CityLab

With blockchain technology proving to be a timely, if not the most important invention of the decade, security, transparency, and accessibility have become luxuries that few can afford. Its widespread adoption hinged on data security, transaction speed, transparency, and efficiency, and achieving some of its early promise has disproved the skepticism of various financial giants and personnel around the world.

The emergence of various financial projects incorporating blockchain technology as its backbone has proven critics wrong about what this technology is capable of. Already, there have been some fintech projects challenging the traditional financial methods, such as in the case of Nexo.io, which is providing crypto backed loans, and many more like it are pushing back the boundaries between finance and technology.

Another project created to challenge the traditional financial system is Kora, a blockchain supported infrastructure created for the purpose of the increasing financial inclusion of the under-banked regions around the world.

According to World Bank Group (WBG), financial inclusion is vital for reducing extreme poverty and to boost prosperity amongst the unbanked. According to a report from WBG, there are over 2 billion unbanked people all over the world. That is 2 billion or more people excluded from the potential value creation that could be gotten from financial inclusion. This exclusion is traced to the inaccessibility of the traditional financial system into the unbanked regions, communities, or remote settlements.

The majority of the unbanked population dwell in remote regions around the world, regions with low “economic input”. Hence, an understanding of the motive of the traditional financial system in reaching out to the unbanked is needed to see why blockchain backed technologies can overcome these.

Why Kora?

Built on the blockchain technology, Kora’s infrastructure is designed to provide necessary financial inclusion in products and services to the over 2 billion underbanked people in the world. Already, it has started its first User Testing Program in Nigeria and will launch their beta in Ghana in July 2018.

According to the CEO of Kora Dickson Nsofor:

“…the Kora Network uses blockchain technology as an immutable trust engine, increasing transparency and creating a reliable record of business activities, proving them a more stable investment opportunity to stakeholders. By opening up access to more investment capital and resources to
better manage their finances, these communities have the chance to better plan their business activities, returning greater profit and gaining a fair share in the wealth they create.”

Kora Network principles of operation are based around low cost, universal access and a commitment to engaging with existing communities. On top of this, Kora will also be able to provide an authenticated identification process. Lack of documentation and the ability to prove one’s identity is something which holds back traditional financial institutions from serving the unbanked. Kora, using an internet service model, also overcomes many of the infrastructural barriers placed in the way of established banks and lenders. In other words, they do not have to build branches. Kora customers will have access to secure storage for their funds, the ability to transfer money between accounts, and it will provide a low-cost marketplace for retailers and other businesses to operate in.

It services will be available and accessible in areas will little or no internet connection via the SMS/USSD protocol, while its mobile app can be accessed in areas which are served by mobile internet.

Kora’s Edge

The striking point of this project is the use of SMS/USSD for transactional purposes. Already, it has been established that most remote areas of the world, Africa to be exact, are shut out of the internet disruption and opportunities due to a lack of cell towers. Traditional financial houses are reluctant to invest heavily in areas with little or no return. Kora will provide the infrastructure for such services in the remotest parts of Africa and subsequently, other parts of the world, those both with and without internet connectivity.

Kora’s blockchain is capable of storing identity and transactions while running software modules and connects to other blockchains as well. It uses Tendermint DPoS as a consensus algorithm which allows for scalability while maintaining decentralisation.

Just recently, Kora got an early investor, Aeternity Ventures, with a shared vision of building a global financial infrastructure that fuels economic growth.

Kora hopes to put an end to extreme poverty in the most remote regions of the world. With the use of blockchain as a social and financial tool, it hopes to lend a helping hand, empower and as well as increase the financial status of the underbanked.

Learn more at marketmogul

In recent years, there has been plenty of talk of the “financialization” of art. As prices soar to new levels and digital technology opens new markets, that talk is getting louder.

Last month in London, DACS, Britain’s leading artists’ rights management organization, unveiled “The Art Market 2.0” to lawmakers in the House of Commons. A report by academics at the Alan Turing Institute in London and Oxford University, it envisioned how blockchain technology might “change the balance of economic power in the art market” and “integrate art into the financial sector.” A financialized Art Market 2.0 would lead to an “explosion of liquidity and value,” according to the report.

A day later at the London Business School’s 10th Art Investment Conference, held at Phillips auction house, there were, as usual, sessions discussing the performance of art as a financial asset class. This year, however, the event focused on whether “new technologies can make art a better investment.”

“It’s not Wall Street,” Alain Servais, a Belgian collector, former investment banker and one of the speakers at the conference, said in an interview. “I don’t think art can be considered as an asset class.” He pointed to the art market’s lack of liquidity and regulation and to the ability of trade insiders to control the prices of certain highly collectible names. “These are wealthy people’s toys,” he said.

But to what extent has the art market been “financialized,” in the way that a Wall Street investor would recognize?

The lack of liquidity and regulation, together with opacity, volatility, high transaction costs, cyclical trading patterns and a relatively small scale, has long been among the reasons institutional investment houses have shied away from the art market.

But wealthy individuals from the world of finance are becoming increasingly enthusiastic about art as a way to increase their capital.

“Much of today’s most dynamic wealth creation comes from hedge funds, private equity and real estate,” said Evan Beard, a national art services executive at U.S. Trust, a wealth management unit of Bank of America. “None of our clients are buying art for investment. But they’re savvy with credit, and art is a capital asset.”

Mr. Beard said that Bank of America has about $6.5 billion of art-secured loans on its books and that clients have used much of this liquidity to capitalize their businesses.

Last year in the United States, the art-secured lending market grew 13.3 percent to an estimated $17 billion to $20 billion, according to the 2017 Deloitte Art & Finance Report. The market is dominated by the major investment banks, which charge lower interest rates for their loans than specialist lenders that securitize loans solely against art.

And then there is the money that savvy financier-collectors can make out of auction guarantees. Mr. Beard said that more than 10 of his wealthy clients routinely guarantee works at Sotheby’s, Christie’s and Phillips. They take the risk of being the only bidder and owning the artwork in return for a fee or a percentage of the “overage” if the bidding exceeds an agreed-upon price.

“They’ll guarantee three paintings in a season they’d like to buy and will be happy to own one of them if the overage on the others gives them a good discount,” Mr. Beard said.

At the latest biannual season of Impressionist, modern and contemporary art auctions in New York, Sotheby’s, Christie’s and Phillips took in about $2 billion, a 25 percent increase over the equivalent sales the previous May. Most of the more expensive lots had been certain to find buyers courtesy of these opaque arrangements with third-party guarantors, which blur the boundaries between private and public sales. Among the works sold were paintings by Amedeo Modigliani and Andy Warhol that fetched $157.2 million and $37 million, respectively.

Artnet News pointed out that Christie’s website published the price of Andy Warhol’s 1963 “Double Elvis [Ferus Type]” as $38 million with fees, rather than the $37 million that was announced to the media. That $1 million discrepancy reflected the fee earned by the undisclosed third party, who earned more from the transaction than the seller. That was the casino magnate Steve Wynn, who had bought the painting in 2012 for $37 million.

The rewards for saying “bid” into a telephone can be even more spectacular. Thomas Danziger, a New York attorney who represents clients active in the top end of the international art market, estimates that whoever guaranteed Leonardo’s $450.3 million “Salvator Mundi” could have earned between $80 million and $100 million. On the other hand, as Mr. Danziger points out, guarantors who end up buying a work are left wondering if the lot has been overvalued. The Modigliani nude that sold last month, for example, was knocked down to a single bid of $157.2 million from its guarantor.

“Guarantees used to be a gentlemen’s club, but now they’re greatly extended,” Mr. Danziger said. “Auctions have become a public forum for private transactions,” he added, referring to how it has become routine for at least a third of lots at evening contemporary sales to have been “presold” to external guarantors.

With plentiful liquidity available from the major banks, and millions to be made from auction guarantees, wealthy collectors can make art a lucrative asset without having to go anywhere near the art finance industry.

Yet companies continue to come up with ideas to financialize art. Later this month, the Singapore-based Maecenas, which gave a presentation at the Art Investment Conference in London, will unveil a “decentralized art gallery” (the works are scattered, but exhibited together online) that “democratizes” investment in art, according to its website.

One of several start-ups that have explored the idea of “fractionalizing” art, Maecenas will divide 49 percent of the value of an artwork into shares, which can then be bought and sold on the company’s blockchain trading platform. Shares will initially be priced at $10,000 each, according to Miguel Neumann, one of the company’s founding partners, who comes from an investment banking background.

The first artwork, Andy Warhol’s 1980 silk-screen painting “14 Small Electric Chairs Reversal Series,” will be supplied by Dadiani Fine Art, based in the Mayfair district of London. The gallery, which offers a commercial mix of contemporary and older British, American and Russian art, gained notoriety when it became the first in the city to accept payments in Bitcoin and other cryptocurrencies. (The Warhol will be valued at 4.2 million pounds, or about $5.6 million.)

It remains to be seen how many investors will want to speculate in shares derived from works owned by galleries and collectors. The art market, after all, despite its shortcomings, is still democratic enough that people can buy and actually own works for less than $10,000 that turn out to be good investments.

But there are also people, such as Duncan MacDonald-Korth, one of the co-authors of the DACS “Art Market 2.0” report, who remain convinced that the technological integrity of blockchain will eventually transform the art market.

“The stakes are getting so high,” Mr. MacDonald-Korth said in a telephone interview, referring to the skyrocketing amounts being paid for trophy works of art. “The higher the values get, the more incentive there will be for the market to be properly financialized.” He envisages a large-scale trading platform on which investment banks and hedge funds will be able to trade fractions of art in digital currency. “We’re in a special moment in the economics of the art market.”

What this moment will mean for art itself is anyone’s guess.

Learn more at NY Times

One of the big questions in urbanism is the degree to which culture shapes economic development. Traditionally, it was thought that culture follows from economic development: The more developed and affluent that a city becomes, the more money that it has to spend creating art galleries, museums, concert halls, and other cultural venues.

But my own writing on the creative class and a large number of other studies argue that culture acts as a key factor in economic development by helping attract talented, ambitious people to cities. Others go further, contending that arts and culture are large industries that act as direct inputs into development.

A new paper takes a deep dive into the connection between culture and economic development in New York and London. The paper, written by a team of scientists from Nokia Bell Labs, Cambridge, and published in the journal Frontiers in Physics, looks at the ways in which culture and cultural capital interact with economic factors (such as changes in median income and house prices) to shape urban economic development. And because urban economic development and culture are increasingly seen to be associated with rising gentrification and deepening inequality, it also looks at the effects of cultural capital on housing prices and housing affordability in these cities.

To do this, the researchers tracked roughly 1.5 million photographic images of the venues and events that comprise the cultural capital of both New York and London. Their study breaks down cultural capital into nine categories: advertising and marketing; architecture; crafts; design (product, graphic, and fashion); film (TV, video, radio, and photography); IT software and computer services; publishing; museums, galleries, and libraries; and music, performing, and visual arts.

The study gauges the effects of these types of cultural capital on both median income, house prices, and composite indexes of urban development in London’s 33 boroughs and 60 of New York’s 71 community districts over the period 2007 to 2014, which spans the Great Recession and its recovery. The overarching takeaway is that culture or cultural capital plays a key role, operating alongside more traditional economic factors, in shaping urban development.

Culture and neighborhood development

The graphs below show the role of cultural capital and economic capital in urban development in London and New York neighborhoods, respectively. The study finds that both these types of capital have a role in urban development and the improvement of neighborhoods. In the graphs below, each dot corresponds to a neighborhood, and its position on the graph is determined by the two values of capital for that specific neighborhood. The size of the dot reflects a positive change in development; larger, darker dots show greater levels of change.

Cultural capital plays a strong role, alongside economic factors, in neighborhoods in the upper right-hand quadrant of these graphs. In London, this quadrant includes the neighborhoods of Kensington and Chelsea, Westminster, and the City of London; in New York, Greenwich Village, Midtown, and Brooklyn Heights. Cultural capital plays an even larger role than economic factors in neighborhoods in the lower right-hand quadrant of the graphs: Camden, Islington, and Hackney in London; the Lower East Side, Bushwick, and East Harlem in New York.

But do certain types of culture and certain forms of cultural capital matter to neighborhood development?

To get at this, the study examines the specific types of cultural capital that influenced the development of particular neighborhoods. Performance arts are prominent in the central areas of both cities, while architecture is important in both central and peripheral areas. East London tends to specialize in design, while in West London, marketing dominates alongside performing arts.

The next set of charts tracks the effects of both cultural specialization and cultural diversity on neighborhood development. The color of the dots reflects the corresponding location’s cultural specialization, and the size of the dots reflects the neighborhood’s cultural diversity.

Across both London and New York, higher levels of neighborhood development are associated with cultural diversity as well as cultural capital. The neighborhoods with the highest levels of development tend to specialize in performing arts. In London, higher levels of urban development are also associated with the design and publishing industries.

Culture and housing prices

From Spike Lee’s anti-gentrification rants to David Byrnes’ complaintthat New York City has been usurped by the top 1 percent, arts and culture have come to be seen as triggers of gentrification and rising housing prices. The graphs below show the close relationship between cultural capital and housing prices across neighborhoods in New York and London, although cultural capital appears to play an even greater role in London’s housing prices than in New York’s. All of the specific types of cultural capital are associated with housing price increases, though the associations are again closer across the board in London than New York. “[E]ven though several economic and geographical factors impact house prices—such as property type or size,” the authors write, “cultural capital alone holds a considerable explanatory power.”

Linear regression results for housing price z-scores across neighborhoods over the period 2010–2015. The regression line is shown in red and the shaded area around it represents the limits of the 95% confidence interval. (Hristova, Aiello, Quercia/Frontiers in Physics)

Ultimately, the study finds that cultural capital has been a significant factor in the development of urban neighborhoods in the superstar cities of London and New York, both during and after the Great Recession. Culture is not a mere afterthought or an add-on, but a key contributor to urban economic growth. But in fueling neighborhood growth and development, it has also played a role in rising housing prices, contributing to gentrification.

Culture, then, is bound up with the New Urban Crisis—a crisis of development and success—which is making our largest and most dynamic cities more expensive and less affordable, and in doing so, threatens the very economic, racial, and cultural diversity which has fueled their cultural creativity in the first place.

But it’s also important not to throw the proverbial baby out with the bath water. The solution is not less culture or less development, but ensuring that the cultural revitalization and redevelopment of our cities and neighborhoods can be channeled in more inclusive ways that benefit all urbanites.

Learn more at CityLab

Multinational enterprise software giant SAP has launched a cloud platform that is dedicated to helping corporates develop blockchain applications.

Announced during an SAP event Wednesday, the cloud-based solution aims to provide enterprises with a framework to build business applications on top of blockchain systems such as Hyperledger Fabric, the blockchain platform launched by the Linux Foundation, of which SAP is also a contributor.

The company said in the announcement that the work is being formally rolled out after it has worked with 65 companies within its Blockchain Co-Innovation Initiative that trialed blockchain applications in various industries such as supply chain, manufacturing, transportation, food and pharmaceuticals.

Earlier last month, CoinDesk reported that the company is working with the U.S. sausage maker Johnsonville, as well as Naturipe Farms and Maple Leaf, to pilot a project that tracks the origin of food products across the supply chain as a part of its Farm to Consumer initiative.

In addition to its co-innovation program, SAP has also announced it is forming a blockchain consortium, members of which are entitled to use tech developed by the group. Notable firms in the consortium currently include HP Enterprise, Intel and UPS.

The work marks SAP as the latest tech giant that has rolled out a platform for blockchain application development, following similar works done by Microsoft, IBM and China's Baidu and Tencent.

Learn more at Coindesk

The California Senate approved a bill on Wednesday that would create a state bank for marijuana businesses. The measure, Senate Bill 930 (SB 930), received bipartisan support from senators, who voted 29-6 in favor of the legislation.

Strict federal regulations make it difficult or impossible for most cannabis firms to make use of traditional banking services. As a result, even legal cannabis companies must do business largely in cash. The vast amounts of currency present both logistical and security challenges to the industry.

Under SB 930, the state would establish a special charter bank that could issue checks for use by account holders. Businesses could use the checks to pay rent, state and local taxes and fees, and to reimburse California vendors for goods and services. Account holders could also purchase state and local bonds and other debt instruments with the checks.

Sen. Bob Hertzberg, a Democrat from Van Nuys, introduced SB 930, and said in a release that California’s fledgling cannabis economy needs the special bank in order to operate safely and efficiently. The new bank would also increase security at marijuana dispensaries and other businesses, where stockpiles of cash can be a tempting target for thieves.

“The status quo for our growing legal cannabis industry is unsustainable,” said Hertzberg. “It’s not only impractical from an accounting perspective, but it also presents a tremendous public safety problem. This bill takes a limited approach to provide all parties with a safe and reliable way to move forward on this urgent issue.”

New Bank Will Be Separate from Federal Financial System

Hertzberg believes that the federal government will eventually grant the cannabis industry access to the traditional banking system. But until then, the special bank will be able to offer limited services outside of the federal regulatory framework.

“We’re not using the federal system, we’re not using the federal wire,” Hertzberg told local media. “This is a short-term creative approach to deal with this extraordinary problem.”

But some expenses, including payments to suppliers outside California, won’t qualify for payment through the cannabis bank.

Katie Hanzlik, Sen. Hertzberg’s Press Secretary, told High Times that businesses would also not be able to pay their employees with checks from the bank.

“That money would be subject to the federal payroll tax, which would then put it on the radar of the federal government,” she said. “The limited scope of the bill, and of the uses for the checks, was specially designed so that it is a closed loop system that will reassure cannabis companies and banks that they will not have to worry about federal interference.”

State Board of Equalization Member and Democratic candidate for state treasurer Fiona Ma also supports SB 930. She said that the bill would benefit both cannabis businesses and the people of the state.

“California can’t wait to take action,” said Ma. “With secure banking for cannabis through SB 930, the industry will benefit, the state will get a revenue boost, and pot cash will get off our streets.”

SB 930 now heads to the State Assembly where it will be referred to committee for consideration.

Learn more at High Times

Not long ago, Yiannas, who guards the integrity of food in Walmart's $280-billion grocery empire, would have brushed off the notion of an instantly "knowable" and verifiable food chain as fantasy. He heard about it two years ago, when Walmart was about to open a food safety institute in China, where 10 years ago a baby formula adulteration scandal sickened 54,000 babies.

"Up until that point I only knew that it was the technology behind bitcoin," Yiannas said. "I will tell you I was a bit of a skeptic, just like many people are about the technology."

Blockchain, for all its cloak-and-dagger associations, is basically a democratized accounting system made possible by advances in data encryption. Rather than storing proprietary data behind traditional security walls, companies contribute encrypted blocks of data to a "distributed" ledger that can be monitored and verified by each farmer, packer, shipper, distributor, wholesaler and retailer of produce. No one can make a change without everyone knowing, and agreeing to it.

"If I want to change something or fudge something on my version of the ledger, I then have to share it with everybody else and they all have to agree to that," Yiannas said. "You can't have two separate sets of books. It's one set of books that everyone sees."

As it stands, no one can see the entire path from farm to fork.

Each time a food-borne illness breaks out — which tends to happen around 900 times a year — investigators have to work their way backward, one link at a time, from victims to fields, tracing multiple paths across separate companies and sometimes across international borders.

"It's very linear, but the food system as we know is not very linear," Yiannas said.

That linear approach can cost lives and waste billions of dollars in healthcare costs, lost work hours, and trashed food every year, health officials and analysts say. Food-borne illnesses can cost the economy $152 billion a year, with tainted produce responsible for a quarter of that damage, according to a Pew Charitable Trust study.

Take mangoes. The increasingly popular fruit grows on small farms scattered across Latin America, and can harbor listeria, a bacterium that kills 260 people per year in the U.S., according to the Centers for Disease Control and Prevention.

Two years ago, Yiannas told his staff to trace a packet of sliced mango from a Walmart aisle the traditional way.

"I looked at my clock and wrote down the time and date, and I timed them," he said. "It took them six days, 18 hours and 26 minutes."

Under a week is considered fast by the current link-by-link method known as "one up, one back" tracking, said Yiannas, who previously headed Walt Disney World's health and safety program. Walmart has a sophisticated tracking system for its part of the supply line.

Beyond the walls of Walmart's distribution centers, though, record-keeping can get hazy.

"Believe it or not, it's still largely done on paper," Yiannas said. "It's done many different ways by many different actors."

It took a month to build the blockchain network, which depends on cooperative partners agreeing on what information to contribute. By then, Yiannas felt confident enough to pull off the test live, at a stockholder meeting last summer.

"It wasn't staged," he said. "We had a backup in case the technology failed."

It worked — they mapped the mango supply line in 2.2 seconds.

The next day, Walmart started contacting suppliers. "I think we're onto something here," Yiannas told them.

Driscoll's berries was among the first companies to join Walmart's blockchain pilot, along with Nestle, Danone, Unilever and others.

Based in Watsonville, Calif., Driscoll's grows berries in nearly two dozen countries, making it by far the biggest berry supplier worldwide.

Almost immediately, Driscoll's saw a lot more than food safety in blockchain. A fully built-out ledger could one day get berries to shelves faster, figure out what varieties last longest, trim waste and even pay suppliers more quickly, the company believes.

"We want to drill down and continuously improve and understand: If we fell flat somewhere, why? Or if we did really well somewhere else, why? And then constantly refine our operations to be better," said Tim Jackson, the company's vice president of food safety and compliance.

Driscoll's also foresees a day when consumers could tap into some of that information.

In the case of the romaine outbreak, consumers complained that they had no idea how to find out if they were buying lettuce from Yuma (although, if you eat romaine in early spring, there's a 90% chance it came from the desert valleys straddling the lower Colorado River, from Yuma into California's Imperial Valley).

"To say to consumers that you shouldn't be consuming romaine lettuce if it came from the Yuma area and yet that information at the point of consumption or the point of purchase isn't readily available or obvious to the consumer, then that's a problem," said Stephen Ostroff, deputy commissioner for food and veterinary medicine at the U.S. Food and Drug Administration.

Blockchain, first developed in the 1990s, was considered some dark art in the world of cryptocurrency in 2010, when Congress passed the Food Safety Modernization Act, the first major overhaul of the nation's deeply fragmented food safety regulation since the 1930s.

The law required the FDA to identify high-risk foods and require companies to keep better records of them. The agency has yet to write those rules — and they have been further delayed by the Trump administration's wholesale rollback of regulation.

"Seven years after the enactment of FSMA, the FDA has yet to carry out Congress's mandate to create a list of high-risk foods and issue a proposed rule for enhanced recordkeeping," a coalition of food safety advocates said in a letter to the agency last week.

The groups noted that leafy greens were responsible for more cases of E. coli illness than any other produce — a general category that accounted for half or more of the outbreaks of listeria, E. coli and salmonella, and a third of the campylobacter outbreaks reported from 2009 to 2013.

Ostroff said implementing the remaining FSMA regulations "would help, but it wouldn't necessarily solve the problem" presented by such a broad outbreak.

"At each point of that supply chain, you potentially are looking at hundreds and hundreds of records," he said. "Many of those records are stored and available in different ways, ranging from very sophisticated electronic systems ... to hand-written records. And they're in different formats."

Meanwhile, the offending lettuce is gone — consumed, or long ago tossed away after its 21-day shelf life expired, the FDA has said. No more lettuce is being grown in Yuma, either, according to the FDA, which cited industry sources.

"Even as we were hearing about these cases, the product that they actually consumed either in their home or in a restaurant wasn't available for us to test," Ostroff said.

Yiannas believes blockchain could have led investigators to likely culprits long before the lettuce vanished.

"Walmart is not chasing blockchain because it's a new fad or it's a shiny coin," Yiannas said. "The romaine incident is a perfect example of a real-world scenario where if tools were available it might be managed a bit more effectively."

Learn more at L.A. Times

1. The Aristocracy Is Dead …

For about a week every year in my childhood, I was a member of one of America’s fading aristocracies. Sometimes around Christmas, more often on the Fourth of July, my family would take up residence at one of my grandparents’ country clubs in Chicago, Palm Beach, or Asheville, North Carolina. The breakfast buffets were magnificent, and Grandfather was a jovial host, always ready with a familiar story, rarely missing an opportunity for gentle instruction on proper club etiquette. At the age of 11 or 12, I gathered from him, between his puffs of cigar smoke, that we owed our weeks of plenty to Great-Grandfather, Colonel Robert W. Stewart, a Rough Rider with Teddy Roosevelt who made his fortune as the chairman of Standard Oil of Indiana in the 1920s. I was also given to understand that, for reasons traceable to some ancient and incomprehensible dispute, the Rockefellers were the mortal enemies of our clan. Only much later in life did I learn that the stories about the Colonel and his tangles with titans fell far short of the truth.

At the end of each week, we would return to our place. My reality was the aggressively middle-class world of 1960s and ’70s U.S. military bases and the communities around them. Life was good there, too, but the pizza came from a box, and it was Lucky Charms for breakfast. Our glory peaked on the day my parents came home with a new Volkswagen camper bus. As I got older, the holiday pomp of patriotic luncheons and bridge-playing rituals came to seem faintly ridiculous and even offensive, like an endless birthday party for people whose chief accomplishment in life was just showing up. I belonged to a new generation that believed in getting ahead through merit, and we defined merit in a straightforward way: test scores, grades, competitive résumé-stuffing, supremacy in board games and pickup basketball, and, of course, working for our keep. For me that meant taking on chores for the neighbors, punching the clock at a local fast-food restaurant, and collecting scholarships to get through college and graduate school. I came into many advantages by birth, but money was not among them.

The meritocratic class has mastered the old trick of consolidating wealth and passing privilege along at the expense of other people’s children.

I’ve joined a new aristocracy now, even if we still call ourselves meritocratic winners. If you are a typical reader of The Atlantic, you may well be a member too. (And if you’re not a member, my hope is that you will find the story of this new class even more interesting—if also more alarming.) To be sure, there is a lot to admire about my new group, which I’ll call—for reasons you’ll soon see—the 9.9 percent. We’ve dropped the old dress codes, put our faith in facts, and are (somewhat) more varied in skin tone and ethnicity. People like me, who have waning memories of life in an earlier ruling caste, are the exception, not the rule.

By any sociological or financial measure, it’s good to be us. It’s even better to be our kids. In our health, family life, friendship networks, and level of education, not to mention money, we are crushing the competition below. But we do have a blind spot, and it is located right in the center of the mirror: We seem to be the last to notice just how rapidly we’ve morphed, or what we’ve morphed into.

The meritocratic class has mastered the old trick of consolidating wealth and passing privilege along at the expense of other people’s children. We are not innocent bystanders to the growing concentration of wealth in our time. We are the principal accomplices in a process that is slowly strangling the economy, destabilizing American politics, and eroding democracy. Our delusions of merit now prevent us from recognizing the nature of the problem that our emergence as a class represents. We tend to think that the victims of our success are just the people excluded from the club. But history shows quite clearly that, in the kind of game we’re playing, everybody loses badly in the end.

2. The Discreet Charm of the 9.9 Percent

Let’s talk first about money—even if money is only one part of what makes the new aristocrats special. There is a familiar story about rising inequality in the United States, and its stock characters are well known. The villains are the fossil-fueled plutocrat, the Wall Street fat cat, the callow tech bro, and the rest of the so-called top 1 percent. The good guys are the 99 percent, otherwise known as “the people” or “the middle class.” The arc of the narrative is simple: Once we were equal, but now we are divided. The story has a grain of truth to it. But it gets the characters and the plot wrong in basic ways.

It is in fact the top 0.1 percent who have been the big winners in the growing concentration of wealth over the past half century. According to the UC Berkeley economists Emmanuel Saez and Gabriel Zucman, the 160,000 or so households in that group held 22 percent of America’s wealth in 2012, up from 10 percent in 1963. If you’re looking for the kind of money that can buy elections, you’ll find it inside the top 0.1 percent alone.

Every piece of the pie picked up by the 0.1 percent, in relative terms, had to come from the people below. But not everyone in the 99.9 percent gave up a slice. Only those in the bottom 90 percent did. At their peak, in the mid-1980s, people in this group held 35 percent of the nation’s wealth. Three decades later that had fallen 12 points—exactly as much as the wealth of the 0.1 percent rose.

In between the top 0.1 percent and the bottom 90 percent is a group that has been doing just fine. It has held on to its share of a growing pie decade after decade. And as a group, it owns substantially more wealth than do the other two combined. In the tale of three classes (see Figure 1), it is represented by the gold line floating high and steady while the other two duke it out. You’ll find the new aristocracy there. We are the 9.9 percent.

So what kind of characters are we, the 9.9 percent? We are mostly not like those flamboyant political manipulators from the 0.1 percent. We’re a well-behaved, flannel-suited crowd of lawyers, doctors, dentists, mid-level investment bankers, M.B.A.s with opaque job titles, and assorted other professionals—the kind of people you might invite to dinner. In fact, we’re so self-effacing, we deny our own existence. We keep insisting that we’re “middle class.”

As of 2016, it took $1.2 million in net worth to make it into the 9.9 percent; $2.4 million to reach the group’s median; and $10 million to get into the top 0.9 percent. (And if you’re not there yet, relax: Our club is open to people who are on the right track and have the right attitude.) “We are the 99 percent” sounds righteous, but it’s a slogan, not an analysis. The families at our end of the spectrum wouldn’t know what to do with a pitchfork.

We are also mostly, but not entirely, white. According to a Pew Research Center analysis, African Americans represent 1.9 percent of the top 10th of households in wealth; Hispanics, 2.4 percent; and all other minorities, including Asian and multiracial individuals, 8.8 percent—even though those groups together account for 35 percent of the total population.

One of the hazards of life in the 9.9 percent is that our necks get stuck in the upward position. We gaze upon the 0.1 percent with a mixture of awe, envy, and eagerness to obey. As a consequence, we are missing the other big story of our time. We have left the 90 percent in the dust—and we’ve been quietly tossing down roadblocks behind us to make sure that they never catch up.

Let’s suppose that you start off right in the middle of the American wealth distribution. How high would you have to jump to make it into the 9.9 percent? In financial terms, the measurement is easy and the trend is unmistakable. In 1963, you would have needed to multiply your wealth six times. By 2016, you would have needed to leap twice as high—increasing your wealth 12-fold—to scrape into our group. If you boldly aspired to reach the middle of our group rather than its lower edge, you’d have needed to multiply your wealth by a factor of 25. On this measure, the 2010s look much like the 1920s.

If you are starting at the median for people of color, you’ll want to practice your financial pole-vaulting. The Institute for Policy Studies calculated that, setting aside money invested in “durable goods” such as furniture and a family car, the median black family had net wealth of $1,700 in 2013, and the median Latino family had $2,000, compared with $116,800 for the median white family. A 2015 study in Boston found that the wealth of the median white family there was $247,500, while the wealth of the median African American family was $8. That is not a typo. That’s two grande cappuccinos. That and another 300,000 cups of coffee will get you into the 9.9 percent.

None of this matters, you will often hear, because in the United States everyone has an opportunity to make the leap: Mobility justifies inequality. As a matter of principle, this isn’t true. In the United States, it also turns out not to be true as a factual matter. Contrary to popular myth, economic mobility in the land of opportunity is not high, and it’s going down.

Imagine yourself on the socioeconomic ladder with one end of a rubber band around your ankle and the other around your parents’ rung. The strength of the rubber determines how hard it is for you to escape the rung on which you were born. If your parents are high on the ladder, the band will pull you up should you fall; if they are low, it will drag you down when you start to rise. Economists represent this concept with a number they call “intergenerational earnings elasticity,” or IGE, which measures how much of a child’s deviation from average income can be accounted for by the parents’ income. An IGE of zero means that there’s no relationship at all between parents’ income and that of their offspring. An IGE of one says that the destiny of a child is to end up right where she came into the world.

According to Miles Corak, an economics professor at the City University of New York, half a century ago IGE in America was less than 0.3. Today, it is about 0.5. In America, the game is half over once you’ve selected your parents. IGE is now higher here than in almost every other developed economy. On this measure of economic mobility, the United States is more like Chile or Argentina than Japan or Germany.

The story becomes even more disconcerting when you see just where on the ladder the tightest rubber bands are located. Canada, for example, has an IGE of about half that of the U.S. Yet from the middle rungs of the two countries’ income ladders, offspring move up or down through the nearby deciles at the same respectable pace. The difference is in what happens at the extremes. In the United States, it’s the children of the bottom decile and, above all, the top decile—the 9.9 percent—who settle down nearest to their starting point. Here in the land of opportunity, the taller the tree, the closer the apple falls.

All of this analysis of wealth percentiles, to be clear, provides only a rough start in understanding America’s evolving class system. People move in and out of wealth categories all the time without necessarily changing social class, and they may belong to a different class in their own eyes than they do in others’. Yet even if the trends in the monetary statistics are imperfect illustrations of a deeper process, they are nonetheless registering something of the extraordinary transformation that’s taking place in our society.

A few years ago, Alan Krueger, an economist and a former chairman of the Obama administration’s Council of Economic Advisers, was reviewing the international mobility data when he caught a glimpse of the fundamental process underlying our present moment. Rising immobility and rising inequality aren’t like two pieces of driftwood that happen to have shown up on the beach at the same time, he noted. They wash up together on every shore. Across countries, the higher the inequality, the higher the IGE (see Figure 2). It’s as if human societies have a natural tendency to separate, and then, once the classes are far enough apart, to crystallize.

Economists are prudent creatures, and they’ll look up from a graph like that and remind you that it shows only correlation, not causation. That’s a convenient hedge for those of us at the top because it keeps alive one of the founding myths of America’s meritocracy: that our success has nothing to do with other people’s failure. It’s a pleasant idea. But around the world and throughout history, the wealthy have advanced the crystallization process in a straightforward way. They have taken their money out of productive activities and put it into walls. Throughout history, moreover, one social group above all others has assumed responsibility for maintaining and defending these walls. Its members used to be called aristocrats. Now we’re the 9.9 percent. The main difference is that we have figured out how to use the pretense of being part of the middle as one of our strategies for remaining on top.

Krueger liked the graph shown in Figure 2 so much that he decided to give it a name: the Great Gatsby Curve. It’s a good choice, and it resonates strongly with me. F. Scott Fitzgerald’s novel about the breakdown of the American dream is set in 1922, or right around the time that my great-grandfather was secretly siphoning money from Standard Oil and putting it into a shell company in Canada. It was published in 1925, just as special counsel was turning up evidence that bonds from that company had found their way into the hands of the secretary of the interior. Its author was drinking his way through the cafés of Paris just as Colonel Robert W. Stewart was running away from subpoenas to testify before the United States Senate about his role in the Teapot Dome scandal. We are only now closing in on the peak of inequality that his generation achieved, in 1928. I’m sure they thought it would go on forever, too.

3. The Origin of a Species

Money can’t buy you class, or so my grandmother used to say. But it can buy a private detective. Grandmother was a Kentucky debutante and sometime fashion model (kind of like Daisy Buchanan in The Great Gatsby, weirdly enough), so she knew what to do when her eldest son announced his intention to marry a woman from Spain. A gumshoe promptly reported back that the prospective bride’s family made a living selling newspapers on the streets of Barcelona. Grandmother instituted an immediate and total communications embargo. In fact, my mother’s family owned and operated a large paper-goods factory. When children came, Grandmother at last relented. Determined to do the right thing, she arranged for the new family, then on military assignment in Hawaii, to be inscribed in the New York Social Register.

Sociologists would say, in their dry language, that my grandmother was a zealous manager of the family’s social capital—and she wasn’t about to let some Spanish street urchin run away with it. She did have a point, even if her facts were wrong. Money may be the measure of wealth, but it is far from the only form of it. Family, friends, social networks, personal health, culture, education, and even location are all ways of being rich, too. These nonfinancial forms of wealth, as it turns out, aren’t simply perks of membership in our aristocracy. They define us.

We are the people of good family, good health, good schools, good neighborhoods, and good jobs. We may want to call ourselves the “5Gs” rather than the 9.9 percent. We are so far from the not-so-good people on all of these dimensions, we are beginning to resemble a new species. And, just as in Grandmother’s day, the process of speciation begins with a love story—or, if you prefer, sexual selection.

The polite term for the process is assortative mating. The phrase is sometimes used to suggest that this is another of the wonders of the internet age, where popcorn at last meets butter and Yankees fan finds Yankees fan. In fact, the frenzy of assortative mating today results from a truth that would have been generally acknowledged by the heroines of any Jane Austen novel: Rising inequality decreases the number of suitably wealthy mates even as it increases the reward for finding one and the penalty for failing to do so. According to one study, the last time marriage partners sorted themselves by educational status as much as they do now was in the 1920s.

For most of us, the process is happily invisible. You meet someone under a tree on an exclusive campus or during orientation at a high-powered professional firm, and before you know it, you’re twice as rich. But sometimes—Grandmother understood this well—extra measures are called for. That’s where our new technology puts bumbling society detectives to shame. Ivy Leaguers looking to mate with their equals can apply to join a dating service called the League. It’s selective, naturally: Only 20 to 30 percent of New York applicants get in. It’s sometimes called “Tinder for the elites.”

It is misleading to think that assortative mating is symmetrical, as in city mouse marries city mouse and country mouse marries country mouse. A better summary of the data would be: Rich mouse finds love, and poor mouse gets screwed. It turns out—who knew?—that people who are struggling to keep it all together have a harder time hanging on to their partner. According to the Harvard political scientist Robert Putnam, 60 years ago just 20 percent of children born to parents with a high-school education or less lived in a single-parent household; now that figure is nearly 70 percent. Among college-educated households, by contrast, the single-parent rate remains less than 10 percent. Since the 1970s, the divorce rate has declined significantly among college-educated couples, while it has risen dramatically among couples with only a high-school education—even as marriage itself has become less common. The rate of single parenting is in turn the single most significant predictor of social immobility across counties, according to a study led by the Stanford economist Raj Chetty.

None of which is to suggest that individuals are wrong to seek a suitable partner and make a beautiful family. People should—and presumably always will—pursue happiness in this way. It’s one of the delusions of our meritocratic class, however, to assume that if our actions are individually blameless, then the sum of our actions will be good for society. We may have studied Shakespeare on the way to law school, but we have little sense for the tragic possibilities of life. The fact of the matter is that we have silently and collectively opted for inequality, and this is what inequality does. It turns marriage into a luxury good, and a stable family life into a privilege that the moneyed elite can pass along to their children. How do we think that’s going to work out?

This divergence of families by class is just one part of a process that is creating two distinct forms of life in our society. Stop in at your local yoga studio or SoulCycle class, and you’ll notice that the same process is now inscribing itself in our own bodies. In 19th-century England, the rich really were different. They didn’t just have more money; they were taller—a lot taller. According to a study colorfully titled “On English Pygmies and Giants,” 16-year-old boys from the upper classes towered a remarkable 8.6 inches, on average, over their undernourished, lower-class countrymen. We are reproducing the same kind of division via a different set of dimensions.

Obesity, diabetes, heart disease, kidney disease, and liver disease are all two to three times more common in individuals who have a family income of less than $35,000 than in those who have a family income greater than $100,000. Among low-educated, middle-aged whites, the death rate in the United States—alone in the developed world—increased in the first decade and a half of the 21st century. Driving the trend is the rapid growth in what the Princeton economists Anne Case and Angus Deaton call “deaths of despair”—suicides and alcohol- and drug-related deaths.

The sociological data are not remotely ambiguous on any aspect of this growing divide. We 9.9 percenters live in safer neighborhoods, go to better schools, have shorter commutes, receive higher-quality health care, and, when circumstances require, serve time in better prisons. We also have more friends—the kind of friends who will introduce us to new clients or line up great internships for our kids.

These special forms of wealth offer the further advantages that they are both harder to emulate and safer to brag about than high income alone. Our class walks around in the jeans and T‑shirts inherited from our supposedly humble beginnings. We prefer to signal our status by talking about our organically nourished bodies, the awe-inspiring feats of our offspring, and the ecological correctness of our neighborhoods. We have figured out how to launder our money through higher virtues.

Most important of all, we have learned how to pass all of these advantages down to our children. In America today, the single best predictor of whether an individual will get married, stay married, pursue advanced education, live in a good neighborhood, have an extensive social network, and experience good health is the performance of his or her parents on those same metrics.

We’re leaving the 90 percent and their offspring far behind in a cloud of debts and bad life choices that they somehow can’t stop themselves from making. We tend to overlook the fact that parenting is more expensive and motherhood more hazardous in the United States than in any other developed country, that campaigns against family planning and reproductive rights are an assault on the families of the bottom 90 percent, and that law-and-order politics serves to keep even more of them down. We prefer to interpret their relative poverty as vice: Why can’t they get their act together?

New forms of life necessarily give rise to new and distinct forms of consciousness. If you doubt this, you clearly haven’t been reading the “personal and household services” ads on Monster.com. At the time of this writing, the section for my town of Brookline, Massachusetts, featured one placed by a “busy professional couple” seeking a “Part Time Nanny.” The nanny (or manny—the ad scrupulously avoids committing to gender) is to be “bright, loving, and energetic”; “friendly, intelligent, and professional”; and “a very good communicator, both written and verbal.” She (on balance of probability) will “assist with the care and development” of two children and will be “responsible for all aspects of the children’s needs,” including bathing, dressing, feeding, and taking the young things to and from school and activities. That’s why a “college degree in early childhood education” is “a plus.”

In short, Nanny is to have every attribute one would want in a terrific, professional, college-educated parent. Except, of course, the part about being an actual professional, college-educated parent. There is no chance that Nanny will trade places with our busy 5G couple. She “must know the proper etiquette in a professionally run household” and be prepared to “accommodate changing circumstances.” She is required to have “5+ years experience as a Nanny,” which makes it unlikely that she’ll have had time to get the law degree that would put her on the other side of the bargain. All of Nanny’s skills, education, experience, and professionalism will land her a job that is “Part Time.”

The ad is written in flawless, 21st-century business-speak, but what it is really seeking is a governess—that exquisitely contradictory figure in Victorian literature who is both indistinguishable in all outward respects from the upper class and yet emphatically not a member of it. Nanny’s best bet for moving up in the world is probably to follow the example of Jane Eyre and run off with the lord (or lady) of the manor.

If you look beyond the characters in this unwritten novel about Nanny and her 5G masters, you’ll see a familiar shape looming on the horizon. The Gatsby Curve has managed to reproduce itself in social, physiological, and cultural capital. Put more accurately: There is only one curve, but it operates through a multiplicity of forms of wealth.

Rising inequality does not follow from a hidden law of economics, as the otherwise insightful Thomas Piketty suggested when he claimed that the historical rate of return on capital exceeds the historical rate of growth in the economy. Inequality necessarily entrenches itself through other, nonfinancial, intrinsically invidious forms of wealth and power. We use these other forms of capital to project our advantages into life itself. We look down from our higher virtues in the same way the English upper class looked down from its taller bodies, as if the distinction between superior and inferior were an artifact of nature. That’s what aristocrats do.

4. The Privilege of an Education

My 16-year-old daughter is sitting on a couch, talking with a stranger about her dreams for the future. We’re here, ominously enough, because, she says, “all my friends are doing it.” For a moment, I wonder whether we have unintentionally signed up for some kind of therapy. The professional woman in the smart-casual suit throws me a pointed glance and says, “It’s normal to be anxious at a time like this.” She really does see herself as a therapist of sorts. But she does not yet seem to know that the source of my anxiety is the idea of shelling out for a $12,000 “base package” of college-counseling services whose chief purpose is apparently to reduce my anxiety. Determined to get something out of this trial counseling session, I push for recommendations on summer activities. We leave with a tip on a 10-day “cultural tour” of France for high schoolers. In the college-application business, that’s what’s known as an “enrichment experience.” When we get home, I look it up. The price of enrichment: $11,000 for the 10 days.

That’s when I hear the legend of the SAT whisperer. If you happen to ride through the yellow-brown valleys of the California coast, past the designer homes that sprout wherever tech unicorns sprinkle their golden stock offerings, you might come across him. His high-school classmates still remember him, almost four decades later, as one of the child wonders of the age. Back then, he and his equally precocious siblings showed off their preternatural verbal and musical talents on a local television program. Now his clients fly him around the state for test-prep sessions with their 16-year-olds. You can hire him for $750, plus transportation, per two-hour weekend session. (There is a weekday discount.) Some of his clients book him every week for a year.

Affirmative-action programs are to some degree an extension of the system of wealth preservation. They indulge rich people in the belief that their college is open to all.

At this point, I’m wondering whether life was easier in the old days, when you could buy a spot in the elite university of your choice with cold cash. Then I remind myself that Grandfather lasted only one year at Yale. In those days, the Ivies kicked you out if you weren’t ready for action. Today, you have to self-combust in a newsworthy way before they show you the door.

Inevitably, I begin rehearsing the speech for my daughter. It’s perfectly possible to lead a meaningful life without passing through a name-brand college, I’m going to say. We love you for who you are. We’re not like those tacky strivers who want a back-windshield sticker to testify to our superior parenting skills. And why would you want to be an investment banker or a corporate lawyer anyway? But I refrain from giving the speech, knowing full well that it will light up her parental-bullshit detector like a pair of khakis on fire.

The skin colors of the nation’s elite student bodies are more varied now, as are their genders, but their financial bones have calcified over the past 30 years. In 1985, 54 percent of students at the 250 most selective colleges came from families in the bottom three quartiles of the income distribution. A similar review of the class of 2010 put that figure at just 33 percent. According to a 2017 study, 38 elite colleges—among them five of the Ivies—had more students from the top 1 percent than from the bottom 60 percent. In his 2014 book, Excellent Sheep, William Deresiewicz, a former English professor at Yale, summed up the situation nicely: “Our new multiracial, gender-neutral meritocracy has figured out a way to make itself hereditary.”

The wealthy can also draw on a variety of affirmative-action programs designed just for them. As Daniel Golden points out in The Price of Admission, legacy-admissions policies reward those applicants with the foresight to choose parents who attended the university in question. Athletic recruiting, on balance and contrary to the popular wisdom, also favors the wealthy, whose children pursue lacrosse, squash, fencing, and the other cost-intensive sports at which private schools and elite public schools excel. And, at least among members of the 0.1 percent, the old-school method of simply handing over some of Daddy’s cash has been making a comeback. (Witness Jared Kushner, Harvard graduate.)

The mother lode of all affirmative-action programs for the wealthy, of course, remains the private school. Only 2.2 percent of the nation’s students graduate from nonsectarian private high schools, and yet these graduates account for 26 percent of students at Harvard and 28 percent of students at Princeton. The other affirmative-action programs, the kind aimed at diversifying the look of the student body, are no doubt well intended. But they are to some degree merely an extension of this system of wealth preservation. Their function, at least in part, is to indulge rich people in the belief that their college is open to all on the basis of merit.

The plummeting admission rates of the very top schools nonetheless leave many of the children of the 9.9 percent facing long odds. But not to worry, junior 9.9 percenters! We’ve created a new range of elite colleges just for you. Thanks to ambitious university administrators and the ever-expanding rankings machine at U.S. News & World Report, 50 colleges are now as selective as Princeton was in 1980, when I applied. The colleges seem to think that piling up rejections makes them special. In fact, it just means that they have collectively opted to deploy their massive, tax-subsidized endowments to replicate privilege rather than fulfill their duty to produce an educated public.

The only thing going up as fast as the rejection rates at selective colleges is the astounding price of tuition. Measured relative to the national median salary, tuition and fees at top colleges more than tripled from 1963 to 2013. Throw in the counselors, the whisperers, the violin lessons, the private schools, and the cost of arranging for Junior to save a village in Micronesia, and it adds up. To be fair, financial aid closes the gap for many families and keeps the average cost of college from growing as fast as the sticker price. But that still leaves a question: Why are the wealthy so keen to buy their way in?

The short answer, of course, is that it’s worth it.

In the United States, the premium that college graduates earn over their non-college-educated peers in young adulthood exceeds 70 percent. The return on education is 50 percent higher than what it was in 1950, and is significantly higher than the rate in every other developed country. In Norway and Denmark, the college premium is less than 20 percent; in Japan, it is less than 30 percent; in France and Germany, it’s about 40 percent.

All of this comes before considering the all-consuming difference between “good” schools and the rest. Ten years after starting college, according to data from the Department of Education, the top decile of earners from all schools had a median salary of $68,000. But the top decile from the 10 highest-earning colleges raked in $220,000—make that $250,000 for No. 1, Harvard—and the top decile at the next 30 colleges took home $157,000. (Not surprisingly, the top 10 had an average acceptance rate of 9 percent, and the next 30 were at 19 percent.)

It is entirely possible to get a good education at the many schools that don’t count as “good” in our brand-obsessed system. But the “bad” ones really are bad for you. For those who made the mistake of being born to the wrong parents, our society offers a kind of virtual education system. It has places that look like colleges—but aren’t really. It has debt—and that, unfortunately, is real. The people who enter into this class hologram do not collect a college premium; they wind up in something more like indentured servitude.

So what is the real source of this premium for a “good education” that we all seem to crave?

One of the stories we tell ourselves is that the premium is the reward for the knowledge and skills the education provides us. Another, usually unfurled after a round of drinks, is that the premium is a reward for the superior cranial endowments we possessed before setting foot on campus. We are, as some sociologists have delicately put it, a “cognitive elite.”

Behind both of these stories lies one of the founding myths of our meritocracy. One way or the other, we tell ourselves, the rising education premium is a direct function of the rising value of meritorious people in a modern economy. That is, not only do the meritorious get ahead, but the rewards we receive are in direct proportion to our merit.

But the fact is that degree holders earn so much more than the rest not primarily because they are better at their job, but because they mostly take different categories of jobs. Well over half of Ivy League graduates, for instance, typically go straight into one of four career tracks that are generally reserved for the well educated: finance, management consulting, medicine, or law. To keep it simple, let’s just say that there are two types of occupations in the world: those whose members have collective influence in setting their own pay, and those whose members must face the music on their own. It’s better to be a member of the first group. Not surprisingly, that is where you will find the college crowd.

Why do america’s doctors make twice as much as those of other wealthy countries? Given that the United States has placed dead last five times running in the Commonwealth Fund’s ranking of health-care systems in high-income countries, it’s hard to argue that they are twice as gifted at saving lives. Dean Baker, a senior economist with the Center for Economic and Policy Research, has a more plausible suggestion: “When economists like me look at medicine in America—whether we lean left or right politically—we see something that looks an awful lot like a cartel.” Through their influence on the number of slots at medical schools, the availability of residencies, the licensing of foreign-trained doctors, and the role of nurse practitioners, physicians’ organizations can effectively limit the competition their own members face—and that is exactly what they do.

Lawyers (or at least a certain elite subset of them) have apparently learned to play the same game. Even after the collapse of the so-called law-school bubble, America’s lawyers are No. 1 in international salary rankings and earn more than twice as much, on average, as their wig-toting British colleagues. The University of Chicago law professor Todd Henderson, writing for Forbes in 2016, offered a blunt assessment: “The American Bar Association operates a state-approved cartel.”

Similar occupational licensing schemes provide shelter for the meritorious in a variety of other sectors. The policy researchers Brink Lindsey and Steven Teles detail the mechanisms in The Captured Economy. Dentists’ offices, for example, have a glass ceiling that limits what dental hygienists can do without supervision, keeping their bosses in the 9.9 percent. Copyright and patent laws prop up profits and salaries in the education-heavy pharmaceutical, software, and entertainment sectors. These arrangements are trifles, however, compared with what’s on offer in tech and finance, two of the most powerful sectors of the economy.

By now we’re thankfully done with the tech-sector fairy tales in which whip-smart cowboys innovate the heck out of a stodgy status quo. The reality is that five monster companies—you know the names—are worth about $3.5 trillion combined, and represent more than 40 percent of the market capital on the nasdaq stock exchange. Much of the rest of the technology sector consists of virtual entities waiting patiently to feed themselves to these beasts.

Let’s face it: This is Monopoly money with a smiley emoji. Our society figured out some time ago how to deal with companies that attempt to corner the market on viscous substances like oil. We don’t yet know what to do with the monopolies that arise out of networks and scale effects in the information marketplace. Until we do, the excess profits will stick to those who manage to get closest to the information honeypot. You can be sure that these people will have a great deal of merit.

The candy-hurling godfather of today’s meritocratic class, of course, is the financial-services industry. Americans now turn over $1 of every $12 in GDP to the financial sector; in the 1950s, the bankers were content to keep only $1 out of $40. The game is more sophisticated than a two-fisted money grab, but its essence was made obvious during the 2008 financial crisis. The public underwrites the risks; the financial gurus take a seat at the casino; and it’s heads they win, tails we lose. The financial system we now have is not a product of nature. It has been engineered, over decades, by powerful bankers, for their own benefit and for that of their posterity.

Who is not in on the game? Auto workers, for example. Caregivers. Retail workers. Furniture makers. Food workers. The wages of American manufacturing and service workers consistently hover in the middle of international rankings. The exceptionalism of American compensation rates comes to an end in the kinds of work that do not require a college degree.

You see, when educated people with excellent credentials band together to advance their collective interest, it’s all part of serving the public good by ensuring a high quality of service, establishing fair working conditions, and giving merit its due. That’s why we do it through “associations,” and with the assistance of fellow professionals wearing white shoes. When working-class people do it—through unions—it’s a violation of the sacred principles of the free market. It’s thuggish and anti-modern. Imagine if workers hired consultants and “compensation committees,” consisting of their peers at other companies, to recommend how much they should be paid. The result would be—well, we know what it would be, because that’s what CEOs do.

It isn’t a coincidence that the education premium surged during the same years that membership in trade unions collapsed. In 1954, 28 percent of all workers were members of trade unions, but by 2017 that figure was down to 11 percent.

Education—the thing itself, not the degree—is always good. A genuine education opens minds and makes good citizens. It ought to be pursued for the sake of society. In our unbalanced system, however, education has been reduced to a private good, justifiable only by the increments in graduates’ paychecks. Instead of uniting and enriching us, it divides and impoverishes. Which is really just a way of saying that our worthy ideals of educational opportunity are ultimately no match for the tidal force of the Gatsby Curve. The metric that has tracked the rising college premium with the greatest precision is—that’s right—intergenerational earnings elasticity, or IGE. Across countries, the same correlation obtains: the higher the college premium, the lower the social mobility.

As I’m angling all the angles for my daughter’s college applications—the counselor is out, and the SAT whisperer was never going to happen—I realize why this delusion of merit is so hard to shake. If I—I mean, she—can pull this off, well, there’s the proof that we deserve it! If the system can be gamed, well then, our ability to game the system has become the new test of merit.

So go ahead and replace the SATs with shuffleboard on the high seas, or whatever you want. Who can doubt that we’d master that game, too? How quickly would we convince ourselves of our absolute entitlement to the riches that flow directly and tangibly from our shuffling talent? How soon before we perfected the art of raising shuffleboard wizards? Would any of us notice or care which way the ship was heading?

Let’s suppose that some of us do look up. We see the iceberg. Will that induce us to diminish our exertions in supreme child-rearing? The grim truth is that, as long as good parenting and good citizenship are in conflict, we’re just going to pack a few more violins for the trip.

5. The Invisible Hand of Government

As far as Grandfather was concerned, the assault on the productive classes began long before the New Deal. It all started in 1913, with the ratification of the Sixteenth Amendment. In case you’ve forgotten, that amendment granted the federal government the power to levy a direct personal-income tax. It also happens that ratification took place just a few months after Grandfather was born, which made sense to me in a strange way. By far the largest part of his lifetime income was attributable to his birth.

Grandfather was a stockbroker for a time. I eventually figured out that he mostly traded his own portfolio and bought a seat at the stock exchange for the purpose. Politics was a hobby, too. At one point, he announced his intention to seek the Republican nomination for lieutenant governor of Connecticut. (It wasn’t clear whether anybody outside the clubhouse heard him.) What he really liked to do was fly. The memories that mattered most to him were his years of service as a transport pilot during World War II. Or the time he and Grandmother took to the Midwestern skies in a barnstorming plane. My grandparents never lost faith in the limitless possibilities of a life free from government. But in their last years, as the reserves passed down from the Colonel ran low, they became pretty diligent about collecting their Social Security and Medicare benefits.

There is a page in the book of American political thought—Grandfather knew it by heart—that says we must choose between government and freedom. But if you read it twice, you’ll see that what it really offers is a choice between government you can see and government you can’t. Aristocrats always prefer the invisible kind of government. It leaves them free to exercise their privileges. We in the 9.9 percent have mastered the art of getting the government to work for us even while complaining loudly that it’s working for those other people.

Consider, for starters, the greatly exaggerated reports of our tax burdens. On guest panels this past holiday season, apologists for the latest round of upwardly aimed tax cuts offered versions of Mitt Romney’s claim that the 47 percent of Americans who pay no federal income tax in a typical year have “no skin in the game.” Baloney. Sure, the federal individual-income tax, which raised $1.6 trillion last year, remains progressive. But the $1.2 trillion raised by the payroll tax hits all workers—but not investors, such as Romney—and it hits those making lower incomes at a higher rate, thanks to a cap on the amount of income subject to the tax. Then there’s the $2.3 trillion raised by state and local governments, much of it collected through regressive sales and property taxes. The poorest quintile of Americans pays more than twice the rate of state taxes as the top 1 percent does, and about half again what the top 10 percent pays.

Our false protests about paying all the taxes, however, sound like songs of innocence compared with our mastery of the art of having the taxes returned to us. The income-tax system that so offended my grandfather has had the unintended effect of creating a highly discreet category of government expenditures. They’re called “tax breaks,” but it’s better to think of them as handouts that spare the government the inconvenience of collecting the money in the first place. In theory, tax expenditures can be used to support any number of worthy social purposes, and a few of them, such as the earned income-tax credit, do actually go to those with a lower income. But more commonly, because their value is usually a function of the amount of money individuals have in the first place, and those individuals’ marginal tax rates, the benefits flow uphill.

Let us count our blessings: Every year, the federal government doles out tax expenditures through deductions for retirement savings (worth $137 billion in 2013); employer-sponsored health plans ($250 billion); mortgage-interest payments ($70 billion); and, sweetest of all, income from watching the value of your home, stock portfolio, and private-equity partnerships grow ($161 billion). In total, federal tax expenditures exceeded $900 billion in 2013. That’s more than the cost of Medicare, more than the cost of Medicaid, more than the cost of all other federal safety-net programs put together. And—such is the beauty of the system—51 percent of those handouts went to the top quintile of earners, and 39 percent to the top decile.

The best thing about this program of reverse taxation, as far as the 9.9 percent are concerned, is that the bottom 90 percent haven’t got a clue. The working classes get riled up when they see someone at the grocery store flipping out their food stamps to buy a T-bone. They have no idea that a nice family on the other side of town is walking away with $100,000 for flipping their house.

But wait, there’s more! Let’s not forget about the kids. If the secrets of a nation’s soul may be read from its tax code, then our nation must be in love with the children of rich people. The 2017 tax law raises the amount of money that married couples can pass along to their heirs tax-free from a very generous $11 million to a magnificent $22 million. Correction: It’s not merely tax-free; it’s tax-subsidized. The unrealized tax liability on the appreciation of the house you bought 40 years ago, or on the stock portfolio that has been gathering moths—all of that disappears when you pass the gains along to the kids. Those foregone taxes cost the United States Treasury $43 billion in 2013 alone—about three times the amount spent on the Children’s Health Insurance Program.

Grandfather’s father, the Colonel, died in 1947, when the maximum estate-tax rate was a now-unheard-of 77 percent. When the remainder was divvied up among four siblings, Grandfather had barely enough to pay for the Bentley and keep up with dues at the necessary clubs. The government made sure that I would grow up in the middle class. And for that I will always be grateful.

6. The Gilded Zip Code

From my Brookline home, it’s a pleasant, 10-minute walk to get a haircut. Along the way, you pass immense elm trees and brochure-ready homes beaming in their reclaimed Victorian glory. Apart from a landscaper or two, you are unlikely to spot a human being in this wilderness of oversize closets, wood-paneled living rooms, and Sub-Zero refrigerators. If you do run into a neighbor, you might have a conversation like this: “Our kitchen remodel went way over budget. We had to fight just to get the tile guy to show up!” “I know! We ate Thai takeout for a month because the gas guy’s car kept breaking down!” You arrive at the Supercuts fresh from your stroll, but the nice lady who cuts your hair is looking stressed. You’ll discover that she commutes an hour through jammed highways to work. The gas guy does, too, and the tile guy comes in from another state. None of them can afford to live around here. The rent is too damn high.

From 1980 to 2016, home values in Boston multiplied 7.6 times. When you take account of inflation, they generated a return of 157 percent to their owners. San Francisco returned 162 percent in real terms over the same period; New York, 115 percent; and Los Angeles, 114 percent. If you happen to live in a neighborhood like mine, you are surrounded by people who consider themselves to be real-estate geniuses. (That’s one reason we can afford to make so many mistakes in the home-renovation department.) If you live in St. Louis (3 percent) or Detroit (minus 16 percent), on the other hand, you weren’t so smart. In 1980, a house in St. Louis would trade for a decent studio apartment in Manhattan. Today that house will buy an 80-square-foot bathroom in the Big Apple.

The returns on (the right kind of) real estate have been so extraordinary that, according to some economists, real estate alone may account for essentially all of the increase in wealth concentration over the past half century. It’s not surprising that the values are up in the major cities: These are the gold mines of our new economy. Yet there is a paradox. The rent is so high that people—notably people in the middle class—are leaving town rather than working the mines. From 2000 to 2009, the San Francisco Bay Area had some of the highest salaries in the nation, and yet it lost 350,000 residents to lower-paying regions. Across the United States, the journalist and economist Ryan Avent writes in The Gated City, “the best opportunities are found in one place, and for some reason most Americans are opting to live in another.” According to estimates from the economists Enrico Moretti and Chang-Tai Hsieh, the migration away from the productive centers of New York, San Francisco, and San Jose alone lopped 9.7 percent off total U.S. growth from 1964 to 2009.

It is well known by now that the immediate cause of the insanity is the unimaginable pettiness of backyard politics. Local zoning regulation imposes excessive restrictions on housing development and drives up prices. What is less well understood is how central the process of depopulating the economic core of the nation is to the intertwined stories of rising inequality and falling social mobility.

Real-estate inflation has brought with it a commensurate increase in economic segregation. Every hill and dale in the land now has an imaginary gate, and it tells you up front exactly how much money you need to stay there overnight. Educational segregation has accelerated even more. In my suburb of Boston, 53 percent of adults have a graduate degree. In the suburb just south, that figure is 9 percent.

This economic and educational sorting of neighborhoods is often represented as a matter of personal preference, as in red people like to hang with red, and blue with blue. In reality, it’s about the consolidation of wealth in all its forms, starting, of course, with money. Gilded zip codes are located next to giant cash machines: a too-big-to-fail bank, a friendly tech monopoly, and so on. Local governments, which collected a record $523 billion in property taxes in 2016, make sure that much of the money stays close to home.

But proximity to economic power isn’t just a means of hoarding the pennies; it’s a force of natural selection. Gilded zip codes deliver higher life expectancy, more-useful social networks, and lower crime rates. Lengthy commutes, by contrast, cause obesity, neck pain, stress, insomnia, loneliness, and divorce, as Annie Lowrey reported in Slate. One study found that a commute of 45 minutes or longer by one spouse increased the chance of divorce by 40 percent.

Nowhere are the mechanics of the growing geographic divide more evident than in the system of primary and secondary education. Public schools were born amid hopes of opportunity for all; the best of them have now been effectively reprivatized to better serve the upper classes. According to a widely used school-ranking service, out of more than 5,000 public elementary schools in California, the top 11 are located in Palo Alto. They’re free and open to the public. All you have to do is move into a town where the median home value is $3,211,100. Scarsdale, New York, looks like a steal in comparison: The public high schools in that area funnel dozens of graduates to Ivy League colleges every year, and yet the median home value is a mere $1,403,600.

Racial segregation has declined with the rise of economic segregation. We in the 9.9 percent are proud of that. What better proof that we care only about merit? But we don’t really want too much proof. Beyond a certain threshold—5 percent minority or 20 percent, it varies according to the mood of the region—neighborhoods suddenly go completely black or brown. It is disturbing, but perhaps not surprising, to find that social mobility is lower in regions with high levels of racial segregation. The fascinating revelation in the data, however, is that the damage isn’t limited to the obvious victims. According to Raj Chetty’s research team, “There is evidence that higher racial segregation is associated with lower social mobility for white people.” The relationship doesn’t hold in every zone of the country, to be sure, and is undoubtedly the statistical reflection of a more complex set of social mechanisms. But it points to a truth that America’s 19th-century slaveholders understood very well: Dividing by color remains an effective way to keep all colors of the 90 percent in their place.

With localized wealth comes localized political power, and not just of the kind that shows up in voting booths. Which brings us back to the depopulation paradox. Given the social and cultural capital that flows through wealthy neighborhoods, is it any wonder that we can defend our turf in the zoning wars? We have lots of ways to make that sound public-spirited. It’s all about saving the local environment, preserving the historic character of the neighborhood, and avoiding overcrowding. In reality, it’s about hoarding power and opportunity inside the walls of our own castles. This is what aristocracies do.

Zip code is who we are. It defines our style, announces our values, establishes our status, preserves our wealth, and allows us to pass it along to our children. It’s also slowly strangling our economy and killing our democracy. It is the brick-and-mortar version of the Gatsby Curve. The traditional story of economic growth in America has been one of arriving, building, inviting friends, and building some more. The story we’re writing looks more like one of slamming doors shut behind us and slowly suffocating under a mass of commercial-grade kitchen appliances.

7. Our Blind Spot

In my family, Aunt Sarah was the true believer. According to her version of reality, the family name was handed down straight from the ancient kings of Scotland. Great-great-something-grandfather William Stewart, a soldier in the Continental Army, was seated at the right hand of George Washington. And Sarah herself was somehow descended from “Pocahontas’s sister.” The stories never made much sense. But that didn’t stop Sarah from believing in them. My family had to be special for a reason.

The 9.9 percent are different. We don’t delude ourselves about the ancient sources of our privilege. That’s because, unlike Aunt Sarah and her imaginary princesses, we’ve convinced ourselves that we don’t have any privilege at all.

Consider the reception that at least some members of our tribe have offered to those who have foolishly dared to draw attention to our advantages. Last year, when the Brookings Institution researcher Richard V. Reeves, following up on his book Dream Hoarders, told the readers of The New York Times to “Stop Pretending You’re Not Rich,” many of those readers accused him of engaging in “class warfare,” of writing “a meaningless article,” and of being “rife with guilt.”

In her incisive portrait of my people, Uneasy Street, the sociologist Rachel Sherman documents the syndrome. A number among us, when reminded of our privilege, respond with a counternarrative that generally goes like this: I was born in the street. I earned everything all by myself. I barely get by on my $250,000 salary. You should see the other parents at our kids’ private school.

In part what we have here is a listening problem. Americans have trouble telling the difference between a social critique and a personal insult. Thus, a writer points to a broad social problem with complex origins, and the reader responds with, “What, you want to punish me for my success?”

In part, too, we’re seeing some garden-variety self-centeredness, enabled by the usual cognitive lapses. Human beings are very good at keeping track of their own struggles; they are less likely to know that individuals on the other side of town are working two minimum-wage jobs to stay afloat, not watching Simpsons reruns all day. Human beings have a simple explanation for their victories: I did it. They easily forget the people who handed them the crayon and set them up for success. Human beings of the 9.9 percent variety also routinely conflate the stress of status competition with the stress of survival. No, failing to get your kid into Stanford is not a life-altering calamity.

The recency of it all may likewise play a role in our failure to recognize our growing privileges. It has taken less than one lifetime for the (never fully formed) meritocracy to evolve into a (fledgling) aristocracy. Class accretes faster than we think. It’s our awareness that lags, trapping us within the assumptions into which we were born.

And yet, even allowing for these all-too-human failures of cognition, the cries of anguish that echo across the soccer fields at the mere suggestion of unearned privilege are too persistent to ignore. Fact-challenged though they may be, they speak to a certain, deeper truth about life in the 9.9 percent. What they are really telling us is that being an aristocrat is not quite what it is cracked up to be.

A strange truth about the Gatsby Curve is that even as it locks in our privileges, it doesn’t seem to make things all that much easier. I know it wasn’t all that easy growing up in the Colonel’s household, for example. The story that Grandfather repeated more than any other was the one where, following some teenage misdemeanor of his, his father, the 250-pound, 6-foot-something onetime Rough Rider, smacked him so hard that he sailed clear across the room and landed flat on the floor. Everything—anything—seemed to make the Colonel angry.

Jay Gatsby might have understood. Life in West Egg is never as serene as it seems. The Princeton man—that idle prince of leisure who coasts from prep school to a life of ease—is an invention of our lowborn ancestors. It’s what they thought they saw when they were looking up. West Eggers understand very well that a bad move or an unlucky break (or three or four) can lead to a steep descent. We know just how expensive it is to live there, yet living off the island is unthinkable. We have intuited one of the fundamental paradoxes of life on the Gatsby Curve: The greater the inequality, the less your money buys.

We feel in our bones that class works only for itself; that every individual is dispensable; that some of us will be discarded and replaced with fresh blood. This insecurity of privilege only grows as the chasm beneath the privileged class expands. It is the restless engine that drives us to invest still more time and energy in the walls that will keep us safe by keeping others out.

Perhaps the best evidence for the power of an aristocracy is the degree of resentment it provokes. By that measure, the 9.9 percent are doing pretty well indeed.

Here’s another fact of life in West Egg: Someone is always above you. In Gatsby’s case, it was the old-money people of East Egg. In the Colonel’s case, it was John D. Rockefeller Jr. You’re always trying to please them, and they’re always ready to pull the plug.

The source of the trouble, considered more deeply, is that we have traded rights for privileges. We’re willing to strip everyone, including ourselves, of the universal right to a good education, adequate health care, adequate representation in the workplace, genuinely equal opportunities, because we think we can win the game. But who, really, in the end, is going to win this slippery game of escalating privileges?

Under the circumstances, delusions are understandable. But that doesn’t make them salutary, as Aunt Sarah discovered too late. Even as the last few pennies of the Colonel’s buck trickled down to my father’s generation, she still had the big visions that corresponded to her version of the family mythology. Convinced that she had inherited a head for business, she bet her penny on the dot-com bubble. In her final working years, she donned a red-and-black uniform and served burgers at a Wendy’s in the vicinity of Jacksonville, Florida.

8. The Politics of Resentment

The political theology of the meritocracy has no room for resentment. We are taught to run the competition of life with our eyes on the clock and not on one another, as if we were each alone. If someone scores a powerboat on the Long Island waterways, so much the better for her. The losers will just smile and try harder next time.

In the real world, we humans are always looking from side to side. We are intensely conscious of what other people are thinking and doing, and conscious to the point of preoccupation with what they think about us. Our status is visible only through its reflection in the eyes of others.

Perhaps the best evidence for the power of an aristocracy is to be found in the degree of resentment it provokes. By that measure, the 9.9 percent are doing pretty well indeed. The surest sign of an increase in resentment is a rise in political division and instability. We’re positively acing that test. You can read all about it in the headlines of the past two years.

The 2016 presidential election marked a decisive moment in the history of resentment in the United States. In the person of Donald Trump, resentment entered the White House. It rode in on the back of an alliance between a tiny subset of super-wealthy 0.1 percenters (not all of them necessarily American) and a large number of 90 percenters who stand for pretty much everything the 9.9 percent are not.

According to exit polls by CNN and Pew, Trump won white voters by about 20 percent. But these weren’t just any old whites (though they were old, too). The first thing to know about the substantial majority of them is that they weren’t the winners in the new economy. To be sure, for the most part they weren’t poor either. But they did have reason to feel judged by the market—and found wanting. The counties that supported Hillary Clinton represented an astonishing 64 percent of the GDP, while Trump counties accounted for a mere 36 percent. Aaron Terrazas, a senior economist at Zillow, found that the median home value in Clinton counties was $250,000, while the median in Trump counties was $154,000. When you adjust for inflation, Clinton counties enjoyed real-estate price appreciation of 27 percent from January 2000 to October 2016; Trump counties got only a 6 percent bump.

The residents of Trump country were also the losers in the war on human health. According to Shannon Monnat, an associate professor of sociology at Syracuse, the Rust Belt counties that put the anti-government-health-care candidate over the top were those that lost the most people in recent years to deaths of despair—those due to alcohol, drugs, and suicide. To make all of America as great as Trump country, you would have to torch about a quarter of total GDP, wipe a similar proportion of the nation’s housing stock into the sea, and lose a few years in life expectancy. There’s a reason why one of Trump’s favorite words is unfair. That’s the only word resentment wants to hear.

Even so, the distinguishing feature of Trump’s (white) voters wasn’t their income but their education, or lack thereof. Pew’s latest analysis indicates that Trump lost college-educated white voters by a humiliating 17 percent margin. But he got revenge with non-college-educated whites, whom he captured by a stomping 36 percent margin. According to an analysis by Nate Silver, the 50 most educated counties in the nation surged to Clinton: In 2012, Obama had won them by a mere 17 percentage points; Clinton took them by 26 points. The 50 least educated counties moved in the opposite direction; whereas Obama had lost them by 19 points, Clinton lost them by 31. Majority-minority counties split the same way: The more educated moved toward Clinton, and the less educated toward Trump.

The historian Richard Hofstadter drew attention to Anti-intellectualism in American Life in 1963; Susan Jacoby warned in 2008 about The Age of American Unreason; and Tom Nichols announced The Death of Expertise in 2017. In Trump, the age of unreason has at last found its hero. The “self-made man” is always the idol of those who aren’t quite making it. He is the sacred embodiment of the American dream, the guy who answers to nobody, the poor man’s idea of a rich man. It’s the educated phonies this group can’t stand. With his utter lack of policy knowledge and belligerent commitment to maintaining his ignorance, Trump is the perfect representative for a population whose idea of good governance is just to scramble the eggheads. When reason becomes the enemy of the common man, the common man becomes the enemy of reason.

Did I mention that the common man is white? That brings us to the other side of American-style resentment. You kick down, and then you close ranks around an imaginary tribe. The problem, you say, is the moochers, the snakes, the handout queens; the solution is the flag and the religion of your (white) ancestors. According to a survey by the political scientist Brian Schaffner, Trump crushed it among voters who “strongly disagree” that “white people have advantages because of the color of their skin,” as well as among those who “strongly agree” that “women seek to gain power over men.” It’s worth adding that these responses measure not racism or sexism directly, but rather resentment. They’re good for picking out the kind of people who will vehemently insist that they are the least racist or sexist person you have ever met, even as they vote for a flagrant racist and an accused sexual predator.

No one is born resentful. As mass phenomena, racism, xenophobia, anti-intellectualism, narcissism, irrationalism, and all other variants of resentment are as expensive to produce as they are deadly to democratic politics. Only long hours of television programming, intelligently manipulated social-media feeds, and expensively sustained information bubbles can actualize the unhappy dispositions of humanity to the point where they may be fruitfully manipulated for political gain. Racism in particular is not just a legacy of the past, as many Americans would like to believe; it also must be constantly reinvented for the present. Mass incarceration, fearmongering, and segregation are not just the results of prejudice, but also the means of reproducing it.

The raging polarization of American political life is not the consequence of bad manners or a lack of mutual understanding. It is just the loud aftermath of escalating inequality. It could not have happened without the 0.1 percent (or, rather, an aggressive subset of its members). Wealth always preserves itself by dividing the opposition. The Gatsby Curve does not merely cause barriers to be built on the ground; it mandates the construction of walls that run through other people’s minds.

But that is not to let the 9.9 percent off the hook. We may not be the ones funding the race-baiting, but we are the ones hoarding the opportunities of daily life. We are the staff that runs the machine that funnels resources from the 90 percent to the 0.1 percent. We’ve been happy to take our cut of the spoils. We’ve looked on with smug disdain as our labors have brought forth a population prone to resentment and ripe for manipulation. We should be prepared to embrace the consequences.

The first important thing to know about these consequences is the most obvious: Resentment is a solution to nothing. It isn’t a program of reform. It isn’t “populism.” It is an affliction of democracy, not an instance of it. The politics of resentment is a means of increasing inequality, not reducing it. Every policy change that has waded out of the Trump administration’s baffling morass of incompetence makes this clear. The new tax law; the executive actions on the environment and telecommunications, and on financial-services regulation; the judicial appointments of conservative ideologues—all will have the effect of keeping the 90 percent toiling in the foothills of merit for many years to come.

The second thing to know is that we are next in line for the chopping block. As the population of the resentful expands, the circle of joy near the top gets smaller. The people riding popular rage to glory eventually realize that we are less useful to them as servants of the economic machine than we are as model enemies of the people. The anti-blue-state provisions of the recent tax law have miffed some members of the 9.9 percent, but they’re just a taste of the bad things that happen to people like us as the politics of resentment unfolds.

The past year provides ample confirmation of the third and most important consequence of the process: instability. Unreasonable people also tend to be ungovernable. I won’t belabor the point. Just try doing a frequency search on the phrase constitutional crisis over the past five years. That’s the thing about the Gatsby Curve. You think it’s locking all of your gains in place. But the crystallization process actually has the effect of making the whole system more brittle. If you look again at history, you can get a sense of how the process usually ends.

9. How Aristocracies Fall

For months, Colonel Robert W. Stewart dodged the subpoenas. He was in Mexico or South America, undertaking business negotiations so sensitive that revealing his precise location would jeopardize the national interest, or so said his lawyer. Senator Thomas J. Walsh of Montana at last dragged the lawyer to the stand and presented him with clippings from the gossip columns of the Havana newspapers, complete with incriminating photographs. The Colonel, always known to appreciate a good horse, was apparently quite the fixture at the Jockey Club. His smile had also flashed for the cameras at an impressive round of luncheons and dinners, and an evening ball at the Havana Yacht Club.

When the senators finally roped the Colonel in for questioning about those shell-company bonds that had spread like bedbugs through the political ecosystem, he let them know just who was in charge. “I do not think that the line of interrogation by this committee is within the jurisdiction of the committee under the laws of the United States,” he declared. Even so, he added, as if proffering a favor, he did not “personally receive any of these bonds.” Which was not, on any ordinary construction of the English language, true.

The twilight of the fabled Stewart dynasty was not glorious. A fancy lawyer got the Colonel “aquibbled” from charges of contempt, as one journalist sneered, but Rockefeller Jr. wasn’t ready to forgive him the public-relations fiasco. After an epic but futile battle for the hearts of shareholders, the Colonel hung up his spurs and retreated for life to the family compound in Nantucket.

None of which changed the reality that the Teapot Dome scandal, with its bribes and kickbacks and sweetheart deals for rich oilmen, made plain. Under the immense pressure of the Gatsby Curve, American democracy was on the ropes. The people in charge were the people with the money. Ultimately, what the moneymen of the 1920s wanted is what moneymen always want. And their servants delivered. The Calvin Coolidge administration passed a huge tax cut in 1926, making sure that everyone could go home with his winnings. The rich seemed to think they had nothing else to worry about—until October 1929.

Where were the 90 percent during these acts of plunder? An appreciable number of them could be found at Ku Klux Klan rallies. And as far as the most vocal (though not necessarily the largest) part of the 90 percent was concerned, America’s biggest problems were all due to the mooching hordes of immigrants. You know, the immigrants whose grandchildren have come to believe that America’s biggest problems now are all due to the mooching hordes of immigrants.

The toxic wave of wealth concentration that arose in the Gilded Age and crested in the 1920s finally crashed on the shoals of depression and war. Today we like to think that the social-welfare programs that were planted by the New Deal and that blossomed in the postwar era were the principal drivers of a new equality. But the truth is that those efforts belong more to the category of effects than causes. Death and destruction were the real agents of change. The financial collapse knocked the wealthy back several steps, and war empowered labor—above all working women.

That gilded, roaring surge of destruction was by no means the first such destabilizing wave of inequality to sweep through American history. In the first half of the 19th century, the largest single industry in the United States, measured in terms of both market capital and employment, was the enslavement (and the breeding for enslavement) of human beings. Over the course of the period, the industry became concentrated to the point where fewer than 4,000 families (roughly 0.1 percent of the households in the nation) owned about a quarter of this “human capital,” and another 390,000 (call it the 9.9 percent, give or take a few points) owned all of the rest.

The slaveholding elite were vastly more educated, healthier, and had much better table manners than the overwhelming majority of their fellow white people, never mind the people they enslaved. They dominated not only the government of the nation, but also its media, culture, and religion. Their votaries in the pulpits and the news networks were so successful in demonstrating the sanctity and beneficence of the slave system that millions of impoverished white people with no enslaved people to call their own conceived of it as an honor to lay down their life in the system’s defense.

That wave ended with 620,000 military deaths, and a lot of property damage. It did level the playing field in the American South for a time—though the process began to reverse itself all too swiftly.

The United States, to be clear, is hardly the most egregious offender in the annals of human inequality. The European nations from which the colonists of North America emigrated had known a degree of inequality and instability that Americans would take more than a century to replicate. Whether in ancient Rome or the Near East, Asia or South America, the plot remains the same. In The Great Leveler, the historian Walter Scheidel makes a disturbingly good case that inequality has reliably ended only in catastrophic violence: wars, revolutions, the collapse of states, or plagues and other disasters. It’s a depressing theory. Now that a third wave of American inequality appears to be cresting, how much do we want to bet that it’s not true?

The belief in our own novelty is one of the defining characteristics of our class. It mostly means that we don’t know our predecessors very well. I had long assumed that the Colonel was descended from a long line of colonels, each passing down his immense sense of entitlement to the next. Aunt Sarah’s propaganda was more effective than I knew.

Robert W. Stewart was born in 1866 on a small farm in Iowa and raised on the early mornings and long hours of what Paul Henry Giddens, a historian of Standard Oil of Indiana, politely describes as “very modest circumstances.” The neighbors, seeing that the rough-cut teenager had something special, pitched in to send him to tiny Coe College, in the meatpacking town of Cedar Rapids. It would be hard not to believe that the urgent need to win at everything was already driving the train when the scholarship boy arrived at Yale Law School a few years later. The flashbulbs at the Havana Yacht Club captured a pose that was perhaps first glimpsed in a scratchy mirror somewhere in the silent plains of the Midwest.

10. The Choice

I like to think that the ending of The Great Gatsby is too down-beat. Even if we are doomed to row our boats ceaselessly back into the past, how do we know which part of the past that will be?

History shows us a number of aristocracies that have made good choices. The 9.9 percenters of ancient Athens held off the dead tide of the Gatsby Curve for a time, even if democracy wasn’t quite the right word for their system of government. America’s first generation of revolutionaries was mostly 9.9 percenters, and yet they turned their backs on the man at the very top in order to create a government of, by, and for the people. The best revolutions do not start at the bottom; they are the work of the upper-middle class.

These exceptions are rare, to be sure, and yet they are the story of the modern world. In total population, average life expectancy, material wealth, artistic expression, rates of violence, and almost every other measure that matters for the quality of human life, the modern world is a dramatically different place than anything that came before. Historians offer many complicated explanations for this happy turn in human events—the steam engine, microbes, the weather—but a simple answer precedes them all: equality. The history of the modern world is the unfolding of the idea at the vital center of the American Revolution.

The defining challenge of our time is to renew the promise of American democracy by reversing the calcifying effects of accelerating inequality. As long as inequality rules, reason will be absent from our politics; without reason, none of our other issues can be solved. It’s a world-historical problem. But the solutions that have been put forward so far are, for the most part, shoebox in size.

Well-meaning meritocrats have proposed new and better tests for admitting people into their jewel-encrusted classrooms. Fine—but we aren’t going to beat back the Gatsby Curve by tweaking the formulas for excluding people from fancy universities. Policy wonks have taken aim at the more-egregious tax-code handouts, such as the mortgage-interest deduction and college-savings plans. Good—and then what? Conservatives continue to recycle the characterological solutions, like celebrating traditional marriage or bringing back that old-time religion. Sure—reforging familial and community bonds is a worthy goal. But talking up those virtues won’t save any families from the withering pressures of a rigged economy. Meanwhile, coffee-shop radicals say they want a revolution. They don’t seem to appreciate that the only simple solutions are the incredibly violent and destructive ones.

The American idea has always been a guide star, not a policy program, much less a reality. The rights of human beings never have been and never could be permanently established in a handful of phrases or old declarations. They are always rushing to catch up to the world that we inhabit. In our world, now, we need to understand that access to the means of sustaining good health, the opportunity to learn from the wisdom accumulated in our culture, and the expectation that one may do so in a decent home and neighborhood are not privileges to be reserved for the few who have learned to game the system. They are rights that follow from the same source as those that an earlier generation called life, liberty, and the pursuit of happiness.

Yes, the kind of change that really matters is going to require action from the federal government. That which creates monopoly power can also destroy it; that which allows money into politics can also take it out; that which has transferred power from labor to capital can transfer it back. Change also needs to happen at the state and local levels. How else are we going to open up our neighborhoods and restore the public character of education?

It’s going to take something from each of us, too, and perhaps especially from those who happen to be the momentary winners of this cycle in the game. We need to peel our eyes away from the mirror of our own success and think about what we can do in our everyday lives for the people who aren’t our neighbors. We should be fighting for opportunities for other people’s children as if the future of our own children depended on it. It probably does.

Learn more at The Atlantic

California voters are being presented with two upcoming water bond propositions in the June and November elections. In June, Prop 68 will present voters with a $4 billion Parks and Water Bond, and in November the Water Supply and Water Quality bond will present voters with an $8.7 billion bond. Recently, VX News sat down with Gerald Meral, official proponent of the November Water Bond and director of the California Water Program at the Natural Heritage Institute. Meral, who has previously directed the Planning and Conservation League and served as a Deputy Secretary of the California Natural Resources Agency, provided an overview of the types of drinking water, ecosystem restoration, and sustainable groundwater projects the November bond would fund.

Recently, the $8.9 billion water bond that you’ve been instrumental in crafting was certified for the November ballot. If passed, what would that measure fund?

Jerry Meral: The bond funds state drinking water, which is a huge statewide need, and safe wastewater disposal, which is a big priority in disadvantaged communities. Some categories are what you would conventionally expect: wastewater recycling, de-salting of groundwater, water conservation, and watershed restoration. There are a total of 100 funding categories for water items in the measure.

"There is no daylight between what we are doing and what the governor has said needs to be done. This bond is the funding the governor needs to implement his Water Action Plan." - Gerald Meral

The bond also funds implementation of the Sustainable Groundwater Management Act, a landmark bill that the state passed several years ago but hasn’t yet been fully implemented. It partly funds the repair of the Oroville Dam, which was a huge public safety problem, and the repair of the Friant-Kern Canal, which is a key water delivery element for more than a million acres of the best farmland in the world.

One interesting feature of the bond is its attention to Salton Sea. I daresay the Salton Sea is the single greatest threat to air quality in the United States. It’s got to be solved. This bond provides half of the funding needed for the state plan for this problem; the other half is in Prop 68, which is on the June ballot.

Given that bond measures are crafted by their sponsors, rather than through legislative process, share the stakeholders who have been involved in this effort aimed at the November ballot.

This measure was a very broad effort that took more than two years to put together. Conservation groups were instrumental in the first draft, and it reflects their work and their priorities.

We worked very closely with California agriculture. A lot of commodity groups were involved in this—fresh fruit, rice, cotton, citrus, and so on. They have a lot to say about water management.

We also worked closely with the Association of California Water Agencies and many of their member agencies, like the Friant Water Authority, Northern California Water Association, and Southern California Water Coalition, as well as with fish and wildlife groups, like Ducks Unlimited and the California Waterfowl Association.

You noted that on California’s June ballot is another water-related funding measure, Prop 68. What does Prop 68 fund, and what distinguishes it from your water bond going before the voters in November?

We certainly endorse Prop 68; it’s a good measure. Like our November measure, it funds safe drinking water, flood control, the Salton Sea plan, and water recycling. But it’s important to note that in every one of those categories, our research has shown that the need is substantially greater than these two measures combined.

One difference between our measures is that Prop 68’s strongest emphasis is parks. It has around $1 billion for various water purposes. Initiatives like ours are subject to the single-subject rule, so our $9 billion measure is entirely for water.

However, two things are not in our measure. One is funding for the Delta Tunnels project, which we deemed too controversial. Also, we did not include surface storage projects. Proposition 1 from 2014 had $2.7 billion for storage projects, and that process is still ongoing, so we did not want to compete with it.

Does your water bond align with the investment goals included in the governor’s Water Action Plan? Have you collaborated with water leaders in the state administration and Legislature on the bond’s provisions and priorities?

We have compared our measure to the governor’s Water Action Plan, and it’s fair to say that they are virtually homologous; there is no daylight between what we are doing and what the governor has said needs to be done. This bond is the funding the governor needs to implement his Water Action Plan.

He has not taken a position, and the state agencies have followed his lead. However, I will say that we did not ignore communicating with the state agencies, and they gave us guidance as to what they needed to ensure that we were doing the right thing.

You referenced earlier that implementing California’s Sustainable Groundwater Management Act is new to local governance. How is SGMA changing water management, and how might the water bond facilitate such change?

SGMA was a landmark bill for California; really, we are just catching up to other Western states. The goal is to preserve groundwater at a relatively stable level, and to not let it degrade in quality. This is a big challenge for California, as we have a state overdraft of more than 2 million acre-feet a year. That’s huge. We need to do much better about recharging groundwater.

Southern California is a leader in this, but a lot of the state needs to catch up. Facilities and pipelines need to be built to move floodwater to places where it can percolate into the ground. Quality remediation needs to be done to make groundwater more usable.

To some extent, we’re also going to have to take land out of production. Of course, our goal is to minimize that impact by doing everything else we can first. But even if we do everything we need to, still, it won’t be possible over the long term to irrigate as much land as we do today.

Elaborate on the significant investments planned to address the multi-decade challenges arising from the Salton Sea.

The Salton Sea is a wastewater sink. It was created when the Colorado River was accidentally diverted into that huge basin, and it’s kept alive by wastewater coming from the fields of the Imperial Irrigation District and the Coachella Valley Water District.

The Metropolitan Water District and San Diego County Water Authority have made deals with the Imperial and Coachella water districts to conserve water. They have done a lot: using drip irrigation, storing water when it’s not needed, and so on. That’s a good thing—we want to conserve water—but it also means less water is going to the Salton Sea, and so the sea is drying up. It’s losing its ability to produce fish and its value as a wildlife habitat is diminishing.

That’s bad enough, but equally importantly, as the sea dries, the lakebed is being exposed. This is the largest lake in Southern California, and once exposed, it will blow dust of biblical proportions south into El Centro, Imperial, and Mexico, and sometimes north into Palm Springs, Riverside, and all the way to Ventura County. It will be like the Owens Dry Lake before Los Angeles spent $2 billion to mitigate the impacts. This is a huge state priority. It just has to be solved.

Since the drought captured the consciousness of California voters, water management has been a priority of Governor Brown’s and subject of great interest for legislators and voters. Currently, Senator Bob Hertzberg is sponsoring SB 231, a Prop 218 fix that relates to water infrastructure, and LA County has proposed a parcel tax for the November ballot to fund stormwater management. In your opinion, will voters have the appetite to support both of these water measures?

I think the public is responsive to these needs. Proposition 1, a water bond the governor sponsored about four years ago, was approved by 67 percent of the voters and went through the Legislature almost unanimously. It passed even in areas like the Central Valley and the mountains where normally bonds don’t do very well.

Another recent example is Measure AA, which was a parcel tax measure to restore wetlands in the Bay Area two years ago. That passed with a 70 percent margin, which is almost unbelievable considering that people were voting to tax themselves.

For this measure, our polling shows well over 60 percent voter support. I think the voters get it. They may not know where their water comes from, or understand all the water problems in the state, but they do understand that it’s a dry state and that the water has to be brought in from a long way away.

Given all the bonds and taxes the public will be asked to vote on this spring and fall, do you expect voters to prioritize issues like housing, air quality, climate change mitigation, and water infrastructure? If so, how highly ranked is water?

Looking over previous bond acts going back to 1970, there’s not a lot of evidence that voters feel the need to prioritize. Generally speaking, if the economy is good, and people like the purpose, very few bonds fail. When it does happen, it tends to be because people don’t feel that the purpose of the bond is relevant to them or worth spending money on.

Is there any downside in relying heavily on bond measures to fund the state’s water infrastructure and climate adaptation needs?

This challenge is ancient. The problem is that government needs to spend money on the urgent needs we have right now—year-to-year funding of schools, for example. And yet, we also have to invest in infrastructure. The way the state does that is through bond acts. Water, parks, and rail—all the hard infrastructure projects are funded by bonds or special dedicated taxes.

Unfortunately, the amount that California spends on infrastructure outside of bonds has gone down. The state simply tends to spend on what they have to do this year, as opposed to building for the future. But without investment, our state’s infrastructure will collapse. How can we build for the future if we don’t have the right roads, schools, and water systems—all the things that Governor Pat Brown thought were so important?

On the November ballot with your water bond is the election of a new slate of state office holders. Does it matter much for water infrastructure who is selected to serve for the next four years?

Fortunately, when it comes to this year’s bond measures, the voters set those priorities, and it will simply be the job of whoever is elected governor to implement those priorities.

But if the water measures pass by a good margin, it will send a message to state leaders that voters think infrastructure is important, and that maybe they should consider investing more of the state’s general fund in infrastructure. I’m hoping that our electeds will be educated by the voters this November.

Learn more at VerdeXchange

Even in the wake of previous tax windfalls, Gov. Jerry Brown's announcement on Friday was breathtaking: The state has collected an unexpected $9 billion in tax revenue in recent months, $3 billion more in cash than projected in January.

The money is the latest installment in a fiscal winning streak of historic proportions in California. And, as in previous years, the governor's newly revised budget seeks to divvy it up on either short-term spending or long-term savings by putting it into government reserves.

"This is a time to save for our future, not to make pricey promises we can't keep," Brown said. "I've said it before and I'll say it again: Let's not blow it now."

Brown's most significant proposal for spending the cash may be a $359-million boost to ease the state's burgeoning homelessness crisis. The governor's proposal also embraces a plan to put a $2-billion bond for homeless housing on November's statewide ballot. The budget plan adds $312 million for mental health programs.

The infusion of cash to help the homeless is one of only a few new proposals in the $199.2-billion spending plan, a revision of Brown's original proposal to the Legislature in January. As was the case then, the governor continues to believe the lion's share of the tax windfall should be socked away in the state's rainy-day fund.

"I'll be very cautious in this year's budget," he told reporters at the state Capitol on Friday.

Brown's plan calls for topping off the reserve account at $13.8 billion by next summer, the largest in state history. Under the provisions of a 2014 ballot measure approved by voters, the fund can grow to no more than 10% of projected general fund revenues. That law also requires some of the early money be spent on repaying government debts.

A portion of the extra cash would go toward a new $1-billion effort to reduce the backlog of delayed maintenance in state departments and agencies. Almost one-third of the money would pay for projects on community college campuses, state prisons and aging river levees. In addition, the University of California and California State University systems would each receive $100 million for maintenance needs.

Brown also fired a warning shot to UC and CSU leaders in his budget. Should either college system raise tuition in the coming school year, he proposed a cap on state scholarship funds. That support, money for the Cal Grant and Middle-Class Scholarship programs, would otherwise rise automatically to meet student financial needs. UC leaders delayed action on a tuition hike while they awaited action on a state budget. Cal State officials have said they will not raise tuition next year.

As in previous years, a key debate point over the next few weeks is likely to be how to categorize much of the unexpected cash. Brown has consistently argued the windfalls should be considered temporary, and thus not used to pay for ongoing state services. Legislative Democrats have largely acceded to those demands, thereby narrowing the number of social services programs that can be boosted.

Those agreements have left some programs at or near recession-era levels. The governor insists that his administration has made significant strides toward helping Californians who live in poverty, including creating a tax credit for the working poor in 2015 and gradual increases in the state's minimum wage.

And yet lawmakers, in budget committee hearings through the winter and spring, heard from scores of advocates who pleaded for additional funds to boost subsidized child care and cash grants for the aged and disabled. Democrats in both the Senate and Assembly are expected to insist on more long-term funding for CalWORKS, the state's welfare assistance program, as they begin negotiations with Brown over the next few weeks.

The governor acknowledged "there will be some back and forth" in those private conversations, though he insisted there's no way to match dollars with demands. "If you take all these needs, and there are a lot of them, it's endless," he said.

The new focus on homelessness is intended to help cities and counties that are struggling to address the steady stream of adults and families living on the streets. A federal study concludes that more than 130,000 residents of the state are homeless, a 14% increase in the last year alone.

Legislators have expressed particular frustration that a $2-billion bond to help pay for additional housing, agreed to by the governor and lawmakers in 2016, has been tied up in court and remains unspent.

Brown is now supporting a bill by Sen. Kevin de León (D-Los Angeles) to have voters sign off on the housing bond instead of waiting for a court decision. A two-thirds supermajority of lawmakers will have to agree for the bond measure to reach the ballot.

The slow pace of spending on homelessness efforts is one reason for calls earlier this year from Los Angeles Mayor Eric Garcetti and mayors from the state's 10 other largest cities to spend $1.5 billion from the budget surplus to help local governments address the problem. State senators also have put forward a plan to spend $2 billion of the surplus on low-income housing development, with half that amount earmarked for homelessness programs.

Of the $359 million for homelessness efforts in the governor's proposal, the state would provide $250 million in grants to cities and counties that have declared homelessness emergencies. The remaining amount is for spending increases to existing state health, emergency and social service programs designed to help homeless domestic violence victims, the mentally ill and poor senior citizens.

Garcetti and the other mayors praised the governor for his proposal but indicated they would be seeking more money.

"I look forward to working with the governor, the Legislature and mayors across California to make certain that there are enough dollars to make meaningful and lasting strides toward ending the moral and humanitarian crisis on our streets," Garcetti said in a statement.

Several of the candidates vying to succeed Brown as governor were critical of the state's response thus far to the homelessness crisis in a televised debate on Tuesday.

"What lacks is leadership in this state," said Lt. Gov. Gavin Newsom, the front-runner in the race.

Brown said Friday that he welcomes additional action from whoever his successor might be. "I think that's a good challenge," he said of Newsom's critique. "That will take leadership because it's going to require changes in the laws that currently exist."

In a nod to last year's deadly wildfires up and down the state, Brown's new budget also adds nearly $100 million to the budget for fire prevention. The state would increase controlled burns and boost education and training programs in fire-prone areas. California environmental officials said Thursday that the money is needed because the state's forests are facing "a catastrophic shift" toward increased risk of major events.

"Science tells us that these trends will only be exacerbated by climate change," California Secretary for Natural Resources John Laird said.

California's K-12 schools and community colleges would continue to receive the largest share of tax dollars under the budget proposal, with a $2.8-billion boost compared with earlier projections. Spending is estimated to be close to $4,600 more per student than seven years ago, during the budget's bleak times.

While experts have pointed out that both the state and the nation are overdue for an economic course correction that would slow the rate of tax collections, California's fiscal watchers see multiple reasons for three consecutive years of better-than-expected revenue collections. There's also the temporary surcharge on high-income earners that California voters approved in 2012 and extended in 2016.

Stock market strength has again produced sizable capital gains for the state's most wealthy, one of the primary drivers of income tax revenue. Brown remarked on Friday that as few as 15,000 tax filers in the state provide one-quarter of the income taxes collected. When the fortunes of those Californians suffer, so does the state budget.

"Life is very giddy at the peak," the governor told reporters. "But I'm not giddy."

Brown's revised budget plan marks the traditional beginning for a month's worth of intense budget negotiations with legislative leaders. By law, the Legislature must send him a spending plan no later than June 15 — a deadline routinely ignored for most of the modern era, but strictly adhered to since voters approved a 2010 ballot measure that garnishes legislators' pay for every day a budget is late in arriving on the governor's desk.

Learn more at L.A. Times

In an effort to reduce their reliance on federal and state funding, the City of Berkeley is turning to a surprising source: cryptocurrency. The idea is to leverage the blockchain — the technology that makes bitcoin and other cryptocurrencies possible — to spur private, crowdfunded investment in affordable housing and other local projects.

Led by Berkeley Mayor Jesse Arreguín and City Councilmember Ben Bartlett, the city is partnering with University of California Berkeley’s Blockchain Lab and finance technology company Neighborly to create a “tokenized municipal bond offering.” The offering will allow individuals to buy Berkeley’s cryptocurrency to fund city-issued municipal bonds. The money raised will pay for things such as affordable housing, homeless shelters, ambulances, street trees, even a community theater. Coin owners will potentially be able to spend the cryptocurrency at some Berkeley businesses. As with any municipal bond, investors who get in on the offering will earn a small return on their investment over time as the city pays them back with interest.

The idea grew out of concern over the impact corporate tax cuts (not to mention threats to cut funding to sanctuary cities) would have on their ability to address their affordable housing and homelessness crises. With lower corporate tax rates, corporations have less incentive to buy low income housing tax credits, a key source of affordable housing funding. In addition, big banks raised interest rates on loans to local governments in the wake of the tax cuts.

“We have over a thousand homeless people in Berkeley and expect that to grow by a factor of five,” says Bartlett. “We knew we needed to find a way to fund these things. This need is going to grow and it’s already a disaster that’s affecting our moral and physical integrity as a city.”

Beyond that, Bartlett says conventional municipal bonds are expensive, slow and have lots of red tape for investors, making it hard for individuals to invest in them at all, let alone in the small denominations most people might have to invest. With their idea, bonds could be smaller and be issued more quickly.

Neighborly was launched to do just that — to allow individuals to crowdfund municipal bonds. Austin issued a bond on the platform to pay for historic preservation. Cambridge, Mass., used it to fund schools and utility infrastructure.

Berkeley’s idea operates on a similar principle, but will use the blockchain technology to improve security and transparency, factors they hope will help spur investment (and provides a bit of flashy tech-factor that Bay Area residents might find appealing).

“You conceive of an idea, get the costs ready, push it out to the community, they can buy it right away,” Bartlett explains. “It’s more flexible. It doesn’t have to be a $100 million bond for a sewer. It could be smaller projects and with the lower denomination ability…It’s projected to be 50 percent less expensive to the issuer [than conventional municipal bonds].”

In simplified terms, a blockchain is a database stored concurrently on a peer-to-peer network of computers, making it less vulnerable than storing everything on a central server. Each copy of the database serves as a permanently available public record of every transaction on the blockchain. The technology keeps every copy of the database updated as people buy and exchange each “coin.”

“It’s immutable. It’s transparent. There might be fewer concerns about misappropriation of funds,” explains Stacie Olivares-Castain, who recently became state of California’s first ever senior advisor for impact investments and blockchain.

Olivares-Castain says she is encouraged by Berkeley’s experiment. “It’s very, very early, but what we’re starting to see is the blockchain can be used to improve a sense of individual agency and create more opportunity. The Neighborly model is a very interesting partnership. I think it could be used by other communities, too…Through the blockchain, there’s more democratization of access to capital.”

There are plenty of criticisms of cryptocurrency — coin wallets getting hacked, the wild fluctuation of currency value, the absurd amount of energy bitcoin “miners” consume to run their computers as they continually search for new bitcoin tokens produced somewhat randomly by digital algorithm. Bartlett says none of those issues apply to Berkeley’s project. There will be no coin “mining” for Berkeley’s coins, so the city’s coins “won’t be a tool for speculation. It has a set rate of return at darn near public rates,” he explains.

There are still plenty of details to work out in the plan, but the city is aiming to launch its tokenized municipal bond offering in May. Bartlett says he’s already fielding calls about it from cities in the U.S. and abroad and is confident that there’s a future for their approach to city funding.

“Digitization, crowdfunding—these are just social impact bonds for the next generation,” he says. “For cities to survive this escalating disinvestment in the public trust, we’re going to have to start thinking outside the box and creating our own resources.”

Learn more at Next City

Picture this: A developer owns a plot of land in a gentrifying neighborhood. Under current zoning codes, and with current market incentives, the best bang they could get for their buck is to build high-rise luxury apartments. But this neighborhood doesn’t need luxury apartments. It needs a supermarket, and affordable housing for current, low-income residents. The existing zoning code isn’t designed to consider those needs. It just states that this plot is zoned residential.

Now, a group of researchers are working on a vision for a new type of zoning and a different incentive system that might be able to respond more dynamically to communities’ needs — using machine-learning algorithms, big data, and blockchain, the same technology underlying Bitcoin.

Under their system, someone would take an inventory of that same hypothetical neighborhood’s current housing stock, mobility patterns, demographics, amenities, energy consumption, and other factors. Then a simulation model would propose solutions to maximize residents’ wellbeing, using tokens — think cryptocurrency — as a new system of exchange.

So, for example, if the goal is to protect residents from displacement, the algorithm might value longevity: Anyone who has lived in the neighborhood for over 10 years gets a token. That same developer could still build, but they might be required to rent or sell only to holders of this particular token. Community members would have a say in what the algorithm values. Maybe people with vital professions like school teacher might also qualify for the hypothetical housing token.

“It’s not a simple subsidy, it’s subtler than that,” says John Henry Clippinger, one of the brains behind the proposal. “You’re moving beyond market economics into a different kind of economics. This is real value generation that is not appreciated in the market, but it will be reflected in the scarcity and availability of this token.”

Clippinger was formerly a research scientist at the MIT Media Lab, and is now a cofounder of Swytch, where he’s developing a token that incentivizes renewable energy production. He’s working with Kent Larson, a principal research scientist at the MIT Media Lab’s City Science group.

They’re far from the first to recognize the limits of the dominant zoning model, which designates different geographic areas for different land uses, like retail or light industrial. Jane Jacobs blamed such codes for lifeless neighborhoods, pointless sprawl, and growing inequality. Cities are already experimenting with other models, like performance zoning, incentive zoning, and form-based codes.

Larson and Clippinger’s vision shares some commonalities with both performance and incentive zoning. Like the former, it’s intended to make zoning more sensitive to outcomes, like whether or not a new project creates jobs or improves street life. Like the latter, it tries to set up a new system of incentives for developers and other urban players, so that the bottom line isn’t the bottom line.

“It’s very difficult to get developers to do something other than a traditional business model. Keeping it static and just based upon returns on investment and square footage is not the way to do it,” says Clippinger.

What really sets their proposal apart, though, is the technology. At MIT, Larson heads a project called CityScope, where he develops more dynamic urban planning tools. He and his researchers have designed interactive scale models to help the mayor of Hamburg, Germany, for example, as he figures out how to settle 80,000 refugees without creating segregated ghettos. Using optically tagged Lego bricks, augmented reality, and algorithms that draw on troves of data about housing, mobility, and land use, the mayor and neighborhood stakeholders were able to move potential housing units around an interactive map of the city and see the cascading effects.

In this video, Larson demonstrates a similar model of Cambridge, which can show how people of different incomes interact, or don’t — and how mixing affordable housing throughout a district, rather than clustering it together, can increase integration. The goal is “evidence-based design and decision-making” that looks at every project, every parcel, in context. CityScope is already working with Barcelona to implement some of these ideas in their 22@Innovation District, and with South Korea, as that country develops entirely new cities from scratch.

But the idea of algorithms and machine learning shaping our cities worries many. Solomon Greene is a land use lawyer, urban planner, and senior fellow at the Urban Institute, whose research focuses on how housing, land use, and technology can be used to create more equitable cities. When TechCrunch wrote about Clippinger and Larson’s proposal, Greene got a lot of emails about it.

“I definitely think the idea of creating new mechanisms to have zoning be more flexible, more responsive to real-time needs, I think there’s an element of that that has value,” he says. In some ways, he sees the proposal as just a “technology-enhanced version of an old idea”: that people vote with their feet, and will leave a neighborhood if it lacks the amenities they want and need. Thus, local governments should think about zoning and other incentives to attract those amenities.

What concerned Greene, though, was the imagined city dwellers in that article. Though Larson and Clippinger believe this type of zoning could make housing more affordable, the article seemed more concerned with the needs of the “knowledge economy worker” — hardly a city’s most vulnerable residents.

“I think starting with that as your paradigmatic audience or who you are trying to satisfy is really problematic,” he says. Think about the example of the school teacher who gets a token to qualify for subsidized housing in a neighborhood.

Clippinger says the community would have input on what types of professions and other social qualities the system would value, but Greene is concerned with who in the community would give that input? What about the unemployed? What happens if the results turn out to be wildly disparate based on race and class?

“Against the backdrop of structural racism, structural inequality, you’re going to amplify past inequities [within] the algorithm,” he says.

Greene also wonders where people would turn if a system like this failed to achieve equitable results.

“Machine learning and artificial intelligence could actually make it harder to hold public decision-makers to account. Because they could always say, ‘it’s the algorithm,’ as opposed to having a public person you could vote out of office,” says Greene.

Clippinger knows there’s a need for protections in a system like this. But, he says, “The problem with the guards is the guards get captured. How hackable is democracy? It’s amazingly hackable.”

In other words, he does harbor suspicions of a centralized point of control in making these decisions. Clippinger says this is not zoning by Google. There would be no one tech giant controlling all of this information, but rather a system of randomization, peer-to-peer governance, and other protections.

On the website for the Token Commons Foundation, a group that advocates for protocol around crypto-tokens, Clippinger writes about mathematics as “the sole and intrinsically verifiable authority that cannot be manipulated nor subverted. … [M]ath combined with digital crypto-currencies provides a practical opportunity for providing something that has been missing throughout human history, a provable, incorruptible token of universal value exchange and trust.”

Whether or not this all sounds like a tech dystopia depends on where you’re standing. “This is not a top-down, all-seeing system, this is dynamic, changing, and people-centric,” says Clippinger. Yet so far, the idea has primarily been tested in innovation districts and new cities being built more or less from scratch, in which governments are able to exert a lot of top-down planning control.

Either way, Clippinger says planners need to embrace technology in city building. He doesn’t want cities to look like Silicon Valley, or San Francisco, but, he says, “this is the problem, people equate technology with a particular ideology. So if you’re tech-oriented, [and] see solutions technologically, it means you’re a Silicon Valley type.”

Rather, he holds up Barcelona, known for its thriving public life and concern for the commons, as an example of the healthy, future-oriented city. He says Barcelona is currently engaged in conversations about decentralized data ownership, and implementing many other ideas Clippinger would like to see spread. According to Clippinger, that’s what it will take to find out whether this is an achievable utopia.

“We need to see it succeed somewhere,” he says.

Learn more at NextCity

Water scarcity is potentially one of the biggest problems facing humanity in the next several decades.

Communities and countries around the world already face shortages, some of them severe. Governments are tasked with the challenge of ensuring access to water for their citizens. Institutions such as the United Nations consider access to clean water a human right, for example.

But access to water is also a problem for businesses, which may find themselves in ever greater competition for a finite resource as growing populations increasingly drain reservoirs and rivers.

Companies and investors are taking action to hedge against the business risks associated with water scarcity and spur investments in new technologies.

Some available approaches, such as desalination and water recycling, show promise. But desalination has been criticized for its historically intensive energy requirements and for potential effects on the environment. And water recycled from the bathroom to the kitchen sink, though safe, conjures deeply unpalatable images for many would-be consumers. Billionaire and philanthropist Bill Gates famously drank a glass of water made from specially processed sewage to convince detractors that the water is as safe and tasty as any from a branded bottle.

There are myriad ways to invest in water, including investment funds; start-ups that are developing new technologies, from extraction to metering and management; and global corporations taking water scarcity seriously.

The important thing to remember is just how vital water is for virtually every aspect of human existence and activity, said Will Sarni, a consultant and entrepreneur who specializes in water.

"There is increasing demand for this finite resource and this finite resource is essential to life, but also to economic development and business growth," Sarni said. "You can't generate thermo-electric power without water. You can't grow crops. You can't have manufacturing."

Learn more at CNBC

David Katz is founder and CEO of the Plastic Bank, a company that aims to stop plastic pollution by turning waste into currency. In areas with official stores, collectors can turn in plastic waste and receive cash or credit to an online account, which can then be used to purchase everything from insurance and phones to cooking fuel and stoves. We talked with Katz about why making plastic valuable can help stop it from entering the ocean while also reducing poverty.

There are many companies and organizations working to end pollution and poverty. What makes the Plastic Bank different?

It’s estimated that there are over 150 million tons of plastic in the ocean, with a garbage truck of plastic entering the ocean every minute. There isn’t a single solution, and I think it's important to communicate that we need an army of people to solve this issue. What makes us unique is that we recognize the value in the 8.3 trillion kilos of plastic that's ever been produced, almost all of it still here as waste. It’s difficult to estimate, but well under 500 billion could alleviate all forms of poverty around the world. And if we take that 8.3 trillion kilos of plastic at roughly 50 cents per kilo, we're unleashing a 4 trillion-dollar market opportunity for the world.

How do you put a value on plastic waste?

We give plastic value by using it as money. Our collection centers accept it as a currency in return for goods and services, and we sell that as a raw material into manufacturing, closing the loop in the circular economy. I like to talk about this parable of acres of diamonds. If you're walking over diamonds, and there's no bank, no store, nothing you can do with them, they stay on the ground as rocks. We give value to plastic and get if off the ground by accepting it as a form of currency. Once we do that it's not litter. It's cash. No one throws cash on the ground.

Why does this model work?

Our model works because we don't differ from the traditional recycling industry. In fact, we want to be world’s largest recycling company. What makes us unique is we're recycling for the masses, cutting out the middleman and ensuring the poor make the most. Additionally, when plastic is of value and being collected, it’s easier to recycle, because it doesn't collect the waste and degrade like it traditionally would sitting in the canals or entering the ocean and floating back to shore.

There is demand for our product because we have our own category, Social Plastic, which is certified to have been contributed or sourced directly from the Plastic Bank. We’ve already partnered with several companies; Marks & Spencer, Henkel, Shell. Our customers are most enlivened by knowing that it is not just recycled material. That it's a material with value that is transferred through lives.

Additionally, we are a for-profit business. We are focused on profitability and providing our product at the lowest possible cost, period. Non-profits deplete money as slowly as possible. For-profits multiply the same pool of money as quickly as possible. It’s been proven that for-profit has the greatest opportunity for impact. Both good and bad, by the way. But put to the force of good, it's unlimited.

Where are you located and what are plans for expansion?

We’ve been operating successfully in Haiti since 2015, and even have collection locations in schools so people can pay for their tuition directly. We expanded to the Philippines in 2016 and one of our global partners, Shell Energy, has a thousand stores at gas stations in the country that now also function as Plastic Bank collection locations. Staff have been hired for an expansion into Brazil and a philanthropist is sponsoring our entry into Indonesia. Plans are also in the works for Ethiopia and the horn of Africa, as well as India. We’re growing exponentially.

We probably get ten to twenty requests a day from people around the world asking for us to come into their community. There is a strong demand because we are a conduit for change. We’ve created an application so that anyone in the world can create their own recycling infrastructure wherever they are. They just need a collector, a redemption location, a collection location, a recycler, and a courier. Five simple easy components to create. We just need to oversee a few things and have someone in the country to authenticate the social nature, making sure children are not employed and things like that. But we provide a very simple way for anyone in the world to create a social plastic ecosystem.

What is your end goal?

Our goal is to monetize waste. To create a globally recognizable, tradeable currency for the planet. We need to eliminate the word waste, waste pickers, those things. We are creating an ecosystem that will ignite a social plastic revolution, that unites and enrolls humanity for local action that creates global impact.

Learn more at UN Environment