The Monied Set Storms Redwood Country

Eureka, which is also the state motto, means “I have found it!”

And if you’re looking for what the money mania of the 1980s did to California, you will find it here. Far from the madding freeway, behind the Redwood Curtain.

The hills surrounding this very old and economically depressed town of about 25,000 are scarred by vastly increased clear-cutting of old-growth forests in recent years. To protest, radical environmentalists picket outside the Humboldt County Courthouse, block logging roads and disrupt civic meetings during their “Redwood Summer.”

Meanwhile, in beautiful nearby coastal villages such as McKinleyville, Trinidad and Fortuna, a flood of immigrants is arriving. Not from Vietnam or South Korea or Central America, but from the San Fernando Valley, San Diego and San Francisco. House prices are up 25% in the past two years.

It takes a little thinking to make the connection, but all this is happening because of two structural changes in the economy that we heard so much about in the 1980s: “smart money” and competition from the Third World.

It helps to imagine a Rube Goldberg cartoon:

Wall Street shark spots venerable, slow-stepping Pacific Lumber Co., owner of the largest stand of California redwoods still in private hands. Shark, realizing that forest is worth far more as logs than as trees, easily nabs his prey by selling millions of dollars in junk bonds. To pay off this smart-money play, shark decides to double the harvest of redwood logs. Fastest, easiest way to do this is by exporting logs to more efficient, lower-cost lumber mills in Japan and the Third World.

Lumber unions protest lack of jobs in Humboldt County despite the increased logging, denounce the shark as greedy and heartless. Horrified environmentalists protest the rapid loss of primeval forest, denounce the shark as greedy and heartless. Community is divided and distraught. Shark lays low.

Now picture another Rube Goldberg cartoon:

Corporate workers in big California cities mimic Wall Street’s smart-money tactics, learn to leverage their assets. This occurs as the value of their homes soars because California real estate is perceived as a smart-money play. Ordinary homeowners become rich, on paper. But the quality of life in big cities deteriorates, partly because too many people are moving in and trying to get rich the same way.

Meantime, California corporations position themselves for global competition by trimming payrolls. They unload high-priced older workers by offering sweet early-retirement deals to many in their 40s, 50s and 60s.

Tired of the rat race, some of these early retirees cash out, sell their homes and look for quieter, safer pastures where they can dabble and enjoy the good life. The equity in a Los Angeles home represents a fortune in Eureka. Employing personal computers with modems, fax machines and cable television, these people begin to turn remote but beautiful places such as this into electronic suburbs.

It’s ironic that this is happening in Humboldt County, which has been one of the poorest, slowest-growing spots in California. This is a remote place, six hours by car from San Francisco. The smart money never gave it a thought until recently.

No clean, techie-type industries here. In fact, the traditional lumber and fishing base of the local economy has been in decline for half a century. While California’s population increased 50% in the past 25 years, Humboldt County’s rose less than 10%.

Per-capita personal income is actually less than it was a decade ago, adjusted for inflation. Unemployment has been running about 7%, compared to about 5% statewide, even though that’s down substantially from a few years ago.

About the only economic growth in these parts has been in tourism and retail sales, both notoriously low-paying industries. The result has been a steady exodus of young people looking for better jobs elsewhere and a steady increase in poverty and homelessness.

The lumber mills, once the dominant economic force, continue to shrink. To be sure, they have tightened their belts and vastly improved their efficiency in recent years. Those that survive are models of American know-how.

But competing with Third World lumber mills has forced them to slash their payrolls and vastly increase productivity. Those changes have been brutal; virtually no new mill jobs have been created in recent years.

When Wall Street discovered the asset value of standing redwoods, a bad situation got worse. Exporting of logs had been a sore point in these parts for years, but then Pacific Lumber, the hometown company, fell into junk bondage.

Nobody imagined that anyone would want to double the log harvest, since domestic demand for lumber didn’t seem to warrant it. But when it happened and few mill jobs resulted, the community was angered. What hurt most was that a significant portion of the logs was being exported simply to get a quick return to pay off junk bonds.

Many local people have mixed emotions about the radical environmentalists who want to halt all clear-cutting of old-growth forests. They understand the anger of the radicals, and they too blame greed for the situation. But they worry that the environmental backlash will destroy California’s redwood lumber industry.

The same locals also have doubts about the new real estate-equity immigrants, the smart-money retirees who arrive with two cars and wads of cash. These people aren’t coming for career reasons. Most are coming to get away from big-city crime and congestion and to reinvest their big-city paper profits in the real riches of an “undervalued” town.

The median price of a home in Humboldt County reached $105,000 this month. In gorgeous Trinidad, on the ocean 25 miles north of here, it might cost three times that or more, and most of the homes there are selling to immigrants from San Francisco or Los Angeles. Imagine spending more than $300,000 for a house, even if it does have an ocean view!

What some people here wonder is whether equity immigrants are beneficial to the local economy. Will they buy furniture at the local store? Will they donate to local charities? Will they have any loyalty to the community?

Those are good and difficult questions. Cutting redwood trees to pay off junk bonds or trading big-city paper profits for small town riches are smart-money things to do. But one reason they call it smart is because it’s selfish.