Monday, November 29, 2010

The Spanish prisoner

The best thing about the Irish right now is that there are so few of them. By itself, Ireland can’t do all that much damage to Europe’s prospects. The same can be said of Greece and of Portugal, which is widely regarded as the next potential domino. 
 
But then there’s Spain. The others are tapas; Spain is the main course.

What’s striking about Spain, from an American perspective, is how much its economic story resembles our own. Like America, Spain experienced a huge property bubble, accompanied by a huge rise in private-sector debt. Like America, Spain fell into recession when that bubble burst, and has experienced a surge in unemployment. And like America, Spain has seen its budget deficit balloon thanks to plunging revenues and recession-related costs.

http://www.nytimes.com/2010/11/29/opinion/29krugman.html?_r=1&hp

Tuesday, November 23, 2010

My Thanksgiving homily


Don Wheeler

When I was a kid growing up in Evanston, Illinois, Thanksgiving was all about tradition and rituals.  The feast and celebration was always at my grandparents’ (my mother’s parents, Irvine and Marie Walker) apartment about a mile from home.  One of the great extravagances was the gorgeous shrimp cocktail which started the meal.  My Grandmother would see the same butcher each year to order it well in advance.  This shrimp would also represent the only legitimate seafood I would have most years.

Our celebration was always joined by two childless couples who were great friends of my grandparents – the Norways and the Rillings.  The Norways had this gorgeous, white, late model 1965 Ford Thunderbird - with an interior which looked like an airplane cockpit.  Harold Norway let me sit in the driver’s seat and play with the tilt, telescoping swing away steering wheel.  Man that was cool!

George Rilling was a salesman for the Yellow Pages and liked cigars.  He could be counted on to provide thick, translucent, plastic bags – with a yellow book background and a silhouette of walking figures superimposed.  Those were great (and very tough) bags.  He would also make sure to slip off (rather than break) the bands off his cigars, so that I could wear them as rings.

George had a small piece of our family’s mythology as well.  My mother tells of him leaning over my bassinette, cigar in his mouth, pronouncing “Nobody’s three days old!”  He was such a character and so full of life.

But George unexpectedly suffered a fatal heart attack when I was a teenager - which was very tough for my grandparents.  Worse yet, Millie never recovered from her loss.  Irv and Marie went to extraordinary lengths to console and support her.  Despite their efforts, Millie was soon to take her own life.

Marie Walker had gone to work late in life, and was a bookkeeper/manager in a haute couture dress shop - the Hamilton Shop of Winnetka.  Since she normally arrived home a bit later than Irvine, she was surprised to find no lights on in their home.   Calling to her husband, she found him sitting in his darkened den.  It was then she learned the news.

In July of 2003 I had my own brush with death.  While on a roof during a home inspection, I was stung by a hornet.  Not realizing the danger, I continued to work.  I began sweating (though it wasn’t that warm), and everywhere I sweated I also itched tremendously.  Finally, it became clear to me that my body was shutting down business for keeps.

A South Bend emergency services paramedic saved my life that day.  I wish I knew his name.  I will never forget my despair- riding in the ambulance - at the thought of never seeing Paddy or my infant daughter again.  Hard as it is, I embrace the memory of that very tough and scary day.  Now in my mid fifties, I am beginning to better understand love and death and their value.  The latter is unavoidable for all of us.  The former makes it worth it.

I didn’t get to this point on my own.  Most instrumental in my “awakening” was the writing of Reverend Forrest Church – the renowned Unitarian/Universalist minister -  whom we lost just over a year ago.  Here’s a sample of his perspective:

“For us to be here in the first place, for us to earn the privilege of dying, more than a billion billion accidents took place. All our ancestors lived to puberty, coupled, and gave birth. Not just our parents, grandparents, and great-grandparents.  Take it all the way back to the beginning, beyond the first Homo sapiens back to the ur-paramecium. Even the one in a million sperm’s connection with the equally unique egg is nothing compared to everything else that happened from the beginning of time until now to make it possible for us to be here.”

“What does this mean? Astoundingly, unbelievably, it means that we have
been in utero from the beginning of the creation. We can trace ourselves back, genetically, to the very beginning of time. The universe was pregnant with us when it was born.  What a luxury we enjoy, wondering what will happen after we die…”


Thanksgiving is a singular holiday in my experience.  We don’t exchange gifts and most of us don’t feel the need to create vast holiday displays in our yards and/or on our homes.  If things are going well for us, Thanksgiving means breaking bread with people we care for and about.   What could be a better occasion for celebration?

Here’s what I’m thankful for.  I am married to someone who loves, supports, challenges and believes in me.  Together, we have a daughter who amazes and delights me every single day.  I take every day as a gift.  I was born to people who loved and supported me, and launched me towards adulthood with a lot of advantages.  Some people wish for other people’s lives – I wish more people had lives like mine.

I think you can understand why Thanksgiving is my favorite holiday and the one I take most to heart.   Hope yours will be enjoyable and comfortable.

Monday, November 15, 2010

Social Security: If The Rich Paid Taxes Like You And Me…Problem Solved

Over the course of the past couple of weeks we’ve been talking about how the War On Social Security was about to get under way and what happens when countries choose to privatize their systems.

Today we take on another bite-sized chunk of economic analysis: how can you get to a situation where Social Security is financially stable for the next 75 years?

We’ll describe some proposals that are out there—but the big focus of this conversation will be to look at one change that, all by itself, could not only solve the entire funding problem, but could actually allow us to lower the Social Security tax rate, immediately, and still achieve fiscal balance.

“Well, if that’s such a bright idea” you might ask, “why haven’t we adopted it already?”

That’s a great question—and after you hear the proposal, you may well have explanations of your own.

The possibility of victory can be a heavy millstone around the neck of any political candidate who might prefer, in his heart, to spend his main energies on a series of terrifying, whiplash assaults on everything the voters hold dear. There are harsh echoes of the Magic Christian in this technique: The candidate first creates an impossible psychic maze, then he drags the voters into it and flails them constantly with gibberish and rude shocks…

--From the Rolling Stone magazine article Freak Power in the Rockies: The Battle of Aspen, by Hunter S. Thompson


It was just this week that the Presidential Debt Commission (officially the National Commission on Fiscal Responsibility and Reform) “pre-released” some proposals for how they would resolve the various fiscal problems our country is facing these days, and among those were recommendations that the Social Security retirement age eventually be raised to 69 and that the amount paid in Social Security benefits should no longer increase as fast as inflation; both proposals, ultimately, represent cutting your benefits.

Far too many people are instinctively OK with these ideas because they assume they’ll never see a single dollar of the Social Security benefits they were promised anyway…which means far too many people believe in a giant urban legend.

Here’s the reality: no matter what, even if no financing changes are made, Social Security can pay 100% of anticipated benefits out through 2037. Even after that, if no changes are made, enough money will still be coming in to pay about 75% of anticipated benefits for roughly 50 more years after 2037. (We can’t speak to what will happen after that because the Social Security actuaries only look 75 years into the future when they make estimates.)

Here’s another reality: the total amount of wages that are subject to Social Security tax (also known as the “wage pool”) does not equal 100% of the total amount of wages paid to workers in the United States. That’s because income above a certain amount (at the moment, $106,800) is exempt from Social Security taxes.

During the 1980s and early 1990s, the wage pool represented about 90% of all wages…but because wage income has become more and more concentrated in the hands of the highest wage earners, 15 years later the wage pool now represents only about 83% of all wages.

In fact:

…due to high levels of earnings inequality, roughly 1% of the population earn 10% of all the earnings.


We know all this because of the fine work of Debra B. Whitman and Janemarie Mulvarney, both of the Congressional Research Service (CRS), who prepared the CRS report "Social Security: Raising or Eliminating the Taxable Earnings Base", released in September of 2010. (Unless you see a link associated with a particular fact, from here on out what you’re reading is based on their work.)

So if we’re looking to achieve stability in Social Security financing, the question really becomes: how do we get back to a point where the size of the wage pool remains at least stable, or even grows larger over time?

In the 1980s, facing the same problem, the Reagan Administration negotiated an increase in the tax rate for taxable income, causing the wage pool to grow to that 90% number we talked about earlier…but today, we’re going to look in a different direction.

And that’s because, as it turns out, removing that $106,800 cap and making all wage income taxable for Social Security purposes, all by itself, will either solve the funding problem entirely or get you to 99% of where you need to be, depending on the choices you make.

Here’s how it works out:

Today, the amount of Social Security benefits you’ll collect depends on how much you pay into the system; the current maximum benefit is $2346.

What you could do is “break the link” between “paid in” and “paid out” by establishing a maximum benefit, no matter how much you pay in. If you kept the maximum where it is today, and that amount rose to equal inflation over time, the CRS tells us we would actually have 115% of the money we need to get to Social Security fiscal stability. As a result, we could afford to lower the payroll tax rate by .3% and we’d still be at fiscal stability.

Those who oppose this approach will tell you it will create political trouble for Social Security going forward because Americans will no longer see it as an investment program, but instead as a “welfare” program, which is presumably more politically vulnerable.

I would disagree, for a few reasons: for one, there’s the fact that Social Security is not, and has never been, an “investment” program, for another, not many people actually make more than the maximum, anyway (94% of workers earned less than the maximum in 2007). Beyond that, those that do make more than the maximum tend to be, shall we say, geographically concentrated, mostly in the suburbs of New York City and Washington, DC:

…focusing on the nationwide average hides the diversity among the states and the District of Columbia. The share of the population above the base ranges from a high in New Jersey where nearly 12% of covered workers earn above the base, to a low in South Dakota, where 2% of workers earn above this amount…


There’s another reason this kind of change wouldn’t be as politically problematic as some might think:

CRS estimated the potential impact of eliminating the taxable wage base on future benefits and taxes. If the base were removed in 2013, CRS estimates that by 2035, 21% of beneficiaries would have paid some additional payroll taxes over the course of their lifetimes. However, the average change in taxes and benefits would be small. Looking only at individuals who would pay any additional taxes over the course of their lifetimes, at the median, total lifetime tax payments would rise by 3% and benefits would increase by 2% relative to current law. In general, those in the highest income groups would have the largest changes in both tax payments and in benefits relative to current law.

(Emphasis is original)


You should also know that, in the 1990s, the income cap on the Medicare portion of payroll tax collections was lifted; this does not seem to have caused great damage to that program, politically speaking.

So the other way this change could be made would be to continue to base maximum benefits on what’s paid in, and still remove the cap on taxable earnings.

The Social Security Administration estimates that such an approach would raise 95% of the amount you need to achieve Social Security fiscal stability, so you’d still need to raise a bit of money, but you would be awfully close to fiscally stable, and far better off, financially, then we are today. (A payroll tax rate increase of .1% could raise the amount needed.)

That said, I think this approach actually creates more political vulnerability for the Social Security “concept” than uncapping taxes while capping benefits, and here’s why:

If you cap benefits, you immediately get to reduce the tax rate for everyone, which is going to be very popular; an unlimited benefit still requires you to raise taxes, even after the tax cap is lifted. One of those choices is going to be a lot better received than the other, I’m thinking, especially as “no new taxes” is such a popular political mantra these days.

However, it’s also true that a substantial number of beneficiaries would see benefit increases, even if the vast majority of those folks wouldn’t actually benefit all that much:

CRS estimates that 23% of beneficiaries in 2035 would have higher benefits than under current law. This share of beneficiaries who receive higher benefits is greater than the share of individuals who pay higher taxes because some low earners receive benefits based on their spouses’ higher earnings. Most of the affected beneficiaries (20%) would see their benefits increase by less than 10% relative to current law. Only 3% of beneficiaries would see their benefits increase by 10% or more.


But if you ask me (and if you’ve read this far, you are asking me) the real political problem from an approach that allows for unlimited benefits, is that it allows for…unlimited benefits:

Annual Social Security benefit payments would be much higher than today’s maximum of $25,440. A worker who paid taxes on earnings of $400,000 each year would get a benefit of approximately $6,000 a month or $72,000 a year…while someone with lifetime earnings of $1 million a year would get a monthly Social Security benefit of approximately $13,500 a month or $162,000 a year…


Imagine, if you will, just how easy it would be to launch a political attack on a government program that pays $162,000 a year to rich people…and if you can imagine that, you can probably imagine just how much political trouble this approach could cause.

Both options, just for the sake of the discussion, raise the wage base from today’s 83% to about 92%; a 2008 estimate suggested this would raise an additional $680 billion over 10 years. (An intermediate option, raising the tax cap to something like $190,000 of wage income, would have raised about $600 billion over the same period.)

So there you go: removing the cap on how much of your earnings are taxed for Social Security purposes, all by itself, could not only solve the funding problem faced by the system going forward, but you could even lower taxes slightly while doing it; another variation of the same approach would get you to 95% of where you need to be, but would still require a tax increase to get us to fiscal balance.

One approach keeps a lid on maximum benefits, the other doesn’t; in my opinion, the plan that keeps a cap on benefits is the one with less political peril going forward.

Either way, there would be no need to “adjust the inflation index downward”, which is a fancy way of saying “we’re cutting your benefits”, and you wouldn’t have to change the retirement age, either, which is a less fancy way of saying “we’re cutting your benefits”; both are among the Debt Commission’s “pre-release” proposals.

So what do you think, America? Given the choice, would you prefer that Social Security benefits be cut, now and in the future, or would you prefer to see the wealthiest among us pay their fair share of Social Security taxes, just as every other wage earner does—and cut the tax rate, both at the same time?

This would be exactly the time to make your feelings about that choice known, and if I were you I’d be on the phone to my member of Congress now, today—and when January comes around, and a new Congress begins…I’d be on the phone again.

It’s your Social Security, and if you want it funded in a more rational way this would be the time to say so…and if you’re reaching for the phone right about now, I’ve done my job.


FULL DISCLOSURE: This post was written with the support of the CAF State Blogger's Network Project.

The world as he finds it

On Wednesday David Axelrod, President Obama’s top political adviser, appeared to signal that the White House was ready to cave on tax cuts — to give in to Republican demands that tax cuts be extended for the wealthy as well as the middle class. “We have to deal with the world as we find it,” he declared.

The White House then tried to walk back what Mr. Axelrod had said. But it was a telling remark, in more ways than one.

The obvious point is the contrast between the administration’s current whipped-dog demeanor and Mr. Obama’s soaring rhetoric as a candidate. How did we get from “We are the ones we’ve been waiting for” to here?

But the bitter irony goes deeper than that: the main reason Mr. Obama finds himself in this situation is that two years ago he was not, in fact, prepared to deal with the world as he was going to find it. And it seems as if he still isn’t.

In retrospect, the roots of current Democratic despond go all the way back to the way Mr. Obama ran for president. Again and again, he defined America’s problem as one of process, not substance — we were in trouble not because we had been governed by people with the wrong ideas, but because partisan divisions and politics as usual had prevented men and women of good will from coming together to solve our problems. And he promised to transcend those partisan divisions.

This promise of transcendence may have been good general election politics, although even that is questionable: people forget how close the presidential race was at the beginning of September 2008, how worried Democrats were until Sarah Palin and Lehman Brothers pushed them over the hump. But the real question was whether Mr. Obama could change his tune when he ran into the partisan firestorm everyone who remembered the 1990s knew was coming. He could do uplift — but could he fight?

So far the answer has been no.

Right at the beginning of his administration, what Mr. Obama needed to do, above all, was fight for an economic plan commensurate with the scale of the crisis. Instead, he negotiated with himself before he ever got around to negotiating with Congress, proposing a plan that was clearly, grossly inadequate — then allowed that plan to be scaled back even further without protest. And the failure to act forcefully on the economy, more than anything else, accounts for the midterm “shellacking.”

Even given the economy’s troubles, however, the administration’s efforts to limit the political damage were amazingly weak. There were no catchy slogans, no clear statements of principle; the administration’s political messaging was not so much ineffective as invisible. How many voters even noticed the ever-changing campaign themes — does anyone remember the “Summer of Recovery” — that were rolled out as catastrophe loomed?

And things haven’t improved since the election. Consider Mr. Obama’s recent remarks on two fronts.

At the predictably unproductive G-20 summit meeting in South Korea, the president faced demands from China and Germany that the Federal Reserve stop its policy of “quantitative easing” — which is, given Republican obstructionism, one of the few tools available to promote U.S. economic recovery. What Mr. Obama should have said is that nations’ running huge trade surpluses — and in China’s case, doing so thanks to currency manipulation on a scale unprecedented in world history — have no business telling the United States that it can’t act to help its own economy.

But what he actually said was “From everything I can see, this decision was not one designed to have an impact on the currency, on the dollar.” Fighting words!

And then there’s the tax-cut issue. Mr. Obama could and should be hammering Republicans for trying to hold the middle class hostage to secure tax cuts for the wealthy. He could be pointing out that making the Bush tax cuts for the wealthy permanent is a huge budget issue — over the next 75 years it would cost as much as the entire Social Security shortfall. Instead, however, he is once again negotiating with himself, long before he actually gets to the table with the G.O.P.

Here’s the thing: Mr. Obama still has immense power, if he chooses to use it. At home, he has the veto pen, control of the Senate and the bully pulpit. He still has substantial executive authority to act on things like mortgage relief — there are billions of dollars not yet spent, not to mention the enormous leverage the government has via its ownership of Fannie and Freddie. Abroad, he still leads the world’s greatest economic power — and one area where he surely would get bipartisan support would be taking a tougher stand on China and other international bad actors.

But none of this will matter unless the president can find it within himself to use his power, to actually take a stand. And the signs aren’t good.

Wednesday, November 10, 2010

Social Security: They Want To Cut, We Plan To Fight

So if you’ve been following my work lately, you know that there is a renewed effort underway to change Social Security, and that the fight officially began just this very morning.

Now what’s supposed to happen is that a television ad buy sponsored by a Wall Street billionaire is supposed to get you enthused about cutting your own Social Security benefits in the future; this is the tip of a “disinformation iceberg” that is trying to get you to act, right now, because if you don’t you will never, ever, ever, ever, see a single dime of Social Security when you get older.

I was on a “let’s talk strategy” conference call today that laid out some ideas for the "next steps"; we’ll be talking about that call over the next couple of stories...but for today, we’re going to talk about something you can do that will bring the message right to your favorite Member of Congress.

He is always plotting and carrying out great enterprises, which have always kept his subjects bewildered and astonished, waiting to see what their outcome would be. And his deeds have followed one another so closely that he has never left space between one and the next for people to plot uninterruptedly against him.

--Niccolò Machiavelli, describing King Ferdinand of Aragon, in The Prince


With the election a week behind us, the fight is on to get you to believe that you will never see a dime of Social Security, that the danger is so profound that we must act today, and that maybe a healthy cut in your future benefits isn’t really so bad after all.

To help convince you all this is true, a series of TV ads have been produced that imply that the only other solution, short of those benefit cuts, is more deficit spending and endless borrowing. (They have a catchy name for the effort as well: “OweNo”.)

As it turns out, that’s patently untrue, but as I said, that’s a topic for another day.

The idea behind the ads, of course, is to create a space for Members of Congress to vote for these kinds of proposals—but we’re going to strike first, before the ads can really gain a lot of traction.

So here’s the idea: we all have Members who are constantly having to “come home and face the District”; what we want to do is ask those Members, right now, on camera, if they are willing to vote for cutting Social Security benefits or not.

Myself, I like the question: “Are there any circumstances that would get you to vote for cutting Social Security benefits?”

If they say yes, try this: “Why do you like cutting benefits for middle-class people and not taxing 90% of the income of someone who makes a million a year?”

(If you make about $110,000 a year or less, 100% of your income is taxed for Social Security purposes. However, no income above that is taxed—so if you make a million a year, only 10% of your income is taxed, which seems a lot like “trickle up economics” to me...but what do I know?

As it turns out, removing that “income cap”, all by itself, would fix our financing problem for the next 75 years, without cutting benefits at all—again, a topic we’ll flesh out more completely another day.)

Now once we start gathering all these videos, we need a place to put them. Based on the call today, it looks like we’ll be going to the Owe No You Don’t! website, which, by a happy coincidence, is full of helpful resources for those looking to win this fight. The site is not ready to receive the videos today, however, but I will either update here or do a new story to let you know when it is, or if some new plans have emerged.

(Of course, if you get a good video, don't be afraid to post it to this story as a comment as well.)

I also have available a big ol’ list of who in Congress has publicly said and done what regarding changes to these programs—and if you’re wondering exactly who in Congress supports privatizing Social Security, this is the list you’ve been looking for.

The next step is to put all this video to work: so how about starting right in your own home town? Send a copy of the video to the local newspaper, or the local TV station’s “tip line”. In the other direction, I’m going to try to encourage the folks operating Owe No You Don’t! (with whom I’m currently working) to use that video to get the attention of national media—which means video of Members “ducking and dodging” will be particularly valuable.

You might even get lucky and get a “Sharron Angle”—you know, the one where the person being asked just runs off without even acknowledging that they’re being asked questions, even though you’re right there next to them the whole time, following them and still asking the question, as they hop in the car and run away in fear.

So that’s today’s homework: charge up the camera batteries, go find your local Member of Congress, either pay a friendly visit at the office or catch ‘em at a local appearance, and make them either answer questions or run away.

As we gather the videos, they become a media attraction, and we put even more pressure on these folks...and if we get really, really, really, lucky, we’ll find someone who “autotunes” the Members who run away into a viral video we’ll all be proud of.

Good hunting to you all, and in a couple days we’ll all meet back here and talk about the Social Security “tax cap” and financing stability.


FULL DISCLOSURE: This post was written with the support of the CAF State Blogger's Network Project.

Friday, November 5, 2010

Social Security: The War Begins Tuesday, And You Better Say…Oh, No!

It is my job to bring to you not just the news that took place, but the news that has yet to happen.

Today, that’s exactly what we have.

There is a war coming to try to change Social Security from a social safety net to a “revenue stream” for certain corporate interests, and that war is set to begin Tuesday morning, according to information that was provided to me yesterday afternoon.

Follow along, and you’ll be both forewarned and forearmed.

BIG MISTAKE
MANY MAKE
RELY ON HORN
INSTEAD OF
BRAKE

BURMA SHAVE

--Actual “Burma Shave” Message, 1945, from Verse By The Side of the Road, Frank Rowsome, Jr.


So here’s the dish: a limited partnership corporation called The Blackstone Group, through years of trading in real estate, operating hedge funds, giving financial advice to other companies and governments, and buying and selling companies (Hilton Hotels is one of theirs, the company that makes Corexit, the oil dispersant, is another), made its boss Peter G. Peterson a more-than-billionaire; a billion of that went to endow a Foundation that bears his name.

The Foundation has a particular interest in things budgetary and governmental, and they are seen as one of the groups most looking to change the way Social Security works today.

(Change, you say? Indeed, and if you’ve been following this series of stories, you already have an idea of what that might entail.)

The next thing you need to know is that there is a Great Big Deal Presidential Commission currently at work who is charged with identifying…

“…policies to improve the fiscal situation in the medium term and to achieve fiscal sustainability over the long run. Specifically, the Commission shall propose recommendations designed to balance the budget, excluding interest payments on the debt, by 2015. This result is projected to stabilize the debt-to-GDP ratio at an acceptable level once the economy recovers. The magnitude and timing of the policy measures necessary to achieve this goal are subject to considerable uncertainty and will depend on the evolution of the economy. In addition, the Commission shall propose recommendations that meaningfully improve the long-run fiscal outlook, including changes to address the growth of entitlement spending and the gap between the projected revenues and expenditures of the Federal Government.”


…and that the Commission is going to deliver a report with its suggestions December 1st.

It would be fair to say that there are those who are concerned that “the fix is in”, so to speak, and that the report will be the beginning of an effort to privatize Social Security…and guess what?

Managing the Federal Government’s Social Security money, for a handsome fee, would be a spectacular business opportunity for Pete Peterson and The Blackstone Group, and to help create the environment where that can happen, the Peterson Foundation is dropping $20 million on a TV ad campaign to try to convince you to get interested in privatizing Social Security, too.

This Tuesday morning, November 9th, Peterson will appear at Washington, DC’s Newseum to unveil the advertising campaign, presumably to the delight of the assembled throng and the sipping of the coffee of the assembled media; this according to a Peterson Foundation press release that came across my desk yesterday.

There’s even a catchy name for the reform program: “OweNo”…and if you’ve already written your own “Oh, No!” Social Security joke, you’re apparently a bit faster on your feet than the guy who tried to sell Chevy Novas in Spanish-speaking countries…or the folks who came up with this catch phrase.

So that’s the story: come Tuesday, Pete Peterson, who runs a Big Fat Wall Street Firm That Would Love To Manage Your Money For Big Fat Fees, is dropping $20 million to tell you that it’s time to “get a Chilean”…and I’m here to tell you that such a procedure is going to hurt your wallet, a lot—and when it’s all over, you’re the one who’s going to be saying “Oh, No!”

FULL DISCLOSURE: This post was written with the support of the CAF State Blogger's Network Project.

Back by popular demand

The focus hocus-pocus

Democrats, declared Evan Bayh in an Op-Ed article on Wednesday in The Times, “overreached by focusing on health care rather than job creation during a severe recession.” Many others have been saying the same thing: the notion that the Obama administration erred by not focusing on the economy is hardening into conventional wisdom.

But I have no idea what, if anything, people mean when they say that. The whole focus on “focus” is, as I see it, an act of intellectual cowardice — a way to criticize President Obama’s record without explaining what you would have done differently.

After all, are people who say that Mr. Obama should have focused on the economy saying that he should have pursued a bigger stimulus package? Are they saying that he should have taken a tougher line with the banks? If not, what are they saying? That he should have walked around with furrowed brow muttering, “I’m focused, I’m focused”?

http://www.nytimes.com/2010/11/05/opinion/05krugman.html?hp

WA-Sen: Can Murray's Math Teach Democrats A Lesson?

We now know the outcome, more or less, of the Washington State US Senate race—and it looks like it’s going to be Patty Murray, D-(Actual No-Kidding Progressive), over Dino Rossi, R-(Guy Who Will Be Running Again For Something As Soon As He Can).

Murray managed to win in a State that is far more “purple” than you might think, in a vote-by-mail election that guarantees at least few days of uncertainty.

You have to do some unusual math to figure out how these elections will go, and we’re going to walk through how this race got called by NBC just a couple hours ago.

So here’s what we do know: if you want to win an election in Washington, you basically have to carry some combination of King (Seattle, and Washington’s most populous, and liberal, county), Pierce (Tacoma, and Seattle’s southern suburbs, with a significant military population), Snohomish (Everett, and Seattle’s northern suburbs, also with a Navy population), Clark (Vancouver, and the northern suburbs of Portland, Oregon), Kitsap (home to a Naval Shipyard, an aircraft carrier homeport, and nuclear missile submarines), Whatcom (Bellingham, a college town and almost a suburb of Vancouver, British Columbia), and Spokane (the largest in very super conservative Eastern Washington) Counties.

You also need to know that Washington is a virtually 100% vote-by-mail state, and that votes in the mail with an Election Day postmark, no matter when they arrive, are valid votes.

There was an amazing amount of anti-Murray advertising, most of it in the form of secret money coming from either the US Chamber of Commerce or Karl Rove’s various groups; the basic themes of the ads suggested Murray caused all the unemployment and debt ever experienced in American history and couldn’t wait to make things worse.

Pro-Murray ads centered on her...well, her Progressive record—and her ability to bring jobs to the State...and that message was being transmitted in a State with high unemployment.

And as we’ll see, all of this created exceptionally high voter turnouts, particularly for midterm elections.

Now let’s do some electoral math:

We can look at the Secretary of State’s handy website and see just what’s arrived so far; it typically updates each day from here on out at 4:30 PM Pacific time, but there may be additional updates each day.

As of 7:30PM, November 4th, which is the most current update I have available, Murray is up by 45,000 and change with roughly 1.85 million votes counted so far.

But what we really need to know is: how many votes are there still to be counted?

The site has a county-by-county page that reports about 617,000 ballots are “on hand to be processed”...but that won’t include those that are still in the mail. We’ll talk more about them later.

Right now the largest concentrations of “on hand” ballots are, predictably in King (270,000), Pierce (30,000), Kitsap (29,000), Snohomish (88,000), and Spokane (65,000) Counties.

Snohomish, Kitsap, and Pierce Counties are running about 50-50 so far, and that means nothing is likely to happen in those counties that will change the outcome in any significant way, so we will put them aside for this analysis.

King County is running almost 65-35% Murray, and Spokane County is running 56-44% Rossi, so that’s where we turn for the rest of our analysis.

Now what we need to know is how many votes have yet to arrive in the mail, and the way we do that is to look at potential levels of voter turnout.

Huh?

It works like this: King County has almost 1.1 million registered voters, 500,000 have already been counted, and 270,000 are waiting to be counted—and that’s 70% turnout, if no other votes arrive.

It’s pretty rare to see 70% + turnouts in midterms, but we’re already there, so let’s assume turnouts of 75% and 80%. At 75% that means 55,000 more votes are coming, at 80% 110,000. Add all the uncounted votes up, assume the current 65-35 distribution of votes holds up, and that suggests her margin, at those turnout levels, would grow by some number between 211,250-247,000 votes. If no more votes arrive, her margin should grow by 189,000 votes.

Spokane County has 260,000 registered voters, with about 120,000 ballots counted and 65,000 more sitting in trays not yet counted. That’s a 70.5% turnout, again, a remarkable result for a midterm, and, as we mentioned, they are voting for Rossi, 56-44%. Let’s again model for 75% and 80%; we would expect 15,000 or 23,000 more in the mail from those outcomes.

I also looked at every county with more than 5000 votes left to be counted. Those that are on the east side of the State are consistently 65-35% Rossi, Western Washington counties are running more or less 50-50, but they are mostly going to Murray.

And guess what? If I’m any good at arithmetic, Spokane County doesn’t have enough votes to get Rossi over the top, even if you get 80% turnout and 100% of all currently uncounted votes go for Rossi...and I think that means we can call this one for Murray by about 210,000 at 75% turnout in those two counties, minus any other result in the State, which are not going to be enough to swing the tide.

As I’m finishing this up, NBC is also calling for Murray.

So there you go...a good Progressive wins, with extraordinary turnouts in a year when other candidates had lots of their base stay home, and despite a massive “secret money” campaign for Rossi, courtesy of Karl Rove and the US Chamber of Commerce.

And just to make it even sweeter: she ran her campaign fully embracing her record, and standing up for her tough votes. She didn’t pander conservative, and her progressive voter base stood up and got her over the top.

That’s a message the Evan Bayhs of the world did not learn—and it’s a message Members of Congress...and a certain President...ought to learn, and fast, if they want to win in 2012.

Wednesday, November 3, 2010

On Social Security Investment, Or, What About Chile?

With the election over, it’s time to move on to new things, and the folks at the Campaign for America’s Future have asked me to do some writing about Social Security, which sounds like some big fun, so here we are.

We’re going to start with some reasonably simple stuff today, just to get your feet wet; by the time we get a few stories down the road there will be some complicated economic analysis to work through—but let’s begin today by looking a bit south.

Those who support privatizing Social Security in this country often point to Chile as an example we could follow, and that seems like a good place to get the conversation going...so set your personal WayBack Machine to Santiago, May, 1981, and let’s see what we can learn.

“Of what avail are any laws, where money rules
alone,
Where Poverty can never win its cases?
Detractors of the times, who bear the Cynic's scrip,
are known
To often sell the truth, and keep their faces!”

--Ascyltus, from Petronius’ The Satyricon


In 1981, Chile adopted a privatized Social Security-like (pension) program that requires most workers to contribute 10% of their income to a private investment account. They may contribute up to 20%. These accounts are maintained by a number of private companies (known as Administradoras de Fondos de Pensiones, or AFPs) that compete for the business by advertising directly to the investing public.

These providers charge commissions and fees for certain services which are paid on top of the contributions.

An additional 3% is collected from most workers for Disability Insurance; 7% more is deducted from wages for health care.

At retirement, the money is either used to purchase an annuity from a private provider to provide a steady source of income or it’s withdrawn at a set rate over time directly from the account.

Those who are self-employed do not have to pay into the system, but they have the option to do so if they’re so inclined.

If you don’t have enough in your private account to purchase an annuity or to withdraw steady amounts over time, but you’ve been contributing for more than 20 years, you will receive a minimum pension from the Chilean Government...but you will also lose any contributions you made to your private account.

AFPs are regulated as to how they may invest; if, through investment losses, they do not have enough money to capitalize the accounts they carry they must provide the money out of their own cash reserves. If they follow the rules, and still lose so many assets they can’t continue to operate, a government bailout is in order.

At the same time, a second “welfare” program (PASIS) was established to create a “safety net” that would provide a benefit of 75% of the poverty level or 25% of your last 10 years’ earnings, whichever is higher.

You can’t collect from both programs, but it is possible to collect from neither. More about that later.

Employers do not contribute to funding the system, however, all employers were forced to give 17% pay raises to their workers to come up with the money for the workers to make their contributions. (Chile was a military dictatorship at the time, making the “forcing” process much easier than it would be in the US today.)

The system is just turning 30 years old, and we’re now seeing the first big wave of workers who are eligible to retire.

So how has all this been working out for Chileans?

The first thing we learn is that the poorest workers probably won’t do well enough to qualify for “top tier” pensions, even though it’s projected that they’ll tend to pay for the benefit over their working lives...which will reduce their income over their working lives. (It’s also projected that workers with higher incomes should do reasonably well.)

Since most workers are poor (Chile has some of the most unequal income distribution on Earth), in the end it’s starting to look like the problems of finding enough money to support the social safety net are actually getting worse, and not better.

Additionally, other problems have come to light:

--You have to find money to “transition” from one system to another, and transition costs have been quite expensive indeed: 6.1% of Gross Domestic Product (GDP; that’s a measure of the total output of an economy) in the 1980s, 4.8% in the 1990s, and 4.3% until 2037. If we were to duplicate the Chilean experience in the US economy, 6% of the 2008 GDP (about $15 trillion) means about $900 billion annually in transition costs for the first ten years, and something north of $600 billion annually for the last 37 years of the exercise.

(Keep in mind that Chile only provides 2/3 of their population with either PASIC or a pension; since we cover a higher number than that in the US, expect those numbers to come in higher than we're guessing here.)

Why are so many not covered? Lots of workers are working outside the “official” economy to avoid making contributions that they won’t get back later (in 1994, it was estimated that only 52% of workers regularly contribute to their accounts); additionally, many women have never participated in the labor force.

--Because the service providers are competing for the business, administrative costs (read: advertising and sales commissions) have been far higher than in the US Social Security system, where administrative costs have been at .07% of distributions, or lower, since 1990. To put this another way, during the 1990s the US Social Security Administration was paying $18.70 per year to administer a claim; at the same time Chile’s various providers were paying an average of $89.10 to do the same thing.

--All that competition, some say, has lead to lots of changing of providers, which tends to make any investment program less efficient over time. (In 1996, half of Chilean workers switched providers; it’s estimated that reduced pension accumulations across the entire system by about 20%.) The Chilean Government made changes in 1997 to try to work through this problem, and they seem to have had some considerable effect.

Evidence suggests most of the switching not related to consolidation in the AFP business is being done by a small percentage of account holders, with some switching as much as eight times in a year; today the average Chilean seems to change AFPs about once every five years. Unemployment also seems to be related to switching; this because the unemployed can establish a new account with a lower set of fees if they move to a new provider.

--Many Chileans, despite living in a system that has, for almost 30 years, required them to manage their own money, actually know very little about that money.

Less than half know that the contribution rate is 10%, only 1/3 know how much (within 20%) is in their accounts, and, according to work done at the University of Chile, “few” actually know what they pay in fees and commissions.

--Those who end up in the welfare program are guaranteed 75% of the poverty level; that suggests that if you’re elderly and on welfare, you’re living in poverty. Because of limited funding, there are qualified elderly poor in Chile who do not receive any benefit.

Today, in the US, about 12% of the elderly live in poverty. Without the current Social Security system in place, it’s estimated that 49.9% of the elderly would have been living in poverty in 2002.

--In Chile, taxes to cover the transition costs tend to rise faster than the “assets under management” for most workers, leaving them less well-off than before—an effect that is most common among the “financially illiterate”...meaning, of course, most Americans. In other words, reform, in Chile, tends to help the wealthiest and best educated at the expense of those who are less of either.

That’s a whole lot of detail, so let’s pull pack and look at the “macro” picture:

Chile has operated a version of a privatized system since 1981, and for the most part the working poor will never see any benefit from the transition. Since Chile doesn’t have much of a middle class, it’s hard to see how the Chilean experience would affect our middle class.

The US Social Security system has reduced the estimated rate of elderly poverty from nearly 50% to roughly 10%; such a reduction in poverty did not occur in Chile with their privatization.

The costs of moving to the same system here, if our experience were the same as Chile’s, would run anywhere from $600-900 billion annually for at least 50 years. Of course, since we provide a Social Security safety net to almost all of our citizens, as opposed to 2/3 of the population, as Chile does, it’s reasonable to assume our costs would be more or less 1/3 higher.

Chile forced its private-sector employers to raise wages to cover the workers’ costs of transition; I’m aware of no proposals that would, or could, impose such a cost on employers in the US.

It appears that Chilean-style privatization encouraged about half the population to engage in “under the table” work, making the funding problem for the system even worse that it would be otherwise.

Frequent switching of account providers is great for the providers, as it creates lots of chances to collect fees for opening and closing accounts and the like—but it’s not so great for the account holders, who are losing up to 20% of their potential earnings more or less because maintaining a sales force and running lots of ads are effective business practices.

It is unknown what happens when a shock like the recent recession hits the system, and we are awaiting research that will help us understand what happens when and if the State is required to refund losses incurred by the AFP if they “follow the rules” but still lose so much money that they lack sufficient capital to operate.

The costs of operating the PASIS program go up even as the cost of operating the retirement accounts are also still high, and the question of whether Chile can continue to expend “safety net” coverage to the 30% of the elderly poor who are not covered remains unknown.

So there you go: there are going to be lots of proposals to privatize Social Security this year, “getting a Chilean” may well be one of the options you hear Conservatives promote—and hopefully by now you have some idea why this doesn’t look like nearly as good an idea as some folks would tell you it is.

Next time, we’ll talk about proposals to invest Social Security money in Treasury debt, and whether such an effort is actually an investment at all.

It’ll be at least medium geeky...and hey, who doesn’t love that?

Monday, November 1, 2010

The South Bend School Board elections: endorsements

(part 4 of 4)

Don Wheeler

The three previous posts attempted to set the scene and assess the contest for the South Bend School Board.  Now I’ll give my views on the individual races.

Three out of the seven seats are contested -- Districts 1, 2 and 5.  The District 1 race features challengers Jay Caponigro and Nikki Hutchinson, and incumbent Sheila Bergeron.  Ms. Hutchinson is up against a well heeled challenger and an entrenched incumbent.  Though she seems a perfectly reasonable person to serve, it’s hard to see her having any chance at victory.  Narrowing to the two remaining candidates, the call is a bit closer than one might think.

Ms. Bergeron is easily the weakest of the incumbents.  Her stint as President was marked by out of control public meetings and other problems.  I’m sympathetic to the idea governing boards should evolve, but I also think challengers should show expertise and ideas.  This is a case where I think the challenger does.

Jay Caponigro has nine years of community connected experience in the educational realm as director of the Robinson Community Learning Center at the University of Notre Dame. In March, he became Notre Dame's director of community engagement, where he'll oversee the center and support the university's educational and community outreach effortsHe strikes one as a thoughtful, careful person – clearly assets needed in a Trustee.

The reason that it isn’t as easy a call as one might think, is his connection to the local Democratic “machine”.  Also, one could worry about potential conflicts of interest due to his Notre Dame employment.

The latter could (conversely) be an asset.  Notre Dame has, for the most part, proved itself a responsible citizen of the community.  As to the former, one has to hope Mr. Caponigro will exert independence from Mr. Parent and the attendant organization.  If I lived in District 1, I would vote for Jay Caponigro.

The other two contests are more clear-cut.

In District 5, challenger Michelle Engel faces incumbent Marcia Hummel.  Ms. Engel touts her past experience as an attorney in South Bend city government.  That’s pretty much it.  She wants us to think she would make the board work better because she is an attorney.

She seems pretty unfamiliar with educational law issues, or how the Board operates.  It has been noted that she’s not attended a School Board meeting since she announced for office.  In four citizen forums, she’s only deigned to attend two – sending representatives to the other ones.

Marcia Hummel is arguably the strongest incumbent running.  She has consistently been the Trustee pointing out applicable state law – when the Board might go against it.  As its current President, meetings have returned to civil parliamentary discourse.  Ms. Hummel warned long ago of the danger of state takeover if aggressive measures were not pursued.  She was a voice in the wilderness then, but now we see she was right.  Ms. Hummel has been neither combative nor conciliatory – she has been the glue which held the body together.  We should be pleased she’s willing to continue this thankless job.  If I lived in District 5 I would vote for Marcia Hummel.

District 2 features a race similar to that of District 1.  Again we have a challenger with some hands on education experience in Michael Voll, facing a well-known incumbent, Ralph Pieniazkiewicz  and a well financed machine candidacy of John Stancati.  Mr. Voll has little chance given these circumstances.

Mr. Pieniazkeiwicz taught and coached in the South Bend School System for over thirty years.  As a Trustee, he has been a vocal advocate for early education, and the development of a more comprehensive vocational program for high schoolers.  This advocacy is still needed.

Mr. Stancati gives his reason for running in the South Bend Tribune:  “He said he became interested in the school board seat after reading that the state put three South Bend high schools on academic probation because ISTEP scores didn't meet state standards, including Riley, which is in District 2.”  I’ve now heard him at two forums - the Century Center, and more recently at Hamilton Primary Center – and he failed to go any further.  He also did not offer any significant proposals, seems unclear as to the source of school funding these days and responded to a number of questions by saying that he didn’t know much about the subject, so wouldn’t offer a response.  Some of these questions were given to him in advance.

It’s been pointed out that Mr. Stancati has not attended any Board meetings.  These might have been of some help in understanding some of the issues alluded to in the questions he had trouble with.

A campaign is like a job interview.  One should be prepared, research likely issues and be able to at least discuss them intelligently – even if he/she has not formed a definite view.  To do otherwise doesn’t indicate much commitment.

Mr. Stancati’s supporters tout his lengthy service as head of the South Bend Water Works.  (He retired about a year and a half ago).That’s not an organization with much of a reputation for customer service – though it seems better lately.  More to the point, it’s hard to see the relevance for a position as school corporation trustee.  He doesn’t speak well in public either – to the point of being difficult to understand at times.

In my opinion, Mr. Stancati is the weakest candidate in the entire field.  I will vote for Ralph Pieniazkeiwicz.

Links to earlier installments:

Part 1                      



What do you think it symbolizes?