Here is how the pension "issue" is usually framed.
For the major corporations that still offer pensions, they are a drag on earnings growth. In the public sector, they are making every city into Detroit or Stockton, Calif., paving the road to bankruptcy.
Very large numbers are thrown around, often without context, sometimes outright fabrications. This column is not about the numbers. As a nation, we spend too much time under green eyeshades. Numbers, "just business," economics are supposed to provide definitive answers.
Of course it depends on whose numbers are used (liars figure) and there's a reason that the dismal science was once called political economy. Even at its most rigorous, economics is a brawl — and like the sums we are supposed to accept as gospel, the inputs matter (garbage in, garbage out). People are living longer! Well, not by much, it varies greatly among ethnic groups, and the ones that do live long tend to be very wealthy. Etc.
Nevertheless, a majority of the white working class — which is a majority of the electorate — believes that union thugs are bankrupting their cities and states by demanding that pensions be paid to takers on the public payroll. Republican politicians and judges are burnishing their popularity and "seriousness" by working to destroy the pension system.
In certain situations and moments, many of those thugs and takers are called police officers, firefighters, and teachers. Heroes.
This is where we are, circa 2015. Most Americans can't even remember that pensions were commonplace, a part of your compensation. Companies were expected to put away money to fund those plans. Most can't remember secure jobs or long careers. These sources of wealth accumulation were the pillars of the middle class, as well as of retirement meccas such as Phoenix.
Starting with the middle of the boomer generation, we were moved out of pensions and into 401(k)s. These inferior plans were sold as an improvement, a way for us to control our retirement. In fact, this was all about raiding corporate treasuries to pay astronomical salaries to top executives and enrich the investor class. Real pensions are dying.
In the case of governmental entities, pay tended to be less for public-sector jobs. Some were extremely hazardous. Decent pension plans helped make these jobs more attractive. Being able to retire from the fire department with at least a partial pension after 25 years seemed fair compensation for such a hazardous job.
The media have highlighted some abuses to the system, as they should (if only they were as diligent about crimes in the private sector and the portal connecting government and business). And one can have a spirited debate about whether government employees should be unionized (FDR thought not). But this is beside my point.
Republicans led by Gov. Scott Walker of Wisconsin are moving in for the kill not merely on pensions but unions. Having succeeded in nearly destroying unions in the private sector, they are within striking distance of killing them in their last stronghold, government workers.
This is an interesting inflection point.
These politicians keep complaining about the "burden" of paying pensions while their party has spent more than three decades monomaniacally cutting taxes, again and again, year after year.
They ape their corporate masters who complain about their own pension "burden." Except that corporate profits are at a peak far surpassing anything since record-keeping began in the late 1940s. Labor's share of national income is at a historic low.
We are constantly told "we're broke." Except we're not. We're richer than ever. It's just that decades of public policy have sucked ever more income upward to the richest people, even as national priorities have suffered and the middle class has been gutted.
It would be one thing if we were broke. Stop the wars, end the corporate welfare, raise taxes and close loopholes, force Big Pharma to bid for drug prices, quit the privatization rackets. If the sacrifices were shared, that would make things different (if we were broke). But, no.
The 95 percent are expected to play Hunger Games for jobs paying what a mid-century American would consider joke wages. Take away pensions. Let Wall Street and more corporate greed eviscerate 401(k)s — for those lucky enough to have them.
Welfare was destroyed in the Clinton years. Now go after Social Security. Hey you're living longer! We makers can't afford you! Get a job, taker! Except try getting a job if you're over fifty or disabled. Meanwhile, the richest keep scooping up their rents, playing the markets, getting even wealthier. Meanwhile, they dismantle the social compact for sport and profit.
This is one of the greatest con jobs in history. And how useful to the oligarchs to set working people against working people.
Most are too young, too addled by electronic distractions, or too old and white to either remember or be willing to concede the reality of the America that used to exist.
That America was about more than going to war. It was creating the greatest middle class in history, shared prosperity, and a widening circle of opportunity. Pensions were part of the deal. "Solemn obligations," they were called.
Now, like so much else in the remnant language of our remnant civilization, it is a punch line.
Bravo Rogue!
Good job.
There is nothing “solemn” about a perceived pension obligation. That’s just silly and overally dramatic.
In Illinois, a vice principal in an upper middle class school district can retire at age 55 with a pension of about $108K per year (plus COLA adjustments)forever , based on their last three years’ earnings. So, that’s about what they were making from 50 to 55. They also get lifetime healthcare, but, horror of horrors, they are fighting over whether or not to contribute something out of pocket for that. And they can work.
The good news is now they get the eight months off (summer, spring break, etc) that they previously worked. From 8:30 to 3:00.
That’s not an abuse. That’s SOP.
I’m not going to argue. If you favor that, you check that box. I think it’s crazy, so I’ll check the other boxes.
You state that “this column is not about the numbers”.
I probably should have stopped reading right there.
You should probably stop reading period, INPHX, since you obviously hate anything outside of Galtistan.
Pensions were promised, deductions made by the system, and now you want to break down the system because you have to pay more than you anticipated?
GOP strategy has been to break social security, pensions, and anything else that promises any level of security in this society.
They are damned fools. What lies beneath the public when they get angry will sheer the rich to the bone.
Great wealth eventually corrupts the political system, but because it attempts to utterly repress the society it breeds the failure that so richly awaits it every time.
Apres moi, le deluge.
Reform or die is what awaits the GOP, and right now it looks like die.
The Teaparty should scare the rich beyond measure, because it is beginning to grow beyond the control of the oligarchy.
And when they find their Huey Long, all bets are off, because the little guy will get his great equalizer.
The rich should understand that their current position is long term untenable, and more they target the bottom of it all, the bigger the long term backlash they are building up.
In short, the folks who have it made should be getting nervous at how corrupt this society is getting, and how obvious the scams are getting- because ultimately people can force tremendous changes on society.
The New Deal could have been a lot worse, and the Next Deal might be a lot worse.
Soleri, is that you?
Thank you, Jon.
As writer Connor Kilpatrick noted, “Worrying about the budget deficit is how dumb people have tried to sound smart since the days of FDR. And most people are dumb.” Thus, working and middle class people are easy marks for snake oil about “your grandchildren’s debt!” by people trying to steal their pensions and Social Security.
When the subject of public pensions comes up and someone brings up the tired canards about “bankrupting us!” or “they shouldn’t have been promised so much!”, I like to point out how the US economy is 70% consumer spending and the proposed pension cuts are projected to take trillions of consumer dollars out of circulation and redistribute them to rich people who will sit on them. In most cases it’s like trying to explain algebra to a golden retriever. But I try nonetheless.
In many states public workers do not pay into the social security system.
Their pension is their only retirement income.
Most did not earn enough for substantial contributions to IRAs since for most of their careers they earned much LESS than the private sector.
Donna:
Great idea. Let’s double what the public pension retirees are otherwise entitled to.
That will REALLY get the economy rocking.
Cause you know, retirees really toss the money around.
The last time I checked, Illinois public school teachers made a 9 percent contribution to their pension, per paycheck, which is considerably more than FICA withholding, and received 75 percent of salary as pension level.
I suppose conservatives pick exceptional cases because the typical case doesn’t lend itself to propaganda.
According to payscale.com the median U.S. teacher salary is 42 to 46 K per year depending on grade. The same source gives a median salary of 67 K for assistant principals.
Stuck on a mobile today: tomorrow I might be able to contribute more.
Re Illinois teachers pensions:
https://blogs.chicagotribune.com/news_columnists_ezorn/2012/04/pension.html
Also note Illinois teachers retirement age is 65 not 55 (see Trib article).
INPHX must have missed how much of the AZ economy is directly related to retired people- and how much money they spend every year, unlike the stupor bowl.
https://www.statemaster.com/state/AZ-arizona/eco-economy
18.5% of the households in Arizona get some form of retirement income, so every time the GOP babbles on about cutting retirement bennies, they lose voters.
But hey, it carries so much in Galtistan.
Out here in the real world, when you cut retirement money, you are going to cut long term spending on every thing, because they do spend most of their income below the 1% level.
In other words, I hope you like a much poorer Arizona- because as we cut retirement benefits on a National Level, fewer people will have the resources to move here and support your tax free lifestyle.
And home prices will fall again!
Doubleplus happiness win for Arizona!!!
Only in America can you so thoroughly brainwash people to vote against their own interests in the name of a few dollars more in their current paycheck.
Also note that 75 percent of salary is a full pension for Illinois teachers; but it takes 35 years of service the qualify for a full pension.
Retirement households earn less than 3/5 of pre-retirement households on average; so they tend to spend rather than amass further savings.
https://www.interest.com/retirement-planning/news/retirement-income-ample-in-one-state/
INPHX, “solemn obligations” are industry standard terminology, not “silly” or “overly dramatic”.
https://www.morningstar.com/advisor/t/54224667/fiduciary-focus-the-solemn-obligations-of-a-fiduciary.htm
“Many employers, unfortunately, no longer see their remaining defined-benefit pension commitments as a solemn obligation. Instead, they seek ways to shirk their responsibility. One well-established way of doing this is through accounting manipulation. Most private pension plans are employer-managed, meaning that companies can play games with the amount of money contributed to the plans each year; for example, by projecting an unrealistically high rate of return on assets already in the plan. ”
Above quote from:
https://www.corp-research.org/e-letter/broken-promises
“Donna:
Great idea. Let’s double what the public pension retirees are otherwise entitled to.
That will REALLY get the economy rocking.
Cause you know, retirees really toss the money around.”
Let’s cut pensions and Social Security completely to the bone. Because young families really toss the money around when they have to support their elderly parents.
You know, there is actual data on the effect of taking all that pension money out of the economy.
“Most private pension plans are employer-managed, meaning that companies can play games with the amount of money contributed to the plans each year; for example, by projecting an unrealistically high rate of return on assets already in the plan.”
One way they did that in the height of the 2000s housing bubble was when plan managers were wined and dined and taken to strip clubs by Wall Street hucksters and convinced to invest pension plans in those “safe” AAA rated CDOs.
https://www.bloomberg.com/apps/news?pid=newsarchive&sid=aW5vEJn3LpVw
But INPHX, do go on with your moralizing about overpaid teachers and principals.
P.S. A modification of earlier comment: Illinois teachers retirement age a bit complicated. Teaches hired since 2011 can’t collect benefits before age 67. Others have early retirement option but pay a penalty for each early year so don’t get full benefits. Also, various new laws and court challenges further confuse the matter.
My apologies for any error based on my own faulty inference and incomplete knowledge.
INPHX – anecdote does not = data. There are outliers in every system, and yes, unions and pensions have gotten corrupted and gamed. “Solemn obligations” are undertaken with seriousness and commitment to human beings who invested in the pensions and who came to depend in old age on that “solemnity” to help them to have a decent life. That’s not hyperbole
I am a beneficiary of the California Pension Retirement system. It invested my contributions into conventional financial markets. If I had put it into a 401K as so many advised me to do I’d still be working full time to meet my rather modest expenses, instead of being able to begin to phase into retirement at 68.
I hope that you take similar umbrage over the “too big to fail” financial giants who continue to break the law, and who skate unpunished. Your outlook seems to be based on resentment of relatively few ordinary weasels whom you conflate with honest folks who are trying to get by in ways that you disapprove of. Please feel free to post something that’s critical of wealthy, powerful people and groups whose fraudulent earnings are orders of magnitude greater than that of the welfare or pension chiseler. Those mega-chiselers are only too happy to have you vilify those that they would like to marginalize atomize and crush. I’m outraged that the Oregon PERS is giving the ex- U of O football coach 650k per year, but I know that it’s helping tens of thousands of nurses, teachers, cops, firefighters, etc look to retirement with some optimism and hope after years spent helping the likes of you and me. Any one of them’s worth 10 Mike Belotti’s. Any one of them’s worth a thousand Murdochs or Dimons or Rands, for that matter.
I take exception to some of what you have written, but I’m really trying to be more agreeable – or at least less argumentative – so I’m going to let it go. So let me just posit the following as addendums to what you have said. In no particular order…..
The “greatest middle class”: I’m taking this to be the period between 1950 and 1970. Was it really that great? I grew up in that period; in a working to middle class family (the division was less salient than it is now). Suburban living was the norm – but the houses were much smaller – 2000 square feet and 2 bathrooms were considered posh. Eating out meant McDonald’s. Vacation was visiting relatives somewhere. One black-and-white TV the norm; with over-the-air programing – all four channels of it. College was unusual. International travel – forget about it; Just visiting Disney Land or Miami Beach was a dream beyond imagining. Coke-a-Cola, strawberries, turkey and ham were rare and special treats. The bottom line: the “greatest middle class” standard of living would be considered poor today. Oddly enough many things were “dirt cheap” by today’s standards: Pro football was no big deal. My dad frequently went to see the Redskins play – he even took me to see the great Jimmy Brown play (an aside for no reason at all: he took me because of Jimmy Brown. Pro Football crowds were a really seedy bunch at the time. But before the game started he said “keep your eyes on number 31 of the Browns – he’s the greatest player of all time). Kids went to the movies almost every Saturday afternoon. Everybody got at least one newspaper every day.
The time-period in question also had two unique aspects that we’re unlikely to see again. In the post WWII period, the world laid in ruins. England, one of the “winners” had rationing well into the 50’s. Japan and Germany were leveled. The period also saw the application of numerous technological wonders (not necessarily discovered then – but hit the mass market) including electronics, personal cars, digital computing, ….) See
this for more:
https://nymag.com/news/features/economic-growth-2013-7/
‘Free trade’ has turned most labor – even
the thinking kind – into pretty much a commodity. There are what, 6 or 7 billion people in the world; most living in poverty. That’s what we’re up against.
Trade blocks among equals can be a good thing. I think a NAFTA that only includes the US and Canada is a good idea. An EU that only includes Germany, France, Scandinavia, England and Italy works. Including very backward economies doesn’t – as we’re both finding out.
On the topic of 401’s versus Social Security: most young people prefer the 401. The reasons may not be entirely logical but they are: the 401 is transportable and they don’t think they’ll ever “get” Social Security. Job hopping is the way of world these days; not by necessity but by preference. How many different newspapers have you worked for? Have you ever vested in any plan? I think the Social Security will always be there, but not with the level of benefits I enjoy and certainly not what my father enjoyed.
You didn’t want to talk numbers – so I’ll let it go. But here’s the thing: Economics provides many “good rules of thumb” but that’s about all. As apredictive “science” it’s about as good as the global climate “science”; which is to say – abysmal. The economy, like the climate, is just too complicated and non-linear to model. This is not to say that you should blow off either.
On “solemn” obligations: An obligation is an obligation and should be kept; all of them. It’s criminal to enter into obligations that you know going in that you can’t keep. You brought up Detroit – who’s deciding which obligations are more “solemn” that others. But it is an exceptional case. It will be interesting when the house-of-cards that is Chicago and Illinois collapses.
@Emil: I know I owe you a response on Common Core and still getting my ducks in a row. I really don’t disagree with you that much.
wkg – “On the topic of 401’s versus Social Security: most young people prefer the 401.”
How do you know what “young people prefer”?
It is true that Republicans in Gov. have put fear in the public ear that Social Security will dissolve, so don’t plan on it. It may be that fear, and tax incentives (gov), are the only way to encourage people to save.
My opinion is that young people, who can afford to invest in a 401k, do, simply because that is a good way to ‘plan’ for retirement.
Dawgzy:
1. No bailouts. Ever.
2. Carried interest? A crime.
Next?
Look- I know most of you folks don’t like numbers. You’d rather cheerlead about the glories of pensions and deride rich people.
https://www.zerohedge.com/news/2014-09-26/public-pension-funds-face-2-trillion-shortfall-moodys-warns
2 trillion. After 3 or 4 years of pretty solid returns.
The total US economy is about $16.8 trillion, so if the entire country agrees to give about 2 months worth of all of their output to the pensions, we’ll be even.
Who’s in?
The Illinois story is factual. It is based on 2 people I went to school with. There have been attempts at reform for people not currently retiring, so Emil’s data may be relevant to other (younger) employees.
wkg:
Great analysis of 1950-1970. It wasn’t really that great. But none of that matters. The comparisons are vapid. There’s a Wal Mart just a few miles out of Mayberry, and Floyds barbershop is now a Sports Clips. Honda and Toyota aren’t a joke, and phones aren’t a luxury anymore.
The good news is that Andy and Barney are doing just fine with their government pensions.
I am a recipient of a public safety pension. I risked life and limb for over 31 years (NONE of those years sitting in an office or admin building) and have my pension instead of Social Security.
Have I benefited from being in a union? Probably…but I would have gotten those benefits whether I was in the union or not.
Seeing this article bash the GOP as ‘Moneybags Satan’ supposedly on my behalf is quite laughable. To drink that KoolAid you would have to believe the Dems are caring, responsible (HA!) and aren’t raking in as much money as possible for themselves and their cronies. Gimme a friggin’ break.
Xring:
How old were you when you retired and started receiving the benefits?
I agree with you about Democrats. They support unions because unions support Democrats. It’s that simple. No honor, no nobility, no cause.
Just greenbacks.
Forgot to include the most important point. Rather than whipping on the 1% – and a small portion of it is deserving of all the scorn we can heap upon them – I also think looking at the actions of the working and middle class (the 80%’ers).
While the 20%’ers have kept on doing what they have always done – living of current income and saving a portion of it, never “invading” capital and shunning debt.
Conversely the 80%’ers have acted in many ways to destroy their financial position.
Here are the four biggest mistakes:
One – market bubbles and fads. From dotcoms to Beanie Babies to precious metals, there hasn’t been a bubble that hasn’t kicked them in the teeth. Couple this with the fact that the saving rate is small to begin with, these losses have been crippling. Also leads to stock market avoidance; the only place to be in the long run (at least for those of us who work for somebody else).
Two- real estate “investments”. Except for rare periods and places here and there, home ownership is a so-so investment. At other times and places it is a terrible investment. The negatives of home ownership are compounded when equity is pulled out of the house (via home equity loans) periodically.
Three- “higher” education spending. Another “everyone else is doing it” – a classic bubble. I could go into a full rant on this topic – I just move along for the time being.
Four – overuse of debt. Sane people do not borrow money to buy a sofa, or go on vacation or buy Christmas presents. Really prudent people don’t borrow money at all.
I have seen the numbers for household Net Asset Value (NAV) and the numbers are shocking; particularly for minority households. If you owned your car outright, your NAV would be higher than the typical minority household’s NAV.
@Suzanne: the “young people” were people I worked with and others who I drank with. Not a good cross section for sure. It’s just not polite to talk money with people who don’t have any.
INPHX- Hi. i’m not as familiar with the Oregon PERS as I am with CALPERS. The latter is robust and is not as far as I can tell is not carrying debt forward or onto the state budget even with the boomer wave on board. Its health is tied to the larger investment economy. I guess that its actuarial models are safe. When I joined I couldn’t look forward to the benefits of those who joined on prior tiers, but I know that the downward adjustments were made for the sake of its long-term viability. It’s in good shape after it recovered from investments made in securitized mortgages brought in tot the henhouse via a “rainmaker” from an investment bank who’s no longer there.
Do you believe that WE should, to any extent, support those who are economically vulnerable in their old age? As one whose needs and income are both modest and adequate, I sure as hell do; and believe that we wouldn’t be quibbling about scraps if we weren’t enriching defense contractors (and their investors) with perpetual war. Believe me, they want you to carry their water by vilifying institutions that promote the common good.
Dawgzy:
First and foremost, things should be priced correctly. If government agencies cannot collect enough taxes to keep pension obligations current, then you either need to reduce the pension obligation or increase taxes.
Illinois provides a great example. They just elected a Republican Governor for the first time in a long time. Why? Taxes are too high and the pension obligations are crippling the state’s ability to fund other programs.
People should be primarily responsible for their own retirement. Not exclusively responsible, but primarily responsible. I’m fine with social security and medicare conceptually (although I think folks should be able to opt out of a part of Social Security).
I think most would agree that as it sits, the US does have enough in the treasury to adequately cover Medicare and Social Security for the baby boomers as they retire. Well, the current total payroll taxes (employer and employee) are about 15% (with some caps). Assume that you’d have to bump that to 22% and remove the caps in order to adequately fund the programs.
Think we’d be having a different conversation about labor? Minimum wage? Think the economy would look a little different?
The public underfunded liability is 2 trillion dollars. There are two causes for that a) the benefits are too high and b) the taxes are too low.
One of those has to change. Quick.
Same with wars and defense (and everything else) . If you’re going to fight a war, you’d better pay for it. Otherwise, it’s too easy to fight a war.
BTW, you attack the Wall Street guys who presumably sold bad investments to CALPERS. You’re mad at the wrong guys. CALPERS (and all other retirement funds) have plan trustees who authorize the acquisition of investments. That’s who is (primarily) responsible for the investments; that’s the guy who is suppose to have YOUR interests in mind. That’s the guy you should be mad at.
INPHX – “You’d rather cheerlead about the glories of pensions and deride rich people.”
Who has a problem with rich people? Why do you exaggerate that erroneous point?
I do not have a problem with corporations in general either; my concern is with corporations that are sometimes called “Berle-Means” corporations.
https://en.wikipedia.org/wiki/The_Modern_Corporation_and_Private_Property
Suzanne- from Rogue’s original post
In fact, this was all about raiding corporate treasuries to pay astronomical salaries to top executives and enrich the investor class. Real pensions are dying.
From Concern Troll:
Great wealth eventually corrupts the political system, but because it attempts to utterly repress the society it breeds the failure that so richly awaits it every time
Suzanne:
You’ll get no argument from me on the Berle Means issues; more broadly, I consider that the “agency” problem where owners and management are distanced.
In the mortgage business, folks get a fee for buying and selling mortgages, but when the loan goes bad, the holder takes the hit- everyone else already got paid. Bad model.
I guess you can just avoid buying shares.
Lots of good overnight comments to reply to.
INPHX writes that there are two reasons for pension plan troubles: (1) taxes too low; (2) pensions too generous.
There are two important but often overlooked additional reasons:
(3) Markets fluctuate, sometimes badly. Every good conservative knows this, except when he’s writing an op-ed saying that the sky will fall unless pension plans are “reformed”. But the fact is that yesterday’s solvent fund is today’s insolvent one — and tomorrow’s solvent one.
INPHX notes that in the last few years the markets have been strong (well, certainly the stock market).
What he doesn’t mention is that when the financial crash accompanying the Great Recession occurred, a great deal of equity was lost. Strong returns are fine, but when they build on a much smaller equity base, it takes longer to recover than it did to lose value.
Many pension funds are only just now recovering to pre-recession 2007 levels. The problem is that during the eight years from 2007 to 2015 they were supposed to be growing to meet new obligations, not where they were back in 2007 before the storm hit. Recovery from a bad loss takes time.
Also note that not every pension fund is invested in stock market index funds, much less the right ones. For some reason, fund managers seem to feel that index funds are too easy and don’t showcase their brilliant abilities. However, a study a few years back demonstrated that the average fund manager is no better than a random dart at picking winners. Stocks, commodities, bonds, complicated financial instruments…there are many possibilities. A diversified portfolion might prevent large losses but also weaken returns; and some picks just lose money.
So, part of it is luck. There are pension funds doing just fine now. There are others doing poorly. Part of that is the toss of the dice. Conservatives ignore the healthy funds and concentrate on the unhealthy ones, in order to justify the claim that pension funds need doctrinal “reform”.
(4) A failure to honor solemn obligations. One major reason why the Illinois teachers pension fund is in trouble is, as noted in the Chicago Tribune article from 2012, that “over the years the state has failed to make some $15 billion in scheduled contributions, preferring to spend that money on more urgent needs and hoping that investment returns would ultimately make up the difference”.
https://blogs.chicagotribune.com/news_columnists_ezorn/2012/04/pension.html
INPHX- I come in peace.
The rainmaker of whom I wrote IIRC was elected by the membership to the board (Miss hen: My what lovely whiskers you have Mr. Fox.) “Our bad.” I didn’t vote.
Being mad or attacking are beside the point, and past some point, a waste of energy. Interesting attribution, though.
Quite agree about cutting benefits and increasing taxes, especially the latter. We live in the richest country in history and we’re verging on having a sort of “Let them eat cat food” discussion.
When I was a sprout in Phoenix, conservatives rightly complained about government waste. (“A million here and a million there and pretty soon we’re talking about real money.” Dirksen? Halleck?) That got into the Pulliam press. I was long gone by the time Proxmire started his “Golden Fleece” awards. Does anyone remember that getting any play in the state’s greatest newspaper?
I could quibble with the details of INPHX’s personal anecdote about a vice-principal: it takes 35 years to obtain a full pension in Illinois, so how did he retire with one at 55? Also, the pension amount asserted is way above industry norms, including in Indiana. Furthermore, pensioners are required to make a 9.4 percent personal contribution to their pension fund, deducted from paycheck, and only collect 75 percent of their full salary; conditions that have been in place for a very long time.
But it isn’t necessary to prove or disprove a particular case documented only by personal anecdote. It’s sufficient to point out that the case is atypical. I’ve pointed out what norms for teacher salaries are.
WKG notes special conditions after WW II in explaining America’s postwar affluence: Germany and Japan in ruins, Labor Party economic policy in Britain, etc.
America’s economic growth was NOT due to wartime destruction of European industry and postwar American domination of world trade, for the simple reason that imports and exports combined made up only a tiny fraction of U.S. postwar economic activity (about 4 percent of annual GDP in the 1950s).
America thrived postwar because its own domestic demand and output were high and growing. That’s because of major national investment in manufacturing capacity during the war; the training of large numbers of workers in skilled and semi-skilled manufacturing labor during the war; and the consumer demand that wages earned by unionized manufacturing workers created after the war.
Postwar government subsidies for the higher education and housing of veterans and their families through the GI Bill also assisted upward mobility.
WKG points out two ways that today is superior to the 1950s: one is technological improvement; the other is an increase in the size of houses.
Yes, a pocket device has the computing power that in the 1950s would take a mainframe (if not a roomful). Improvements in technology as well as mass production and marketing have brought prices down for such things as televisions, too. Great.
The problem is that too many basic things, like healthcare and rental costs, have gone up relative to the real value of wages, particularly for the working class. The inflationary erosion of living standards caused by this is masked in the CPI by the fact that new consumer gadgets can do on the cheap what decades earlier took rocket scientists and bags of money.
WKG hints at this when talking about the price of movies and sporting events. This contributes to a decline in quality of life for those on working class budgets. But more serious and basic expenses such as the cost of housing for renters, and healthcare, are affected also. Food costs also, I suspect (meat, dairy).
As for houses, Rogue could tell us something about Del Webb, who pioneered the mass construction, cookie-cutter housing development that did for houses what Henry Ford did for automobiles.
I don’t think either of these argument affects the basic situation: concentration of income, stagnating or declining real wages, loss of job security, demands for unpaid overtime and/or irregular work hours and days off that change from week to week or day to day on the whim of employers; loss of benefits, including paid sick-leave and vacations; loss of defined benefit pensions; and a host of other problems documented regularly here at Rogue.
INPHX, your quote from Rogue In fact, this was all about raiding corporate treasuries to pay astronomical salaries to top executives and enrich the investor class. Real pensions are dying.
The Berle-Means thesis suggests that where ownership and control are separated and the corporate board is occupied by management; shareholders (owners) no longer influence the decisions that are made. When corporate executives have the final say, executive salaries turn astronomical and, in turn, Great wealth eventually corrupts the political system (Concern Troll).
No, it is not as simple as “you can just avoid buying shares.” Most pension funds and 401k’s are invested in those corporations.
INPHX wrote:
” Democrats…support unions because unions support Democrats. It’s that simple. No honor, no nobility, no cause. Just greenbacks.”
That’s great divide and conquer rhetoric. Like any good lie there is even a little truth to it: the Democratic party, like the Republican, is not without opportunists. But there are plenty of principled union supporters, especially in the left wing of the party. Is Bernie Sanders a cynical quid pro quo Democrat?
Spot on, Suzanne. Corporate executives motivated by personal gain rather than long term company or shareholder interests have all kinds of tricks to make a killing before deploying their golden parachute.
This link from Best of the Front Page is a bit of an eye glazed for those unused to jargon, but a patient reading pays big dividends by explaining how differences between personal and institutional interests led to widespread fraud in the banking industry underwriting the real estate crash which brought the country to its knees.
https://neweconomicperspectives.org/2015/02/study-foreshadowed-three-fraud-epidemics-drove-crisis.html
But enough about the rest of you… I grew up in a crowded house where I was usually the dumbest guy in the room. That set a pattern, and since then I’ve usually hung out with people much smarter than I. (yeah, yeah, you probably COULD find them on any street corner.) It has advantages and it’s one of the reasons that I visit this blawg. One type of received knowledge that’s come my way has been in the form of getting some grip on things financial and economic from those who know something about (it and reading Krugman the Red.) I did take an Econ class from the estimable Mr. Helfrich in high school in 1964. and learned a valuable lesson – dealing with those concepts is almost foreign to my nature and a steep uphill at best. So of course here I am in the midst of an argument which I’m ill equipped for. Again in high school, we sometimes were the champs of the NFL and not much else. (National Forensics League, that is.) We had speech and debate once a week and much as I admired the debaters (2nd in state ’65) I avoided them, at least in that department. So here I am debating without even a learner’s permit. I realize that in the face of “opposing” well organized information, I want to cover my ears so to speak and block it out. I also realize that I might have urges to fling poo- If I have done so (hey, it smells okay to me)- to quote Nixon, please pardon me.
Emil the great- as I’m sure you realize Bernie’s an Independent who parks his caucus with the Dems. Hey, Soleri, do you think Bernie will run for Prez next year? If so, I’ve got to stock up on popcorn.
Dawgzy I know some folks who would gladly buy you a cup of coffee and some down to earth conversation.
UNION
getting to gather out of a common intrest.
A Union
The United States.
eye glazed = eye glazer
Dawgzy, my experience is that developing critical thinking skills, logic, analysis, basic numeracy, and research skills, can make up for deficits in, and facilitate development of, more specialized formal education. Of course, a reasonable degree of humility and open mindedness is important in avoiding dogma and delusion.
On mobile so pardon my telegraphed text.
Yeah, Bernie’s a democratic socialist, last time I checked. But there are plenty of capital D Democrats for whom unions represent something more than a campaign finance check.
Cal- really?!! I would trade most of my Nobels, olympic medals and honorary doctorates for a dark, bitter and hot cuppa java with you. Will drop a comment next time I plan to visit the Valley of the Sun from the Valley of the Willamette. Meanwhile I will walk on air.
Emil:
Maybe my specific examples in Illinois aren’t a solid representation.
Let’s assume they’re not.
Here. The system is underfunded by about $111 billion:
https://www.zerohedge.com/news/2014-11-17/illinois-pension-debt-soars-111-billion
That’s about $ 8,500.00 for every man, woman, and child in the state of Illinois.
It’s about 3 years’ worth of every tax dollar that the state of Illinois collects.
Great.
More on the separation between shareholders and management-
Again, you’ll get little argument from me. The publicly traded model has made gazillions for many shareholders (including pension plans and other retirement vehicles) but it’s always seemed a little odd to me. The agency problem was rampant during the creation of the housing bubble. Sprinkle in foolish borrowers and imprudent lenders and it turned into what it turned into.
It seems it has worked wonders for Intel, Microsoft, Facebook, Apple, and many others. But again, it has always seemed a little odd to me.
@INPHX How old were you when you retired and started receiving the benefits?
52. I was a very young man when I was hired.
Private sector. Retirement means age 65.
Public sector. Retirement means age 50.
Hmmmm?? What’s wrong with this picture?
Does the private sector run into burning buildings and HazMat spills and go after armed robbers and rapists for 20-30 years?
If you think it’s such a Grand Bargain, by all means take the Fire or Police test, work for 30 years humping your ass in the Phx summer heat and you can have what I have.
I didn’t steal this pension, I earned it.
I retired from the public sector at 51.
Went back to work at 56.
I’m now 74 and still working and live very frugally.
320 square feet home and drive a Honda fit.
Because of my public sector pension I only receive one third of my social security of which i paid into for 35 years. However due to my involvement in a union where as president I pushed for benefits rather than wages I have almost no out of pocket medical expenses and i have had major surgeries and spent 3 months in a skilled nursing center.
Calash your favorite AZ Republican from somewhere in the Great Sonoran desert, what’s left of it.
Not sure how my stat attacked fire and police.
Your job doesn’t even crack the top ten most dangerous jobs list.
Try working construction in hot phoenix with NO pension.
You’ll have to take your crocodile tears elsewhere.
Common cents
no tears here.
I worked the fields, summer and winter in the valley of the sun from 54 to 56.
And i worked construction as a member of the plasters union and had my own transportation business in the valley until 68.
I’m glad you got to enjoy Phoenix summers as I did and still do. A/C AND TEDDY ruined the Great Sonoran Desert, what’s left of it
The discussion and points made above are interesting and certainly express the frustration of many. That being said, of far greater importance is the over-riding fact; the pension obligations are huge, the number of retiree and those soon to retire large, investment opportunities somewhat limit for those pension plans and the cities still have to meet the current obligations and those made earlier.
The handwringing does not address the absence of clear solutions. Cities and states have made agreements which are binding and owed to those who toiled in their trenches. Those obligations can probably better be described as paying for services; current pay and for past services.
Which leaves us all with obligations that are owed to those who worked and with the need to find revenue to cover current expenses, debt and to pay for past services.
Detroit, Stockton, San Bernadino all ran into that equation; current and past expenses exceeded current revenue.
I would like to hear solutions that can meet the test starting now.
Richard:
You either raise taxes, cut other government services, or tweak the benefits. Or combine factors of the three.
Or you wait and let a bankruptcy court try to figure it out.
INPHX, yes, the five Illinois state pension funds (not just public teachers) are short by about $111 billion, by some reckonings (more on this shortly).
In 2000 the ratio of assets to liabilities were 75 percent, which is close to the 80 percent reckoned in the pension fund accounting industry to be “fully funded”. By 2010 this had plummeted to 38.5 percent.
The size and speed of this loss of funding should tell you something about its nature. You may recall seeing something in the newspapers about a financial crisis, of sorts, toward the end of the decade and extending into this one.
Naturally, your source (a right-wing think tank which distributed its hit piece to ZeroHedge and countless other media outlets) omitted this salient fact, because the headline “Fickle free market dashes workers retirement funds — again” doesn’t support their narrative of greedy unions.
Since the stock market recovered, the pensions have increased their funding level to 41 percent. It takes time to recover from a loss of this magnitude, and it’s also possible that the fund manager, attempting to recover the losses quickly, made some bad choices. That’s the problem with financial speculation: you pays your money, you takes your chances.
Also note that 70 percent of benefits payments are supposed to come from investment revenue. The state has failed over many decades to contribute what it should. I don’t have to explain to you, a conservative who extols the virtues of saving, about the magic of compound interest. Suffice it to say that if the state had funded the pension funds as scheduled, benefits would be sustainable. One local commenter noted that “the State of Illinois skipped pension contributions in order to keep taxes at a low 3% for 20 years”.
So again, the problem is a combination of investment losses and the failure to honor solemn obligations, not greedy unions.
I’m running short of online time so I’ll have to keep this short and try again later.
https://www.chicagobusiness.com/article/20150211/BLOGS02/150219957/illinois-pension-mess-likely-to-get-worse-when-high-court-rules
Emil:
Look at my previous post 2/28 at 2:15PM. If Illinois wants to offer public employees pensions, then just collect the taxes to assure them.
Price the liability. That’s all. Tell the taxpayers we need more money TODAY to assure those pensions. More income, property, sales, however they’re going to get it.
Because if they did, we’d have a very different type of conversation.
Thanks to the “Solemn obligation ” of the pension fund administrators in the public and private sectors, the Federal Pension guaranty fund is underwater by billions.
So, I’m guessing we’ll need a guaranty fund for the guaranty fund?
One more time, who makes the obligations and who has to pay for the obligations?
From Bloomberg Business News:
“States that have the largest relative pension liabilities have at least one thing in common: a history of contributing less to their pension plans than the actuarially required contributions,” New York-based Moody’s said in the report. “Funding history is an important credit factor.”
Tax levels are not relevant to catastrophic market events that cause underfunding by massive reductions in the value of fund assets; nor are they relevant to bad faith failures to honor statutory obligations.
Conservatives want to offer a Hobson’s choice between high taxes and pension “reform” (wrecking) because they are sure that an uninformed public will accept the choice as given and settle for “reform” as the least painful option. They ignore the inevitability of market losses AND recoveries so that they can blame union greed and use the pressure of temporary setbacks to urge hasty “reform” action.
Amen Emil
What is all this poor-mouthing anyway? I thought that the pride of America was that we were so rich!
We can afford to take care of everyone in this country, but well, we would rather not.
@Emil Re: “stagnating or declining real wages, loss of job security, demands for unpaid overtime and/or irregular work hours and days off that change from week to week or day to day on the whim of employers; loss of benefits, including paid sick-leave and vacations; loss of defined benefit pensions”. I fully agree with the statement. Present arrangements are turning American labor into an international commodity. It’d be way off topic to get into this here.
Re: “concentration of income”: tend to agree; my only reservation is that is that I think that for very high income individuals, most “income” is not wages paid by an employer.
Re standards of living: I’m going to stick to what I stated earlier: standard of living for working and middle class today better today than 1950 or 1960. I would agree that the cost of health-care has risen sharply; way out of proportion to the improvements in health-care outcomes. The cost of “higher education” has risen sharply also. Almost everything else is cheaper or of much higher quality. Recent spike in food prices due to idiotic ethanol policy – not the productivity of farmers. This is even more remarkable when you consider the environmental related costs included in production costs today.
To this point “standard of living” has addressed things only we buy with money. I would certainly posit that other aspects of “true standard of living” may not be nearly as good. At least from my perspective, things such as “social cohesiveness”, “community”, etc. have certainly declined.
@Richard Rea, Re “I would like to hear solutions that can meet the test starting now “: (public pension and retiree health-care obligations). Let me offer two.
One. Fully pay for services rendered now with “wages” paid now. Under the present system services are paid with “wages” plus a promise for more payments in the future. A civil servants compensation should include “take home pay”, medical insurance, disability insurance, long-term disability insurance and term-life insurance and a contribution to a retirement account (no matching required but allowed). The retirement account would be limited to ultra-safe investments (e.g. T-Bills) and annuities. Don’t know the how Medicare works for those who haven’t paid into it while working – so don’t quite know about retiree medical insurance. In any case, compensation for services performed this month need to be paid this month – in full.
Two. Privatize as much of it as you can. Shift all that “future stuff” to somebody else.
Thr hits just keep on coming:
via Instapundit:
BLUE COLLAPSE: Chicago nears fiscal free fall with latest downgrade. “Chicago drew closer to a fiscal free fall on Friday with a rating downgrade from Moody’s Investors Service that could trigger the immediate termination of four interest-rate swap agreements, costing the city about $58 million and raising the prospect of more broken swaps contracts. The downgrade to Baa2, just two steps above junk, and a warning the rating could fall further still, means the third-biggest U.S. city could face even higher costs in the future.”
The last included this click-through in the original:
https://finance.yahoo.com/news/exclusive-chicago-rating-downgrade-could-end-swaps-deals-174532024–finance.html
Wkg, main costs are rent/ mortgage, transportation, food, healthcare, and (for families) children. Costs for all as percentage of single earner household income WAY up since 1950s. We can argue about why. On mobile so this is brief.
https://www.bloomberg.com/bw/articles/2014-07-17/housings-30-percent-of-income-rule-is-near-useless
Concentration of income is not restricted to wage income, so we’re already on the same page. Obviously wealthy get most income from investment returns.
P.S. wkg, ask yourself why both spouses typically have to work to make ends meet today vs. 1955.
Emil:
Fine.
Put your head in the ground and let the problem work itself out.
You’d make a great congressman.
wkg- “Two. Privatize as much of it as you can. Shift all that “future stuff” to somebody else.”
I think this is a bad idea and I think that the recession/business cycles explain why. Our economy works well when there is a mix of public/private enterprise. The public sector can support economies when the private sector fails and vise versa.
There are millions of good reasons to keep “future stuff” secure. It has to do with ‘animal spirits’. I will give you one example: The IRS has paid out approx. $125 billion in tax returns so far this year mainly because a lot of people use the IRS as their only savings acct..
Hi. Shalom. Here is what I hope is a hypothetical- I wake up one day to the news that my pension fund is bust. Maybe I’ll have to take crumbs (gimme) maybe nothing’s there. What sense can I make of this? Did I invest in a scheme that was too good to be true? Was I a ponzi sucker? What else might I have done with my money? Put it into Stockton Munis? Into a fund heavily into mortgage backed securities? I wouldn’t have, but you get the point- some people whom I know lost a lot of retirement savings in ’08 and are working longer than they want to (past 65 y.o.) and longer than is good for their well-being. Are we all just suckers? Is THE (supposedly self-correcting) MARKET going to help at this point? Is there any entity that might regulate (shudder) or provide oversight on massive but unsound financial players?
Per my post above, while not naive about matters financial, I really don’t ‘get it.’ My tendency is to squirrel what few nuts I have into conservative instruments over the long haul. While quite the grasshopper or hare in most of my activities, I’m an ant/tortoise in this realm. It comes from the stories of the depression that I heard from my parents. (“When I was a kid things were fine. Then we had a long winter. Dad had to leverage everything to feed his herds, then he dropped dead from the strain, it kept snowing, and things were never the same.”)
I can’t keep up with the people who not only get the financial game, but who love it, and I for the life of me can’t remember which shell has the pea under it after the first move. They see me as easy pickens. Please look at e-mails from Enron energy traders, and the fund guys in ’07 to see what the average person ultimately might have to deal with. Should I subscribe to the WSJ? I’d rather drink antifreeze.
Are we in a complete ‘buyer beware’ situation? I’m not the smartest guy around, but can take care of myself. In my work with the general public, most people I see don’t have the acquired or innate means, much less the income, to stay on track with a reasonable financial plan, much less a retirement. Is it “Better luck in the next world” for them?
Not that it makes much difference at this point. I agree, INPHX, that regardless of one’s opinions, that there are real issues that have few possible solutions. I don’t think that pensioners are part own entitlement scam. It was a different world when they started and it’s premises changed, starting in 1981. After that the rules were too often written by sharks rather than by Mr. Rodgers.
BTW, I first heard about pension double-dipping (10 years for for the county, 10 years for the State= vested x2= lifetime gravy.) while driving south on 7th street at Indian school in about ’67 from a guy, and about people, who became movement conservatives. Odd that.
I’ll say it again. We spent how much bailing out financial vandals cuz we need them? We’ve spent how much on creating a madhouse in the middle east? What we’re arguing over isn’t exactly scraps, but it would have been do-able. “It” being assisting people (aka American human beings) who in good faith laid plans for what would get them by in old age.
I’m pretty sure all those pension obligations are not coming due at the same time. So over 10 to 30 years, the cost to taxpayers will be a fraction of the total on an monthly or quarterly or even annual basis.
Dawgzy:
Great post. But everyone has a story.
Ask a General (or defense contractor) about cutting defense.
Ask a teacher about cutting education.
Ask a union member about taxing health insurance premiums.
Ask any retiree about paying self employment tax when they receive benefits from plans that never paid them.
Ask a wealthy retiree about means testing social security.
ASk a family of four making $65K per year to pay something in income tax.
Ask someone living in New York and Mississipi whether or not federal income tax rates should be adjusted for different costs of living. And whether or no the federal alt min tax should take cost of living into account.
Ask a hedge fund executive about ending the carried interest provisions.
Ask a company that makes solar cells about tax credits for their products.
In Arizona, ask an attorney about the carve out for sales taxes on services.
EVERYONE has there nose in the trough.
Everyone has a story. Everyone tries to justify economic catastrophe if their piece of the pie is threatened.
I really can’t think of a better example than Bush and the war in Iraq. Who wants to go to war without a tax increase to pay for it? (Many raise their hands). Who want to go to war in Iraq with an across the board 15% increase in every federal tax collected to pay for it? (Many fewer raise their hands).
INPHX- Yup.
Gittes:How much are you worth?
Noah Cross: I have no idea. How much do you want?
Jake Gittes: I just wanna know what you’re worth. More than 10 million?
Noah Cross: Oh my, yes!
Jake Gittes: Why are you doing it? How much better can you eat? What could you buy that you can’t already afford?
If the Democratic party hadn’t sold its gonads (which now reside in safe deposit boxes deep under Wall Street) there would be an substantial advocate at least posing your points in what might be a fair way.
Just saw a quote from this fellow:
“We know something about billionaire consumption,” Piketty observed, “but it is hard to measure some of it. Some billionaires are consuming politicians, others consume reporters, and some consume academics.”
I think that the games is seriously rigged and that the only taxes we will see will be regressive, and the only sacrifices will be “shared” And the majesty of the law will continue to allow the rich as well as the poor to sleep under bridges.
INPHX what’s your story?
Are you that name I see scribbled on vacant walls, “Who is John Galt?
I recall seeing that name on the underside of a large bridge I was camping under on my walk across America in 95. (and on a lot of bathroom walls)
The Tea Party is being shoved out by a renewed posse comitatus effort to bring John Birch back to life,(I miss his book store at Central and Camelback).
Gotta love pols that want to do away with all governmental regulation. My favorite the Politician that wants to quit telling employers that they have to post signs advising employees to wash their hands before exiting the shit house.
And of course as I have mentioned before, no need for drivers licenses, as I was breed into existence at the wheel of Desoto with a bench seat. Nowadays in Arizona I dont have to go to a PRIVATE for profit gun range and prove I can shoot safely, to get renew my CCW permit. Any fool with a few bucks can now go most anyplace in AZ with most any firearm and if the vanilla ice cream man signs current legislation all Sierra Club members will be able to go armed to the legislative sessions, scary thought.
Jerry McKenzie, yes, the $111 billion underfunded Illinois pension means long-term obligations. With a bit of luck investment returns will restore the fund to much better shape (remember that the fund was nearly “fully funded” in 2000, before Illinois politicians decided in 2005 that their already inadequate contributions could be stopped altogether and began what they called “pension holidays”, then the financial crash which over several years really devastated the fund).
That $111B figure also depends on what is being considered” full funding”. Many actuaries consider 80 percent funding to be full, but those who have political reasons for milking the crisis use 100 percent as the standard. Meanwhile, state employees hired after 2011 already get reduced and restricted benefits and future generations of hires will likely receive still less generous terms; if so future obligations will be substantially reduced and underfunding (which depends on a number of theoretical assumptions about far future conditions) will be further downward revised if not eliminated, all with a few pen strokes.
Which is not to say that Illinois doesn’t have serious short term problems, but that is the fault of catastrophic market events and decades of political intransigence as state officials chose to ignore their solemn (and often statutory) obligations to contribute to the fund.
Am concerned that, to the extent new Illinois governor was elected on this issue, it will provide a wedge wide enough to bring in a wrecking ball, ala Walker of Wisconsin. In the cheese state the fiscal issue is just the frosting; the cake is the opportunity to kick public employees who have it better than I do. Grrr.
After looking at the case of Illinois state pension programs more closely, I’ve come to a startling conclusion about the cause of Illinois’ immediate (not long-term) pension related budget problems, which are severe.
According to the TRS 2014 Comprehensive Annual Financial Report (on the Teachers Retirement System pension fund), as of June 30, 2014, the fund earned a 17.4% annual return during the preceding fiscal year, net of administrative fees. Total investment income for the year was $6.8 billion; total expenses (including benefits paid and administrative expenses) came to $5.3 billion. So, the fund paid for its own annual expenses and then some.
So why did the state of Illinois have to contribute a whopping $3.4 billion? Because Illinois is required by law to make up for its PAST failures to make the legally required contributions.
FISCAL YEAR HIGHLIGHTS
As of June 30, 2014
Investment return
Total fund investment return, net of fees 17.4%
Member contributions $928,745,853
Employer contributions 158,334,598
State of Illinois contributions 3,438,382,892
Total investment income 6,782,031,720
Total income $11,307,495,063
expenses
Benefits paid $5,225,206,828
Refunds paid 95,456,151
Administrative expenses 21,218,069
Total expenses $5,341,881,048
* Benefit recipients includes retiree, disability, and survivor beneficiaries.
* * *
“Annual Required Contributions (ARC) are calculated annually and are a sum of two different costs. The first component is the “normal cost,” or what the employer owes to the system in order to support the liabilities gained in the previous year of service. The second component is an additional payment in order to make up for previous liabilities that have not yet been paid for.” (per Ballotpedia)
Emil:
That’s the teacher’s fund only- what about the cops, the firefighters, sanitation, roads, public health, and all the rest??