Tuesday, August 30, 2011

Up popped deregulation. (Speculators - part 3)

In yesterday's post, we saw that "supply and demand" could not account for the spike in oil prices, and we learned about the basic operation of the commodities markets and the function of "speculators" in those markets.

The commodities markets functioned nicely for 50+ years after the creation of the Commodity Futures Trading Commission in the 1930's. Speculators were limited by regulation to a small fraction of the market. 

According to Mat Taibbi, in his July 9, 2009 article in Rolling Stone titled "The Great American Bubble Machine": "In 1936, however, Congress recognized that there should never be more speculators in the market than real producers and consumers. If that happened, prices would be affected by something other than supply and demand, and price manipulations would ensue." 

By 1990, most of the allowed speculator seats had been purchased by large banks such as Goldman-Sachs. In 1991, a Goldman-owned speculator (J. Aron) wrote to the CFTC and asked for an exemption to the speculation rules. The CFTC granted this request to be treated as a producer/consumer rather than a speculator, escaping the limits placed on speculators.

A subsidiary of a large and powerful bank received a favorable ruling from a government agency. How on Earth did this ever happen? Who would have expected such a thing?

In short order, the CFTC granted the same exemption to 14 other speculators, and we were off to the races. According to the McClatchy article referenced yesterday: "Prior to the 1990s, speculators made up about 30 percent of the futures market. In the latest reporting period, the ratio on May 3 stood at 68 percent speculators to 32 percent users of oil. Meanwhile, the volume of total reported trades has grown five-fold since 1995, underscoring the impact of speculation on futures markets."

Taibbi says: "So what caused the huge spike in oil prices? Take a wild guess.... the root cause had almost everything to do with the behavior of a few powerful actors determined to turn the once-solid market into a speculative casino. Goldman did it by persuading pension funds and other large institutional investors to invest in oil futures — agreeing to buy oil at a certain price on a fixed date. The push transformed oil from a physical commodity, rigidly subject to supply and demand, into something to bet on, like a stock. Between 2003 and 2008, the amount of speculative money in commodities grew from $13 billion to $317 billion, an increase of 2,300 percent. By 2008, a barrel of oil was traded 27 times, on average, before it was actually delivered and consumed.... By the middle of [the summer of 2008], despite rising supply and a drop in demand, we were paying $4 a gallon every time we pulled up to the pump."

Tomorrow: Turn off the bubble machine!

First, some facts about oil. (Speculators-part 2)

I've been harping on the idea that facts are important, so I think I need to begin with a few facts about oil. These are from an article titled "Speculation explains more about oil prices than anything else" which appeared May 13 in the McClatchy newspapers.

1) "There is no shortage of oil stocks by historical standards. There's an estimated 3 million to 4 million barrels per day (bpd) of excess oil production capacity in the world today."

2) "The U.S. consumed 20.68 million barrels per day in 2007. Then came the financial crisis, and consumption dipped to 19.5 million bpd in 2008. Last year the number was 19.5 million bpd. This year's projection is 19.28 million bpd."

3)"Could it be that refineries aren't able to produce enough gasoline? No. Refiners are running their plants at below cruising speed, and they've got lots of room to produce more if consumers need it. The latest data from EIA on the rate at which refineries are utilized showed a rate of 79.8 percent in February. That's 20 percent below full-blown production, and it hasn't been that low since 1986. If demand for gasoline were soaring, these plants would be cranking at a higher rate."

4) "Some 70 percent of contracts for future oil delivery are now bought by financial speculators — largely big investment banks and hedge funds — who never take control of the oil. They just flip the contract for a quick profit."

To understand what's going on, we need to step back a bit and understand how the commodities markets work. It's really very simple.

The commodities market is simply a place where someone who produces a commodity (e.g. wheat) can meet a buyer for that commodity (e.g. cereal makers) and make a deal.

Sometimes a buyer or producer can protect themselves against possible future fluctuations in price by entering into what's called a "futures contract." Southwest Airlines enhanced their bottom line because they had purchased futures contracts on jet fuel at what turned out to be prices much lower than current prices when the fuel was actually delivered. (This is really a kind of bet entered into by buyer and seller. In this case the buyer won.)

There is one more player in this market: the speculator. Sometimes when a farmer has wheat to sell, the cereal maker has full grain storage facilities. Sometimes when a cereal maker needs grain, it's the wrong time of year for a crop.

The speculator buys grain from the farmer and holds it until the cereal company has a need, then hopes to sell it to the cereal company at a small profit. Speculators are a necessary part of the functioning of the market.

In the early part of the 20th century, to say that there were a lot of "shenanigans" in the commodity markets would be an understatement. During the FDR era, in the 1930's, the Commodity Futures Trading Commission was established to regulate the commodities market, and the market functioned quietly for the next 50 or so years.

Speculators were regulated to be a small part of the market. There were limits on how many speculators there could be, and how big a share of the market they could control.

Then came the era of deregulation, but that's our next post. 

Monday, August 29, 2011

Have you noticed? Prices keep going up.

I was listening to my wife talk to her brother on the phone. She remarked that "Prices on everything keep going up." That caught my attention, since I had heard her say the same thing to others several times in the last few days.

It's hard to believe that we're told that this is a time of low inflation. So low that Social Security hasn't had a COLA in the last two years.

But it's not only food prices that have gone up. All of the items known as "commodities," e.g. copper, coffee, corn, silver, natural gas, oil, cocoa have risen sharply in price.

We're told that it's all a matter of "supply and demand." China and India are growing economies demanding more oil for their cars, drinking more coffee, etc. This additional demand makes prices rise.

There's only one small problem: When you look at the actual figures--it's those damned "facts" again--they don't support the "supply and demand" argument.

There is a view, however, which is supported by the figures. It involves the wonderful world of Wall St. "casinos" which brought the economy to the brink of collapse just a couple of short years ago.

The argument is that Wall St. has opened some new tables at their "casinos" labeled "oil," "coffee," "copper," etc.

The folks who play at these tables are, for the most part, large investment banks, hedge funds and other large institutional investors such as pension funds. They are known as "speculators."

To understand what's happening, you need just a little background in understanding the commodities markets. (Stop snoring! This stuff is costing us all big money!)

I started to learn about this after the oil "bubble" of 2008. Remember that? That was the previous foray of gas prices into the $4+/gallon range. That turned out to be speculator-driven, and here we are again.

I've spent a couple of years, off and on, looking into this, and my "teacher" gene makes me want to share my newly-found knowledge with others.

This story is too long for a single post, so I'll break it up over a few days. We'll begin tomorrow with a VERY SIMPLE explanation of how the commodities markets work.

Trust me, it won't be boring. Frankly, I find it fascinating to understand how my hard-earned money is being stolen right out from under my nose!

Sunday, August 28, 2011

Have we forgotten Horace Mann?

Joe Six-pack probably couldn't tell you about Horace Mann, but a teacher could. A recent NY Times editorial points out that: "Public education was built on the philosophy articulated by Horace Mann, the Massachusetts reformer who pioneered the Common School: a system “one and the same for both rich and poor” with “all citizens on the same footing of equality before the law of land.”

How's that working out these days? Turns out, not so well.

The Times gives some examples:

"Many schools that have already reduced hours, increased class sizes and eliminated electives are also now charging fees for workbooks, use of lab equipment and other basic instructional materials; extracurricular activities long considered essential are now available only to students who can afford them."

"In Medina, Ohio, The Wall Street Journal reported, it now costs $660 for a child to play on a high school sports team, $200 to join the concert choir and $50 to act in the school play. High school students in Overland Park, Kan., pay a $120 “activity programming fee” and a $100 “learning resources fee.” In Naperville, Ill., they are charged textbook and workbook fees, even for basic requirements like English and French, according to The Chicago Tribune."

Have you heard that the January Regents exams have been saved from cancellation for the coming school year? Did you know that it is because NYC mayor Bloomberg and 5 other wealthy folks raised $1.5 million to pay for them? Next year, maybe we'll just have a bake sale.

"Most state constitutions, in fact, guarantee all students a sound, basic public education. These constitutional rights cannot be put on hold, even in tough times. It is unconstitutional to call on parents to pay for textbooks and lab fees for required courses. And art, music, sports, basic educational support services and many extracurricular activities that promote learning, creativity and character are not luxuries; they, too, are essential features of a sound, basic education."

The Times concludes: "It is disgraceful that essential components of our public education system now depend on the charitable impulses of wealthy citizens."

Friday, August 26, 2011

Things have gotten better.

I remember summers in Rochester, NY, when I was growing up. They were different from the summers my children and grandchildren have experienced.

As the summer advanced parents began to keep a closer eye on their kids. Not because of any fear they might be molested. It was a virus that terrified both kids and parents.

Everybody knew the symptoms of polio. Kids and parents were scared of permanent braces or life in an iron lung. Public swimming pools closed during the "polio season."

Well, no longer. Things have gotten better.

When I was younger, one used to hear the term "exploratory surgery" quite often. Today, we ask patients to lie down and slide into a hollow tube for a CAT scan. Things have gotten better.

When I was teaching physics, I often used medical imaging as an example when some politician raged against a seemingly silly research project.

"It's doubtful," I would say, "that if you were in charge of funding medical research, you would chose to spend taxpayer money researching the results of slamming high-speed electrons into pieces of metal, but that research produced X-rays and began the march of non-invasive medical imaging."

Today, I'm thinking about the people of Galveston, Texas. When they went to bed on the evening of September 7, 1900, they had no idea that more than 8,000 of them would die the next day in a hurricane that would become the greatest natural disaster ever to hit the USA.

They had absolutely no idea it was coming.

As I write this, we know that a hurricane of possibly historic proportions is moving up the east coast. We watch it on radar on the nightly news. We see it from space on the Weather Channel. Reasonably reliable computer models tell us where it's headed.

I have people I care about in the path of this storm. You probably do too. Unlike the people of Galveston our loved ones have plenty of warning. They have the time to protect both life and property.

Things have gotten better.

Wednesday, August 24, 2011

And then they came for the ultimate public employee.

First they got rid of the "antiquated" notion of defined-benefit pensions in the private sector. Public employees at all levels are well on their way to the glories of defined-contribution (401(k)-type) retirement plans. The last target standing seems to be the military.

In the military, half-pay retirement is available to those who survive 20 years. Your retirement pay begins as soon as you retire, not years later at age 65.

When volunteering for military service can mean multiple deployments in locations where the temperature can reach 125-degrees, all while carrying 80 pounds of gear and body armor--not to mention being shot at--retirement pay is a good incentive to sign up for service.

That may be about to change. According to a Washington Post column by Andrew Bacevich, prof. of history and international studies at Boston Univ. and a former army officer:

"The Defense Business Board (motto: “Business Excellence in Defense of the Nation”), a panel of corporate types who advise the Pentagon’s civilian leadership, has trained its sights on a problem that urgently needs fixing: the military retirement system."

"Didn’t know it was broken? Well, a recent DBB study concludes that military benefits are “more generous and expensive” than those available in the private sector, and have therefore become “unaffordable” and “unfair.” Created back when military skills did not easily translate into civilian second careers, the system is also unnecessary, the study argues. And with retirees no longer dying as quickly as they once did, it’s inconvenient to boot."

One hardly knows where to begin. Military retirement benefits are "unfair" because they're better than those in the private sector? Let's just mention a couple of possibilities as to why this might not be true. First, while assembly line work at GM is often tedious, there have been precious few reports of GM workers being killed on the job by either sniper fire or exploding IEDs.

Second, military personnel often find private sector contractors doing jobs that used to be done by the military (e.g. guarding U.S. embassies), often at pay rates that are at least triple that of the soldier or marine that the contractor replaced.

As far as "translating into civilian second careers," has anyone noticed that returning veterans are at the top of the list of groups having difficulty finding work in today's economy?

According to Bacevich: "...the DBB wants the Pentagon to jettison the concept of a lifelong retirement pension. In its place, the board would institute a tax-sheltered savings account to accompany service members into the post-military workplace. Counting on civilian employers to contribute to that account, while stipulating that benefits would be “payable at age 60 to 65” rather than at 40 or 45, would reduce the money that the Pentagon is obliged to set aside. In effect, providing for Capt. Smith’s retirement would become an individual responsibility, shared by however many employers Smith could induce to pitch in — not a responsibility that the Pentagon alone would have to bear. Less money added to retirement accounts would mean more money for the stuff that matters: wars and weapons."

Or, maybe we could just fight a few less useless wars, and use the savings to treat those who had to fight the necessary wars in a decent fashion. Just a thought.

Tuesday, August 23, 2011

Who's paying no taxes?

With a nod toward Jeff Foxworthy and his "you might be a redneck" series: If you can say something true in a way that makes your listeners reach a conclusion that isn't, you might be a politician!

One last example, and this one's just a bit easier than the last post. This was said by Rick Perry on August 13, but he's only the latest to make the same observation:

“We’re dismayed at the injustice that nearly half of all Americans don’t even pay any income tax.”

In her Aug. 15 column at the Washington Post, Ruth Marcus observes:

"Perry’s statement conjures visions of America as Slacker Nation, where the overburdened wagon-pullers drag an increasingly heavy burden of freeloaders. His number is correct but, like other conservatives who have seized on the statistic, Perry draws from it a dangerously misleading lesson."

Marcus refers to the nonpartisan Tax Policy Center to explain that our progressive income tax system is "designed to help the working poor and low-income seniors." The Center points out that a couple with two children is entitled to the same standard deduction ($11,600) and personal exemptions ($3,700) as anyone else. If that couple's income is less than $26,400 they have zero income for tax purposes.

Marcus says: "Does Perry truly see this as an “injustice”? Does he believe his “dismay” should be alleviated by raising the tax burden on these households?"

"In addition, the notion that these households pay no taxes is flat-out wrong. They pay — leaving aside state and local sales, income and property taxes — federal gasoline and other excise taxes and, most significantly, payroll taxes on every dollar they earn. These taxes are regressive. Everyone pays the same share, regardless of income, so they hit the poor hardest, and they counterbalance the progressivity of the income tax code."

Marcus goes on to point out that only 18% of households pay neither income or payroll taxes. Of these, 10% are elderly and 7% earn less than $20,000 per year.

She says: "Assuming that Perry isn’t worked up about Slacker Grandmas, the relevant “slacker share” — people who are supposedly comfortably ensconced on that wagon the rest of us are pulling — is in single digits rather than “nearly half.”

When one looks at the totality of all taxes paid, the picture is a little different.

Examining the total tax burden — state, federal and local — Citizens for Tax Justice calculated that the top 1 percent of households (average income, $1.3 million) earned 20.3 percent of income and paid 21.5 percent of taxes in 2010."

Marcus concludes: "The tax code is studded with a costly bevy of deductions and preferences — mortgage interest, employer-sponsored health insurance, retirement savings — that benefit wealthier taxpayers over those with modest incomes. If Perry wants to go after injustice in the tax code, he’ll find ample targets. Failing to tax poor people enough isn’t among them."


On last Thursday's Daily Show, Jon Stewart addressed this issue and "nailed it" as only he can do. Here is that segment, which is split into two parts:

Part 1:

The Daily Show With Jon StewartMon - Thurs 11p / 10c
World of Class Warfare - Warren Buffett vs. Wealthy Conservatives
Daily Show Full EpisodesPolitical Humor & Satire BlogThe Daily Show on Facebook

Part 2:

The Daily Show With Jon StewartMon - Thurs 11p / 10c
World of Class Warfare - The Poor's Free Ride Is Over
Daily Show Full EpisodesPolitical Humor & Satire BlogThe Daily Show on Facebook

Monday, August 22, 2011

Fact right, conclusion wrong.

Yesterday we looked at the age-old art of "just makin' stuff up." It's everywhere.

Remember the U.S. Senator who made a speech on the Senate floor in which he claimed that abortions were 90+% of what Planned Parenthood did? Then his office had to issue a statement saying that the Senator's speech "was not meant to be factually accurate."

Sometimes people say something that is 100% factually accurate, but they say it in a way that leads the reader/listener to a totally wrong conclusion. Rep. Michelle Bachmann made such a statement on Aug. 14, and on the Sunday morning talk shows later that week. Even being forewarned that there's a "trap" in this statement, it's hard to find. See if you can pick it out.

"Well, I think the one thing we have to do is reject the new normal level of spending under the Obama administration, because President Obama amped up spending to never-seen-before levels. . . . I mean, one example I'll give you is, we had one employee at the federal Department of Transportation that made $170,000 a year at the beginning of the recession. We had the trillion-dollar stimulus, and 18 months into the recession, we had 1,690 employees making over $170,000. Government has really been growing at — a lot of largesse, but the people in the real world aren’t. And that’s what has to change. Government has no conformity at all with the real world."

Glen Kessler, who writes the "Fact Checker" column for the Washington Post, received several emails from readers wondering about the accuracy of this statement. Here's what he had to say:

"On the surface, the fact appears astonishing — a huge increase in big-paying government jobs under Obama. But this is one of those statements one has to unpack very carefully, because Bachmann uses what is essentially a correct statistic regarding government salaries in a very misleading way. "

"Note that although the GOP presidential aspirant starts out by talking about the “never-seen-before levels” of spending under Obama and then mentions “the trillion-dollar stimulus,” the example she cites — the number of Transportation Department employees making more than $170,000 — uses the metric of “the beginning of the recession.” There’s a reason for that phrase: The recession started in December 2007, 13 months before Obama became president."

"In other words, Bachmann gives the impression that she is talking about something that Obama did, but in fact, the big increase in government pay that she denounces started under Obama’s Republican predecessor, George W. Bush."

"Bachmann’s use of the phrase “beginning of the recession” suggests she knows full well that the pay raises did not occur under Obama, and yet she persists in leaving the impression that Obama is directly responsible for boosting the number of employees making more than $170,000."

"That makes her statistic, while technically correct, deliberately misleading, especially since Obama has actually frozen federal salaries."

You can read Kessler's complete column at this link:

Tomorrow, we'll do one more factually misleading statement. This one involves taxes. Then we'll leave the area of fact abuse and move onto other items of interest to retirees.

Saturday, August 20, 2011

Not true? What the hell, say it anyway!

Let's begin our look into how facts can be abused with the most straightforward case: simply ignoring them.

 The 2012 campaign seems to be in full swing and, when looking for examples of the abuse of facts, politicians are such low-hanging fruit.

 A while ago, I told you that this blog was going to stay away from national politics--except where it applied to retired teachers. That's still my intent. I'm not going to advocate for any political party or candidate. I know some of you are more conservative, and I respect that.

Having said that, I intend to use some of the current Republican presidential candidates as examples of fact abuse. Why? Because they're in the news, and you may recognize the statements they made and your reaction to these statements. You may find yourself saying, "Hey, I fell right into that trap."

Don't Democrats ever abuse the facts? Of course they do! I'm sure you could find President Obama using each of the techniques I'll point out. The current crop of Republicans, however, are relative "newbies"--with a couple of exceptions-- and don't do nearly as well at hiding their abuse of facts as old hands on the national stage.

Still, if you feel the need, please feel free to point out instances in which Democrats apply the same technique. Send it as a comment, and it will be posted.

Let's begin with a claim the governor of Texas made before he even got into the race. Here's what Kurt Anderson had to say in a recent NY Times column:

"Everyone is entitled to his or her own opinion. Perry is even entitled to his opinion that states such as Texas might want to secede, as he threatened at a Tea Party rally two years ago. But he’s not entitled to his own facts. “When we came into the nation in 1845,” he’d earlier told some bloggers visiting his office, “we were a republic. We were a stand-alone nation. And one of the deals was, we can leave anytime we want. So we’re kind of thinking about that again.” That special opt-out provision is entirely fiction, a Texas myth the governor of Texas apparently thinks is real."

See the trap here? Perry is talking about Texas. He's not just any Texan, he's the governor of Texas. When he says something about Texas, you assume he knows what he's talking about! Did you fall into the trap? I did, until I took the time to check it out on my own.

Still, let's give the man the late Texas political humorist Mollie Ivins called "Gov. Goodhair" a pass on this one. Apparently lots of Texans believe this myth.

Here's a more recent example, as covered by Jonathan Weisman of the "Washington Wire" blog of the Wall Street Journal:

"During his debut in Iowa Sunday night in Waterloo, then again on Monday at the Iowa State Fair Monday, Gov. Perry brought up [a] phantom “obscene, crazy” regulation in Texan terms."

“If you’re a tractor driver, if you drive your tractor across a public road, you’re gonna have to have a commercial driver’s license. Now how idiotic is that?” he thundered to the fair crowd in Des Moines, with the rejoinder, “What were they thinkin’?”

"For a small-government conservative on the presidential campaign stump like Texas Gov. Rick Perry, a new federal regulation forcing farmers to get commercial drivers licenses would make a perfect example of Barack Obama’s Washington run amok."

"But there is no such regulation" [Emphasis mine.]

Oops. There goes that trap again. His audience assumed he knew what he was talking about.

There had been rumors of such a regulation spreading through the farm community--as there were rumors that the government was about to confiscate guns and ammunition soon after the Obama victory. 

Even though the government had issued a statement saying "The common sense exemptions that allow farmers, their employers, and their families to accomplish their day-to-day work and transport their products to market” should remain in place. We have no intention of instituting onerous regulations on the hardworking families who feed our country and fuel our economy," Perry went for it anyway.

And why not. Even though his opponents would be filtering every word looking for ways to trip him up, it was a good line for the farmers, who probably wouldn't see him get caught by the Wall Street Journal anyway.

Up next: Leading the reader/listener to a false conclusion by saying something absolutely true..

Friday, August 19, 2011

Just the facts, ma'am.

I love facts. They're the things that make it possible to find solutions to our problems.

I often tell my conservative friends that I'm certain that if we got a group of 10 of their like-minded friends together with a group of 10 of my like-minded friends, we could solve whatever problem we wished to work on.

Why? Because we would actually want to solve the problem, not keep controversy alive to boost our ratings or look toward triumph in the next election.

No matter what the problem, the first item of business, after identifying the problem to be solved, would be to collect the pertinent facts. No facts to work from, no solution possible. Facts are that important.

It seems that facts are in a bit of difficulty these days. First of all, they're harder to come by in our daily reading.

I just began reading a book titled "Blur: How to know what's true in the age of information overload." It's by Bill Kovach and Tom Rosenstiel, who are also the authors of "The Elements of Journalism."

We all know that newspapers and magazines are having a hard time staying alive in this digital age, but this quote from the opening of the book caught me by surprise: "The numbers are shocking. In the initial ten years of the twenty-first century, newspapers saw nearly half of their ad revenue disappear, Roughly a third of all newsroom jobs vanished. The audience and revenue for network news were less than half what they had been twenty years earlier. More than two billion dollars in news gathering [ability] annually disappeared."

Remember TV series like "Lou Grant" or movies like "All the President's Men?" Newspapers made exciting drama because they had the resources to speak truth to power, and to uncover when power was screwing with the rest of us. The editor was always asking the reporter: "Do you have two sources for that? You do? Then print it!"

Newspapers and magazines had editors and fact-checkers. I know from experience that when a writer submitted an article to a national magazine, it was assigned to a fact-checker who verified every single fact from the article.

Then came the internet, devoid of editors and fact-checkers. "The most fundamental change," say Kovach & Rosenstiel, "is that more of the responsibility for knowing what is true and what is not now rests with each of us as individuals."

It's a "reader beware" situation with facts today. They can be used--and abused--in some rather clever ways.

Remember the argument in Wisconsin about the pay and benefits of teachers and other public employees? "Everybody knew" that teachers were better off than workers in the private sector.

How did they know this? Because the average pay of public employees was higher than the average wage for a worker in the private sector. That is a fact, so case closed. No need to investigate further. Pay no attention to the additional facts behind that curtain!

You see, if one recognizes that the public workforce is made up of a lot of highly educated people such as teachers, engineers, nurses, doctors, etc. and compares the pay and benefits of comparably-educated members of the public and private workforces, an entirely different fact emerges. Taking into account both pay and benefits, public employees in Wisconsin earn less than their private counterparts with equal educational levels. For specifics, see the following blog post:


Facts are so complicated. That's why I would like to give you a few examples of how facts can be misused in the next couple of posts.

Thursday, August 18, 2011

Winds of change reach from Wisconsin to Ohio.

Well, that didn't take long. You might remember that in my next-to-last post, What's new from Wisconsin, the last line quoted a NY Times editorial about the results of the Wisconsin recalls: "...voters around the country who oppose the widespread efforts to undermine public unions — largely financed by corporate interests — should draw strength from Tuesday’s success, not discouragement."

It took less than 24 hours for the winds of change to reach from Wisconsin to Ohio. In a "hastily-called" news conference, Ohio governor John Kasich offered to modify some of the more draconian provisions of that state's "union-stripping" law, in return for calling off the November statewide vote on that law.

The law was put onto the November ballot by collecting over 900,000 valid signatures, almost four times the required number. It should be noted that current polling shows that Ohio voters will reject that law by a margin of 24 points. Proponents of repeal are turning a deaf ear to the governor's proposal.

If, earlier this year, you suffered through the wave of anti-teacher, anti-union laws as they were passed in several states, you deserve this "feel good" moment. Enjoy this clip from Wednesday's "Rachel Maddow Show." The first 3 minutes are a quick review of what happened in Wisconsin, then it's on to Ohio. 

Wednesday, August 17, 2011

"Hair-on-fire" emails revisited.

I spent 33 years in a classroom. My "stock in trade" was information, and I worked hard to make sure every bit of information I gave my students was correct. That's why misinformation offends me so deeply, as I said before in my first post about "hair-on-fire" emails, which can be found here.

I received another one of those "hair-on-fire" emails today. A member of our group received it from someone they know, and they passed it on to me thinking I might be interested.

I have removed all of the information from the "header" which might identify any of the individuals. You can click here to see the email as a pdf file.

I have seen this email before, but it looks like someone has added photos of a disfigured marine to add emotional emphasis to the piece.

This email happens to be one of the snopes.com "hot 25." Here's the link to their page concerning this email:


Snopes gives the full details, but here's the short version:

1) Children and staff of U.S. Congressmen are NOT exempt from paying back student loans.

2) It is NOT true that members of Congress can retire at full pay after one term. 

3) It is NOT true that members of Congress are exempt from paying into Social Security. [This claim is not made in this particular email, but there are several versions which do contain this claim.]

4) Members of Congress are NOT exempt from prosecution for sexual harassment.

5) Congress did NOT try to exempt itself from the health care reform legislation.

Most of these emails are passed on by well-meaning people who see a perceived wrong and want to help correct it. They probably received it from a friend or relative, and have no reason to doubt the claims being made. For a minority--I hope--the claims fit their world view and are passed on with glee.

Here's a rule I'd like to suggest: When you receive an email which you are asked to pass on, take the time to verify its truth yourself. If you find it's not true, or you don't have the time to check it out, don't pass it on.

It's 15 months until our next national election, and misinformation is all around us--from all political parties. I want to talk about the nuances of this misinformation in the next couple of blog posts.

What's new from Wisconsin?

I doubt that anyone reading this post is unaware of what has been happening in Wisconsin with regard to the collective bargaining rights of teachers and other public employees. If you've been on vacation in Antarctica, check out the blog posts from early June for details.

Over the past few weeks, there have been a series of recall elections. Three Democratic seats were in play, as were six Republican seats in the state senate. If the Democrats held onto their seats, and defeated three Republicans, control of the senate would shift to the Democrats. The assembly and the governorship would still be in Republican hands, but at least the Democrats would be able to prevent any additional damage.

All the Democrats held their seats, and two Republicans were defeated. Close, but no cigar? Maybe not.

There is one Republican in the state senate who is much closer to center than to the far right. He has indicated that he will not go along with far-out ideas such as privatizing Wisconsin's schools. He will be playing the part of Justice Kennedy. Going to the right on some issues, and agreeing with the left on others.

We need to remember that not all the citizens of Wisconsin could participate in these elections. Only the voters of specific districts could vote. All of the Republicans were from districts so bright red that they were elected in 2008 on the same day that Obama was winning Wisconsin by 14 points. Flipping 1/3 of those districts was an accomplishment.

160,000 voters voted Democratic. If 1,100 votes were switched, the Democrats would have had their third seat.

According to a NY Times editorial on the subject: "Republicans will not admit this, but the numbers showed significant strength for Democrats even in the districts they lost — strength that could grow if lawmakers continue cutting spending and taxes while reducing the negotiating rights of working families. In one rural senatorial district that had not elected a Democrat in a century, the Democratic candidate reached 48 percent of the vote. Another race was also close, and as Nate Silver noted in The Times, the overall results suggest that a contemplated statewide recall of Mr. Walker himself would be too close to call."

The Times concludes: "...voters around the country who oppose the widespread efforts to undermine public unions — largely financed by corporate interests — should draw strength from Tuesday’s success, not discouragement."

Tuesday, August 16, 2011

What's so bad about 401(k)-type plans?

The 401(k), otherwise known as a "defined contribution (DC) retirement plan, sounds like a good idea. You get to manage your own retirement funds, usually by picking from a limited number of mutual fund options selected by your employer. Your retirement vehicle is portable, i.e. you can take it with you as you move from job to job.

 It's the big new thing in America, replacing the traditional pension ("defined benefit") plans people used to have. Everyone in the private sector seems to have one, so they must be a good thing. Right?

The cover story of the October 9, 2009 issue of Time was titled "Why it's time to retire the 401k." Here's some of what they had to say:

" Invented nearly 30 years ago as an executive perk — one more way to dodge Uncle Sam — the 401(k) was never meant to replace the employer-guaranteed pension fund, supplemented by Social Security, as the cornerstone of our nation's retirement system. But propelled by a combination of companies looking to cut costs and consumers who wanted control of their retirement destiny, that's exactly what happened."

"Congress was trying to close a loophole on executive bonuses when it created the 401(k). Most companies intended 401(k)s — which were originally called salary-reduction plans but then renamed for the portion of the tax code that makes them possible — to be a perk for highly paid executives, not a pension replacement. That's because lower-paid employees probably could not afford to defer a portion of their paychecks. So companies held on to their pension systems even as they added 401(k)s, which by law they had to make available to all employees. When the market took off in the 1980s, the rank and file clamored to get in....On the corporate end, a change in accounting rules made the growing cost of pensions more apparent to shareholders. Cutting the pension was a guaranteed way to improve the bottom line. The rise of the 401(k) began." [Emphasis mine.]"

In a defined benefit plan (traditional pension), you and your employer contribute money to a fund which is professionally managed and is responsible for paying you a monthly pension from the day you retire until the day you die. If you agree to take a slightly smaller monthly payment, you can even arrange for your benefit to continue for your spouse after your death. Managing the money to make this possible is the responsibility of the pension plan, not you.

In a defined contribution plan (401(k)), you--and perhaps your employer, but not always--contribute to a fund which you are responsible for managing. Whatever is there on the day you retire is what you have to live on for the rest of your life.

The NYS Teachers' Retirement System uses a recent study by the non-profit National Institute on Retirement Security (NIRS) to point out a fundamental flaw with defined contribution plans. Here is some of what they said:

"You may have seen or heard that public employee pensions are "too expensive" and should be replaced. The non-profit National Institute on Retirement Security (NIRS) is among the many groups that do not agree. Your defined benefit (DB) pension, NIRS argues, actually makes good fiscal sense for employers. "

"NIRS recently completed a series of studies designed to measure the cost and impact of DB plans throughout the country. For employers, the Washington, D.C.-based group concluded DB plans deliver better "bang for the buck" than Defined Contribution (DC) plans, such as 401(k) plans. According to the report, over the course of a member's working life, "the embedded economic efficiencies of DB plans make them nearly half the cost of DC plans."
"To prove the point, an example was cited of a 62-year-old with a target retirement benefit of $26,684. Under the DB plan, annual contributions of 12.5% of payroll would be required and $355,000 would need to be set aside by age 62. In contrast, the DC plan would require annual contributions of 22.9% of payroll and $550,000 would need to be set aside by age 62. As stated in the report, "The DB plan can do more with less, providing the same benefit for nearly $200,000 less per participant."
"Here's how: DC plans are individual focused and, in order to ensure she/he does not outlive retirement savings, the individual must save enough to live to a very old age — typically 95 to 100. By contrast, a DB plan pools the contributions of many people, with a goal of saving enough for an average life expectancy for each member of the plan. An average life expectancy, which actuaries calculate with a high degree of accuracy, is much lower than 95 to 100— meaning it is necessary to set aside significantly less per DB plan member." [Emphasis mine.]
Here is the link to this information on the NYSTRS website:
How, then, can the defined contribution plan claim to be "less costly" for the employer? The only way this happens is if there is no attempt to create a plan which will pay the same benefit as the traditional pension.
And that's what the American public has yet to discover. When they do figure it out, there will be hell to pay.
And that, as I've said before, is why we're fighting so damn hard to preserve the NYS Teachers' Retirement System as a defined benefit plan.

Monday, August 15, 2011

And the myth-making continues.

After being away from home for two weeks, I'm wading through the mail that was held for me by the post office. Included in that stack are several copies of Time. While glancing through their special issue on the "debt debacle," I came across an article by Fareed Zakaria about "why the debt crisis has hurt growth and our position in the world."

Zakaria is certainly left-of-center in his political orientation, and that's why the following from his article hit me right between the eyes:

"In fact, because of weak accounting requirements, politicians at the state level have even resorted to a kind of budgetary magic to satisfy key constituencies. When public sector employees want pay raises, politicians provide just modest step-ups in salary but huge increases in pension and retirement health care benefits. That way, the (fraudulent) budget numbers don't look that bad until years later, when the politicians who did the damage have safely retired." [Emphasis mine.]

Perhaps this has happened somewhere else, but WNY retired teachers--to whom this blog is primarily directed--will see it another way. If I'm not mistaken, the day I began teaching I was told that my pension would be 2% of my final average salary for each year worked, and that I could retire at age 55.

I do not believe the state of NY ever "sweetened" that pot for me. In fact, I recall that the state created new tiers (2,3,4) for new teachers as the years went on which were less "sweet" than the previous tiers. Retirement age was increased as was the individual contribution required to the retirement system.

As for retiree health care, if you retired from a WNY school district which is still paying your health care premiums, that's highly unusual.

Sunday, August 14, 2011

The growing mythology surrounding public employee pensions.

According to a June 9 NY Times article: "Gov. Andrew Cuomo campaigned for office vowing to reduce the ruinous growth in New York State’s public pensions..." 

On July 13, the same newspaper published an article which began: "Gov. Andrew M. Cuomo, basking in the afterglow of a legislative session that he described as “unusually successful,” said Wednesday that his top priority next year would be limiting retirement benefits for new state and city workers. He said that his inability to win such an overhaul was the biggest failing of the session that just ended."

"Not my problem," you might say. "He wants to reduce benefits for NEW workers. Mine are protected by the state constitution." Just how long have you had your head buried in the sand?

While the short range goal might be to reduce retirement costs for new workers, don't believe for a minute that the retirement benefits of current retirees are not on plenty of radar screens. 

We all know that often-repeated lies soon become "facts" in the minds of many low-information voters. Sadly, the low-information voter seems to be the norm, only beginning to pay attention near an election when their votes are determined by whichever focusgroup-tested TV ad hits one of their "hot buttons," reinforcing a "fact" that "everybody knows" that has stuck to their brain.

Currently, there is a body of mythology building through repetition concerning public employee pensions. Let's begin by addressing a few of these via a column by Earl Pomeroy and Cathie G. Eitelberg which appeared on the ABC News website in which they explode the myths that you will hear from your friends and neighbors.

1)" Myth: Public employee benefits are bankrupting states. Not so. According to publicly available data gathered from government websites, less than 4 percent of state budget expenditures go to funding pension benefits." (For a more complete analysis, see this article published in the McClatchey chain of newspapers on March 6, 2011.)

2) "Myth: Public pensions are overly generous. Hardly. The most recent U.S. census data reveals the average state employee has a retirement benefit of $22,000 per year." For a more complete analysis of the "public vs private" pay and benefits myth, click here to go to the blog post concerning that subject.)

3) "Myth: Public pension funds are going broke and will require billions in taxpayer bailouts. Nope, sorry....Some forecasts, discussed in certain academic circles and regurgitated unchallenged by the media, have many public pension plans running out of funds by 2020. But these estimates are based on flawed assumptions, such as no additional contributions and long-term low investment returns. And, that's to say nothing of the $3 trillion in assets public pension plans hold to pay future benefits."

To further address this last point, the NYS Teachers' Retirement System, in its latest newsletter, quoted part of an article from the March 1, 2011 issue of the Columbia Journalism Review taking the NY Times to task for publishing a Feb. 28 article with the following lead paragraph: "Lawmakers and governors in many states, faced with huge shortfalls in employee pension funds, are turning to a strategy that a lot of private companies adopted years ago: moving workers away from guaranteed pension plans and toward 401(k)-type retirement savings plans."

The Times article gives the following as an example of the "huge shortfall": "Utah decided to adopt a 401(k)-type plan after the stock market plunge in 2008 caused the shortfall in the state's pension plan to balloon to $6.5 billion....Under the new plan...the state's retirement contributions for new workers will be roughly half that for current employees, potentially saving $5 million a year for every 1,000 new workers hired."

And now for the rest of the story. NYSTRS continues: "...the Utah pension fund, at the end of 2009, was about $2.8 billion in the hole. If it rose by 15% in 2010, which is a pretty reasonable assumption given the performance of the stock market, the gap is likely to have been eliminated. But even the gap at the end of 2009 was less than one-tenth of one percent of Utah's state income." [Emphasis mine.]

Wow! What a "huge gap!"

Saturday, August 13, 2011

Back from the (low-tech) Adirondacks.

We've just returned from two weeks at the Adirondack camp owned by my wife and her siblings. It's on an island in the middle of a lake, reachable only by boat.

It's the definition of peaceful. The only TV is off-the-air. We're so far from the TV stations that even a big pre-amplified antenna brings in only one or two stations, which vary with atmospheric conditions. If you can watch the NBC Nightly News today, tomorrow NBC might be too weak to see, but CBS is now watchable. Usually, but not always, there is at least one watchable channel.

Cable doesn't come anywhere near the island, and satellite TV requires a clear view of the southern sky. When you're surrounded on all sides by 75-foot pines, you don't get a clear view of ANY sky!

We have all the latest conveniences: electricity, landline phone service, running hot and cold water, indoor plumbing, a reasonably modern kitchen and propane heat for those cold mornings. What we don't have is WiFi or, in fact, any access to the internet, and this makes it hell-on-earth for teenagers.

When teenagers arrive for a visit, they immediately turn to their cell phones and explode in shock. No bars! In panic, they run around the island looking for a "hot spot" where they can get a bar or two and reconnect with (their) civilization. Cell phone service has improved this year, and they can get weak signals, but not enough to support internet access.

Their next concern is how to get back to the internet and Facebook. "It's simple," we say, "just get in the boat, cross the lake to the mainland, get in a car and drive 12 miles north to the Old Forge Library where their is 24/7 WiFi access in their parking lot." Too young to drive? That's a problem!

Now we're back home, and taking a couple of days to deal with a two-week accumulation of mail and grass. Our rain gauge shows we received 5 inches of rain since we left, and our neighbor says most of it came in a single night!

During our time away, I ventured north to the library parking lot several times. It's an interesting place. The lot is filled with cars, and the cars have people using laptops, cell phones or iPods to pick up their email and browse the web. The rustic benches under the trees are filled with people using laptops. Every so often, someone actually goes into the library looking for an ancient artifact called a "book." I understand that this is a very exciting event for the librarian!

Anyway, we're back, so your inbox will again be filled with messages whose subject line begins with "WNY retirees." My first project will concern the coming attack on the NYS teacher pension system. How do I know it's coming? Because the governor said so. "Reform" of the public employee pension system is the one thing he identified as being sorry he couldn't get through the last legislative session, and it's his highest priority for the coming session.

Every attempt will be made to switch from a conventional "defined benefit" pension system to a 401-k-like "defined contribution" system. Here's the problem: a "defined contribution" system costs twice as much to provide the same benefit to the retiree as a "defined benefit" system. Can you see where this is going?

We'll start the discussion in the next day or so.

Friday, August 5, 2011

The FAA is the new Wisconsin.

Keep an eye on Wisconsin next Tuesday. Six of the union-busting Republican incumbent state senators will be running in recall elections, as well as two incumbent Democratic state senators. (One incumbent Democratic state senator has already won his recall election.) A switch of three seats from Republican to Democratic will put the state senate in Democratic control, which is why the Republicans are furiously passing as much legislation as they can before next Tuesday.

And welcome to Wisconsin on the national level, other wise known as the Federal Aviation Administration (FAA) mess. I'm sure you have seen reports on the network news programs concerning the 74,000 people thrown out of work when airport improvement projects were halted by the failure of Congress to pass legislation authorizing the continued authority of the FAA. 

You may also have heard that the FAA's authority to collect the 10% tax on airline tickets has also lapsed, and that airlines have simply been pocketing the money rather than reducing fares by 10%. This amounts to a loss of federal revenue of about $30 million each day. (So much for the argument that if taxes are reduced, costs to consumers will also go down.)

And, you may have heard that the House passed the legislation to reauthorize the FAA, but the senate went on vacation--along with the rest of the Congress--after the debt-ceiling debacle. True, but as the late Paul Harvey used to say, here's the "rest of the story."

When the Republican-controlled house passed the FAA legislation, they added a nice little wrinkle in an attempt to make it much more difficult for the airline workers to unionize, or to keep their unions. The new legislation would count all those not voting in an election to certify ( or re-certify) union representation as "no" votes. Imagine trying to pass a school budget if all those eligible to vote, but not voting, were counted as "no" votes! The bald-faced unfairness of this is why the Senate would not pass the FAA legislation.

Apparently, the public was a little upset that 74,000 people were being thrown out of work when we have high unemployment. They were also a bit miffed about giving away $30 million/day in tax revenue to the airlines. One would guess that when members of Congress left the looney-bin of Washington, where everybody is convinced that the deficit is the biggest problem we face, and arrived in their home districts, where polls show that many more people are concerned about putting 25 million people back to work and getting the economy on its feet, they got an earful from their constituents. A deal was quickly agreed to which, as I understand it from my perspective in the Cable TV-free wilds of the Adirondack woods, puts those 74,000 people back to work and starts collecting taxes again. I believe that the anti-union fight has been put off until another day.

But keep your eyes and ears open. Maybe someday all the people who don't bother to vote in national elections will be counted as Republican votes!