Friday, June 29, 2012

Houston, we have a problem!

That famous phrase uttered by the commander of the Apollo 13 mission to the Moon set off a textbook example of problem-solving. And as with any problem, the very first step is to be sure you know what the problem is before attempting to solve it.

In the case of Apollo 13, the problem was that a good portion of the command module had just blown away in an explosion. The crew was headed away from Earth toward the Moon in a crippled vehicle and the problem to solve was how to get the crew back safely to Earth.

So it is with healthcare. Before we do any factfinding, let's be sure that we understand the problem we're trying to solve. Simply put, America has a healthcare system which is too expensive and is getting more expensive at an alarming rate.

Just how expensive? Here are the annual per capita healthcare costs of some other industrialized nations: New Zealand ($2454), England ($2992), Australia ($3357), Germany ($3588), Netherlands ($3837), Canada ($3895). The average of these is $3354.

What's the figure for the USA? Our annual per capita healthcare spending is $7290. That's 217% of the average of those other countries.

Well, that might be worth it if we are receiving superior medical outcomes for the additional money. Except we're not. Our life expectancy is 78.7 years. The average for the other 6 countries is 79.8 years. We have about half the number of doctors per capita as the average of the other 6 countries and only 60% of the number of hospital beds per capita. On a wide range of measures of the quality of healthcare, we come in 6th out of the 7 countries.

Oh, there is also one other matter: We have over 30 million citizens with no health insurance whatsoever. We are the only industrialized nation on the planet where someone can go bankrupt because of medical bills. In fact, the majority of our bankruptcies are due to medical expenses, and more than 50% of those in bankruptcy due to medical bills have health insurance.

Houston, we have a problem!

We've all lived through the struggle to produce a law that will begin to reform our healthcare system. It will not be our purpose to relive the political fights of the last few years. Instead, our purpose will be to clear up some of the misinformation abroad in the land so that if we are going to argue about healthcare during this election season, we at least argue from the basis of correct information.

I've been doing some painting over the last few days. Painting is boring and so I've been listening to talk radio. The number of people calling to share misinformation has been mind boggling. Before finishing this post, let's address just one of these pieces of misinformation.

One caller today repeated something I have actually heard three times in the past three days. "I bet you didn't know that when you sell your house there's gonna be a 3.8% sales tax because of Obamacare."

That's true ONLY if a) your income is over $200,000 individually or $250,000 for a couple AND b) the capital gain--not the sale price--on the sale of the home exceeds $500,000. Estimates are that this exempts about 97% of U.S. home sales.

We'll examine other misinformation--from both sides--in a couple of days.

Thursday, June 28, 2012

Welcome to the orgy!

Fair warning: There is an orgy being broadcast on most TV networks today. If the sight of bodies writhing in ecstasy and/or agony offends you, get out your favorite CD's and pop in some relaxing music.

No, you won't see naked bodies engaged in sexual gymnastics, but you will see those on the left writhing in unexpected ecstasy while those on the right try to deal with their unexpected agony over today's healthcare decision.

There was even some comedy mixed in. Watchers outside the Supreme Court were divided into two opposing camps and both sides were cheering as the decision was announced. Seems that both CNN and Fox News announced that the law had been struck down, while other sources were saying it had been upheld. What happened?

As Chief Justice Roberts read the opinion he had authored, he first said that the government could not sustain the argument that the individual mandate was permissible under the commerce clause of the constitution. CNN and Fox took that to mean that the law would be struck down. Roberts went on to say, however, that the mandate was permissible under the government's power to tax. CNN and Fox said "oops, sorry." Note to Jon Stewart fans: Wanna bet that this "oopsie" moment is mentioned tonight?

At any rate, the airwaves are filled today with orgies of spin from both sides. Some of what each side says may be true, but it's a safe bet to say that many of the claims are pure BS.

As a reader of this blog, you know how I feel about facts. Intelligent people need facts upon which to base their decisions on important matters. I'm going to wait a few days, then I'll share the facts about healthcare that I've been able to collect. Most of the real work will be done by the factcheckers at places like Politifact, the Washington Post, etc.

That's why I'm sad to see a migration from print to online journalism. While newspapers and magazines still employ factcheckers, most websites do not.

Monday, June 25, 2012

Montana: Thanks for trying!

While most of the attention earlier today went to decisions by the Supreme Court involving Arizona's immigration law and the absence of a decision on healthcare, I was more interested in a case involving Montana.

Let's let Montana's Governor, Brian Schweitzer, tell the story as he did in an op-ed in the NY Times on June 3 of this year: "Montana’s approach to campaign law began when a miner named William A. Clark came upon a massive copper vein near Butte. It was the largest deposit on earth, and overnight he became one of the wealthiest men in the world. He bought up half the state of Montana, and if he needed favors from politicians, he bought those as well."

"In 1899 he decided he wanted to become a United States senator. The State Legislature appointed United States senators in those days, so Clark simply gave each corruptible state legislator $10,000 in cash, the equivalent of $250,000 today."

"Clark “won” the “election,” but when the Senate learned about the bribes, it kicked him out. “I never bought a man who wasn’t for sale,” Clark complained as he headed back to Montana."

"Nevertheless, this type of corruption continued until 1912, when the people of Montana approved a ballot initiative banning corporate money from campaigns (with limited exceptions). We later banned large individual donations, too. Candidates in Montana may not take more than a few hundred dollars from an individual donor per election; a state legislator can’t take more than $160. And everything must be disclosed."

"These laws have nurtured a rare, pure form of democracy. There’s very little money in Montana politics. Legislators are basically volunteers: they are ranchers, teachers, carpenters and all else, who put their professions on hold to serve a 90-day session, every odd year, for $80 a day."

"All this is in jeopardy, though, thanks to the Supreme Court and its infamous Citizens United ruling. In February the court notified the office of Montana’s commissioner of political practices, which oversees state campaigns, that until further notice, we may no longer enforce our anti-corruption statute, specifically our restriction on corporate money."

".... I’ve started receiving bills on my desk that have been ghostwritten by a host of industries looking to weaken state laws, including gold mining companies that want to overturn a state ban on the use of cyanide to mine gold, and developers who want to build condos right on the edge of our legendary trout streams."

"In the absence of strict rules governing campaign money, these big players will eventually get what they seek. I vetoed these bills, but future governors might sign them if they have been bribed by the same type of money that is now corrupting our State Legislature."

The Montana Supreme Court had ruled that the Citizens United decision of the U.S. Supreme court did not apply to Montana state and local elections. In light of the flood of  secret money flowing into this year's presidential election, many hoped that the court would use the Montana case to take another look at Citizens United. More than 20 other states joined on the side of Montana.

This morning, without hearing arguments in the case, the court issued a summary judgment overturning the Montana Supreme Court decision.

One often hears the false equivalency that corporate cash can be balanced by unions. That may be true if you're living in the 1960's when 50% of the private workforce was unionized. It is now 7% of the private sector and 32% of the public sector.

And that public sector share is rapidly shrinking. The active membership of NYSUT has shrunk by over 18,000 members in the last three years.

We have a comment section. If you can explain how this is good for our country, I'd love to listen.

Thursday, June 21, 2012

Now they're cutting the pensions of current retirees.

The benefits of public employees, including teachers, have been under attack lately. The lightning rod for these attacks appears to be the defined benefit pension that used to be one leg of the three-legged stool that held up the American retirement system. The other two legs were Social Security and personal savings.

Private companies shed their pension plans and switched workers to the defined contribution 401(k) plans. Public employees, largely, were able to hold onto their traditional pension plans. In past posts we've shown how, to provide the same benefit, the 401(k) plan must accumulate twice as much money per retiree as a traditional pension plan. (See What's so bad about 401(k)-type plans?) Certainly doesn't sound like a less costly plan for the employer, does it?

Current retirees have, until now, been able to breathe fairly easily. New pension tiers have been created which only affect new hires. Everybody agrees that's legal. Some public employers have attempted to "freeze" pension benefits for current employees and reduce them going forward. Lots of legal wrangling about that, but it still doesn't touch the pensions of current retirees. Then came Rhode Island.

The NY Times reported recently that two municipalities in Rhode Island have cut pension payments to current retirees by up to 55%. Let's talk about how that happened, and the legal argument which could see it happen in NY, our constitutional protection notwithstanding.

What's wrong in Rhode Island? First of all, the last governor balanced the state budget by slashing aid to cities. According to Joe Nocera's NYT column: "All of Rhode Island’s poorer cities had become dependent on that aid, so when the economy soured, they essentially ran out of money. Providence had to renegotiate the retirement benefits of its municipal workers. Central Falls actually sought bankruptcy court protection — and a receiver was put in charge of its finances."

Now comes the interesting part. Just as with the state-appointed "receivers" in Michigan, the person appointed becomes what is essentially a one-man local government. In essence, elected local government is replaced by a dictator who can, among many powers, nullify contracts with local public employees. In the case of Central Falls, RI: " ... the receiver took an ax to retiree benefits, cutting them by 55 percent, meaning that many retirees are now getting pensions of under $20,000."

WPRI, the "Eyewitness News" station in Providence did a good analysis of the situation. When asked why benefits for current retirees needed to be cut, they have this explanation: "That gets to the heart of the current problem. Since 2005, the General Assembly has actually changed the pension system a lot for people who haven't retired yet - the benefit is less generous. But much of the state's problem is the shortfall left behind from retirees who are already done working and are now collecting a pension.The vast majority of the deposit Rhode Island taxpayers put into the fund each year now isn't for people who actually work for the government today; it's to help pay for the pensions of people who retired years ago or are far along in their careers. [State treasurer] Raimondo often says the problem can't be solved by only targeting recently hired workers and new employees."

Sounds like those greedy public employees are at it again. But wait, the real cause of the problem is about to make an appearance!

When you set up a pension system, three things must happen: 1) First, the system is designed. 2) Next, people who understand mathematics must be hired to figure out what the system will cost. 3) Money must actually be set aside to meet the future pension obligations. We have done this in New York and it's working just fine.

WPRI points out a slightly different scenario in Rhode Island: "Retirees also say it's not their fault the pension system is in trouble, that they've always made their required contributions and now the state isn't keeping up its end of the bargain. There's some truth to that. The state didn't start putting the full amount of cash needed into the fund until 1986, half a century after it was created – and even after that the General Assembly has often found ways around paying the bill." [Emphasis mine.]

Well, duh! Just what the hell did they expect would happen? Look around the country. Wherever you find a pension system that's in trouble, you're sure to find a similar story. The system was set up, but was never properly funded. And then the public employees have the audacity to expect the pensions that were promised to them in lieu of raises many years ago. How dare they! Have they no shame?!

Tuesday, June 12, 2012

Can we just tell the truth about Social Security?

Periodically some politician or talking head on TV wails about our national debt and the "need to do something about programs like Social Security and Medicare."

As a nation, we owe almost $14 trillion. Not a single dime of that debt is due to Social Security! Froma Harrop of the Creators' Syndicate wrote a great column a few days ago reminding us of the truth about Social Security.

"Social Security is an independent, self-funding program. It is not welfare. The workers and their employers pay for all of it. About 25 years ago, Social Security taxes were raised above that needed to support current retirees and the surplus put in a trust fund. The goal was to create a buffer to keep the program healthy as the number of retirees grew and lived longer."

Here's where Social Security intermingles with the national debt. As with the money in the NYS Teachers' Retirement System, the money in the Social Security trust fund will eventually be needed to pay benefits earned by retirees. In the meantime, what should be done with the money? Should it be invested in stocks or real estate in the hopes that it would grow? No, we're looking for a much safer investment, so we buy U.S. Treasury bonds. They don't pay spectacular returns, but they're rock solid. In fact, they're known as the "widows and orphans" investment because of their safety.

Meanwhile, the government is spending more than it takes in in taxes, and so politicians are delighted to see this purchase by the SS trust fund. Of course, others buy Treasury bonds as well. If you believe the late-night comedians, you would think that China owns all our debt. Let's see who we really owe the money to:

The biggest chunk of our debt, 42.1%, is owed to "U.S. individuals and institutions." I own some U.S. bonds, and you probably do too. Maybe not directly, but you may own shares in a mutual fund that does. The college you attended may have parked some money in treasuries for safekeeping. We buy treasuries because we can't think of a safer investment. You and I count these investments as real dollars in our portfolios and we expect these debts to be honored. We do not see these bonds as mere "worthless pieces of paper." They are IOU's which we fully expect to be paid.

The Social Security trust fund accounts for the next biggest share, 17.9%. As with the 42.1% above, these are real investments which the trust fund expects to be honored.

11.7% of our debt is owned by foreign nations (with the exception of China, Japan, England, the oil exporting countries and Brazil). China owns 9.5% of our debt (probably much less than you thought). Japan, 6.3%. 6% of our national debt is money borrowed from the U.S. Civil Service Retirement Fund, 1.4% is owed to England, 2.1% is owed to the U.S. Military Retirement Fund, 1.6% to the oil exporting countries and 1.3% is owed to Brazil.

None of the above investors--including the Social Security trust fund--sees their investments as "worthless IOU's." Now back to Harrop:

"Left alone, Social Security can pay all promised benefits for the next 20 years, and can continue doing so with some minor adjustments, such as raising the cap on income subject to payroll taxes."

"The Social Security Trust Fund is a big piece of change, and by declaring the Treasury securities sitting in it "worthless pieces of paper," our right-wing politicians can throw the obligations overboard in the service of more tax cuts for the rich -- with the added bonus of killing off a program they never liked much. Often citing some scuzzy accounting methods applied to the surplus, they tell us, "Whoops, the money has been spent."

"Well, duh, all the money the Treasury borrows has been spent. That's why it borrows money. Every bond it issues to investors across the globe represents a debt. And if the Treasury hadn't been able to borrow that money from the trust fund, it would have had to borrow more from the public."

Social Security did not cause one cent of our federal deficit, so let's stop talking about reducing Social Security benefits as a way to "fix the deficit."

Friday, June 8, 2012

Run for high ground, the dam has broken and you're under the bus!

A few months ago I did a blog post about the scariest piece of video I had ever seen. It involved members of Congress who were looking forward to a default after the debt-limit battle. Then I watched the NBC Nightly News Wednesday evening and saw this as the lead story:

This was the lead story of the evening, even before a report on the Wisconsin recall election which had taken place the previous day. As it turned out, that was just the tip of the iceberg.

During the next 36 hours, opponents of public employees saw their opening and began piling on. The media was filled with stories explaining that the public seems finally to be fed up with the obscene wages and benefits of public employees. I could quote some of them here, but why ruin a perfectly good weekend with depressing drivel.

Readers of this blog already know that when comparing apples to apples, public employees lag their private sector counterparts in both wages and benefits as shown by major university research. That doesn't make any difference. If the big lie is repeated enough, it becomes reality and today, this perceived reality is immune to correction by actual facts. (How many people still believe in "death panels" or that Obama was born in Kenya?)

An article in the McClatchy chain of newspapers gets it almost right:

"It’s mainly the benefits that draws budget cutters. Public employees earn about 7 percent less on average than comparably trained, educated and experienced workers in the private sector, studies show."
“It’s in benefits where the pay differences between public- and private-sector employees are the largest,” Biggs [resident scholar at the conservative American Enterprise Institute] said. “The salaries are not hugely different. The benefits are.” [Do your research, Mr. Biggs and you will find--as we did--that public sector benefits still lag those in the private sector.]
And as public-sector employees retain more of the benefits that private-sector workers are losing, their compensation packages have come under scrutiny.
“What we find is that pensions, vacations, sick pay, health benefits that many public sector workers have, used to be the norm for most major companies across the country,” Wong [Director of UCLA Center for Labor Research] said. “But with such a steady erosion of those types of benefits, they now seem like the exception rather than the rule.” [Emphasis mine.]
And there, folks, is the crux of the problem. It isn't that public employees have negotiated such gold-plated benefit packages. The problem is that workers in the private sector used to have these benefits too, and gradually lost them as private-sector union membership slipped to 7% of workers. Collective bargaining in the private sector is fast becoming a thing of the past.

And that is why we now find ourselves thrown under the proverbial bus. Who threw us there? Our "brothers and sisters" in private sector organized labor. Wisconsin exit polls show that a large number of union members and members of union households supported Walker.

When it comes to public employees, many private sector union members see themselves as our employers rather than as union brothers. Why should they pay higher taxes so that we can have those pensions that they don't have anymore?

This is precisely what Scott Walker was talking about in the famous "divide and conquer" video. For those unfamiliar with it, it shows Walker speaking with a woman who is a billionaire and had given $500,000 to the Walker campaign. This took place in January of 2011, shortly after Walker had taken office. 

Remember, this was at a time when the public thought that they had elected a "jobs, jobs, jobs" candidate and Walker hadn't said a word in public about taking away collective bargaining rights.

Read more here:

The "divide and conquer" he speaks of is splitting the public sector unions off from the support of union members in the private sector. Good job, governor.Let's all hold hands as we race to the bottom.

Let me conclude with a couple of quotes from an article in today's Washington Post: "Karen McDonough, who has worked in the city of San Jose’s environmental services department for two decades, said before Tuesday’s vote she tried to change voters’ minds by telling them her version of the story: that she is a hardworking senior employee who had gone years without a pay raise.

“The response I got the most was ‘I don’t get a pension. Why should you?’ ”

Wednesday, June 6, 2012

Lessons from Tuesday.

Before we get to Wisconsin--and California, because something big happened there regarding pensions Tuesday--let's begin a review of some FACTS:

1) A traditional defined benefit pension system is relatively simple. The actuaries can calculate the average lifespan of a member in the large group of pensioners with great accuracy. Then it becomes a simple matter of mathematics to calculate how much money must be put aside today to pay those benefits promised tomorrow. That is, if anyone bothers to put that money aside. New York has done this with great care, and our public employee pension systems--particularly the teachers' system--are in excellent shape.

2) In every case where you have read about another state's pension system being in trouble, it is because they failed to put aside the required funds that they knew were needed. They used the money for something else in their budget, or simply gave themselves a "tax holiday." That is how pension systems become "underfunded."

3) When you make the apples-to-apples comparison of workers at equal educational levels, the wages and  benefits of public employees LAG those of comparable workers in the private sector. [For hard data, see the 6-part series beginning with Let's lay this myth to rest once and for all.]

4) States are in trouble because there is high unemployment leading to lower tax revenues and higher demand for services such as Medicaid and unemployment benefits. Not because of public employee wages or benefits.

OK, let's talk about Wisconsin. If you recall, Ohio passed similar legislation taking away the collective bargaining rights of public employees. Ohio has a mechanism for voters to overturn a state law, and they said "no" to that law by a huge margin (over 20 points). Maine has a similar mechanism which the voters used to overturn a ban on same-day registration and voting.

Wisconsin does not have this mechanism. The best that opponents of the anti-public employee legislation could do was a recall. Considerable exit polling was done, and one number is HUGE in explaining the results. Six of every ten voters told those polling that they believed that elected officials should only be recalled for some criminal action while in office. This goes a long way to explain why a good number of union members--along with members of their households--voted to retain the governor.

Those who wish to see the Wisconsin election as a validation of conservative principles should be wary. The exit polling showed Tuesday's Wisconsin voters would break 52-43 in favor of Obama over Romney in a national election. 18% of the Obama voters were in favor of retaining Walker, most likely for the reason stated above.

In California, voters in San Diego decided that all new city hires--with the exception of police--will have a 401(k) retirement rather than a traditional pension.

According to a story in the San Diego paper: "The city has a nearly $2.2 billion pension deficit as a result of past decisions to increase pension benefits while underfunding the pension plan in 1996 and 2002. Investment losses exacerbated the problem." [Note the problem was caused by underfunding, not the fact that employees have pensions.]

The story goes on to include a statement by the mayor which is most illuminating: “I think they need to listen to the message from the voters which says, you know, you need to be on the same type of pension as the rest of America.”

Wonderful. Let's all join hands and race to the bottom. It's becoming more clear everyday that the 401(k) cannot fund traditional retirement for the average worker, even when coupled with Social Security. (See What's so bad about 401(k)-type plans?)

Well, at least San Diego has solved their deficit problem. Unfortunately, no, according to the final sentence of the article: "Proposition B doesn’t do anything to eliminate that deficit, but it does take investment risk away from taxpayers and places it on individual employees."

Saturday, June 2, 2012

Next Tuesday, pay attention to Wisconsin.

The circle is about to be completed. Back in February of 2011, I began this series of emails to WNY retired teachers--which eventually turned into this blog--to warn you of what was happening in Wisconsin.

After campaigning on a platform of "Jobs, jobs, jobs," the first actions of Wisconsin's newly elected governor were aimed at destroying public employee (including teacher) unions. He claimed that he needed "givebacks" from public employees--with the exception of police and firefighters who had supported him for election--to balance the budget.

In addition, he claimed that future budgets would not be possible unless public employee unions were emasculated. Here's what he wanted for public employees:

1) Your union could no longer bargain for your benefits such as health care or pension or working conditions. The only legal item for negotiation is wages.

2) While your union could negotiate your wages, they could never increase more than the consumer price index, unless approved by a public vote specifically about the salary increase.

3) Union membership would be optional.

4) Your union dues would no longer be deducted from your paycheck. If you wanted to be part of the union, you would have to write the union a check for dues.

5) There would need to be a secret-ballot election every year concerning keeping your union.

6) Multi-year contracts would be illegal. A new contract would need to be negotiated every year.

With Republicans in control of both houses of the legislature, Gov. Walker got all of the above, in spite of the fact that public employees had already agreed to the financial givebacks he asked for.

Sadly, it's working. The Wall Street Journal recently reported: "The state's American Federation of State, County, and Municipal Employees, for example, saw its membership cut in half, from 62,818 to 28,745. Another smaller union saw its membership fall by two-thirds."

"In some cases, the drops came because workers lost their jobs, but more chose to leave—which is especially easy now that the state has stopped automatically collecting union dues. Now workers have to specifically opt in, and many aren't willing to do so now that unions have lost their bargaining rights. "It was a hard decision for me to make," says one teacher. "But there's nothing the union can do anymore." [Emphasis mine.]

Luckily, there were enough voters in Wisconsin who were more than a little upset about this "bait and switch" campaign. They organized recall elections and tossed some Republican legislators who voted for these bills. Unfortunately, they came up one recall short of eliminating Republican control of the legislature. 

Next Tuesday, there is a recall election for governor. It's a re-run of the election from two years ago. All polls point to a very close election.

Money has been flooding into the state. Reports indicate that the pro-Walker forces are outspending their opponents by a factor of up to 25-to-1.  Since only 7% of private-sector workers are unionized and only 32% of public employees are unionized nationwide, the union financial resources pale in comparison to the funds available from the corporate side. (So much for the defenders of the Citizens United decision who claim that corporate spending is balanced by union spending.)

As you know, this "plague upon unions" has spread to several other states. This is the first big battle in what is sure to be a long war.