You can't choose the ways in which you'll be tested.
Robert J. Sawyer
The State Pension Crisis: Some Comments
Whenever I get my annual social security statement, there is one year that sticks out like a sore thumb: the year I was a visiting professor at Illinois State. Illinois is one of those states where teachers are not in social security. Others include Texas and California. (I think the NY Times author is wrong, at least for university professors, because FICA was deducted from my UTEP paychecks.) About 7 other states (AK, CO, MA, NV, OH, LA, ME) include (or have included) public employees of all types. The state holdouts from social security insisted they could deliver earlier, better benefits with minimal (if any) contributions from employees because of superior investment returns. (In fact, state pension funds are like cookie jars for politicians whom should be on a fiscal diet, and pension funds are often the last item on the agenda to get funded.)
One study cited in the NYT piece points out the reason Maine's system has remained above water is because pension plan benefits are not portable and only 1 in 5 work long enough to qualify for pension. Social security, on the other hand, is a key cornerstone for today's mobile worker's portable retirement plan.
We can generally describe two types of pension plans (popularized, as was health insurance, as a workaround to wage controls during WWII): defined-benefit and defined-contribution. (There are also variations, including hybrid systems.) Defined-benefit programs (e.g., social security) generally guarantee payments after certain criteria are met (typically age and tenure of service), and underlying investments are managed or under the control of the employer. However, employers also assume the intrinsic risks (e.g., recessionary periods, retiree payout period and investment management). Since the 1980's, most US (and Western) employers have attempted to control those risks by initiating or transitioning to a defined-contribution system, where an employee has more responsibility and control over his (and relevant employer-match) contributions.
Unfortunately, few state governments have defied public unions (with the exception of only a few: Alaska, Michigan, and (non-state) DC) by following the lead of the private sector in controlling pension risk, hence keeping all the risk on state taxpayers: most, no doubt, on defined-contribution plans themselves. In California, two-thirds of voters want defined-contribution plans for their states; this cause was addressed by failed GOP nominee Meg Whitman. New Governor Jerry Brown, with teacher union support, has basically proposed a series of half-measures: raising the retirement age to 60 (only for new employees), upping employee contributions into the plan, minimizing end-of-career earnings gimmicks to pump up the annuity payout, and improving transparency of the system. In essence, the only thing Brown is doing is postponing the inevitable: you can put lipstick on a pig, but it's still a pig. Now by some sources, the average California state pension is $25K/year--this contrasts to the average $14K for social security as of the beginning of 2010. Yet a number of cities and states (e.g., Chicago, Boston, Philadelphia, Ohio, Illinois, and Connecticut) have plans that could be insolvent even before California's: by the end of this decade, if not years earlier.
A 2007 USA Today column provided some other thought-provoking statistics: the federal government's unfunded liability for military and civil servants was even larger than social security's $4.6T. The average civil servant in 2005 got $17,640--over twice the average private sector pensioner at $7652. And what makes it worse is that public sector pensioners can retire much earlier (say, 56) than private sector ones.
Any faithful reader knows I'm fond of using Thomas Kuhn's concept of a paradigm shift; in essence, you have a conceptual model that becomes too cumbersome to accommodate observations (say, for instance, a theory that the earth is at the center of the universe). Ultimately a new simplifying theory replaces the cumbersome patchwork. I've particularly used this concept within the context of our convoluted tax and regulatory systems. I find it absolutely incredulous and arrogant that local, state, and federal governments, which exist at the expense of the private sector, are trying to patch fundamentally broken pension system decades after the private sector in large part recognized that a defined-benefit system is unsustainable, think they can "fix" these chronically deficient systems, when they find themselves constantly unprepared to handle predictable recessionary periods--no rainy day funding. A private sector company would never be able to survive or attract capital with such large, unfunded liabilities and excessive costs... I repeat, as I have said before: it is time for public sector employees to share in the same risks and sacrifice as the rest of the economy.
Of course, the public sector pensioners have their predictable, self-serving defenders, e.g., suggesting only a minority of public servants reach the salary and pension levels making for sensational columns, government employees tend to be more educated, experienced or skilled than the overall labor force and hence deserve premium salaries or benefits, etc. I have personally witnessed people with private sector waiting months or even years to get into civil service; this is a classic symptom that the public sector labor market is inefficient.
WSJ: Colleges Academically Adrift? Vedder's Review... Thumbs UP!
For those not familiar with Richard Arum (NYU)and Josipa Roksa (UVA)'s important new book, Academically Adrift: Limited Learning on College Campuses, let me quote Richard Vedder's review from The Chronicle of Higher Education:
Arum and Roksa conclude:
- “gains in critical thinking, complex reasoning, and writing skills (i.e., general collegiate skills) are either exceedingly small or empirically non-existent for a large proportion of students”;
- 36 percent of students experienced no significant improvement in learning (as measured by the CLA) over four years of schooling;
- less than one-half of seniors had completed over 20 pages of writing for a course in the prior semester;
- total time spent in academic pursuits is 16 percent; students are academically engaged, typically, well under 30 hours per week;
- scholarship from earlier decades suggest there has been a sharp decline in both academic work effort and learning;
- “students…majoring in traditional liberal-arts fields…demonstrated significantly higher gains in critical thinking, complex reasoning and writing skills over time than students in other fields of study. Students majoring in business, education, social work , and communications had the lowest measurable gains”;
- 35 percent of the students sampled spent five hours or less a week studying alone; the average for all students was under 9 hours.
I wholeheartedly concur with Vedder's salient concluding insights and questions:
We are sending too many kids to school to learn too little to get jobs for which often the little that they do learn is not even necessary. Ultimately, the public policy question is why the financially strapped federal government provides billions of dollars to subsidize [increasingly expensive] “higher education?” Why do states subsidize the institutions that are responsible for this decline, rather than directly supporting a modest number of serious, hard-working and financially needy students? Why is higher education so dysfunctional, and becoming more so daily? When is the bubble going to burst?I will point out that I've raised what I consider to be an unsustainable college cost bubble on prior occasions (e.g., last August). In part, it's been sustained by government-guaranteed student loans; I was highly critical of the self-serving, empire-building rationale to nationalize student education loans. I am amused to think what Thomas Jefferson, who fought establishment of a national bank, would think of what's become of the party he founded... You have to wonder about the gullibility of voters whom, after the Democrats allowed two government-sponsored entities (Fannie Mae and Freddie Mac) to become a duopoly exposing the American taxpayers to nearly half of the mortgage market during the housing bubble, thought it was a "good idea" to go after student loans. After all, if low-collateral, lower-income people were able to get money needed to bid up the price of a house, which exacerbated the bubble, what do you think happens when unsuitable students are guaranteed funding for college and then drop out, never complete their degree or get a watered-down degree?
Political Humor
A periodic reminder that you can find summaries of the latest late-night jokes at websites like newsmax and, in many cases, relevant copies or vignettes are available from the show's website, e.g., David Letterman's Top 10.
The prosecutors say that the highest-level mobster [of the 127 arrested in 3 states] arrested is known as “The Old Man.” I think they call him that because he makes an offer he can’t remember. - Craig Ferguson
[What else do you think the younger generation refers to as the head of a crime family? Kids these days have no respect...]
The government may force alcohol companies to put nutrition labels on every bottle. If you can still read the labels, the alcohol isn’t bad for you yet. - Jimmy Fallon
[If you think that's bad, just wait bartenders need to get customer sign-offs for their mixed drinks...That looks like a doctor's signature to me...]
Musical Interlude: One-Hit Wonders/Instrumentals
The Surfaris, "Wipe Out"
