It's late August, we're getting close to the Major League Baseball playoffs to see who gets into the World Series, and the LA Dodgers have amazingly gone from worst to first. With that kind of record I can't call the Dodgers "bums." But if you want to know more about baseball and the Dodgers, you'll have to go look somewhere else, because the only bums I'm thinking about right now are American politicians. This time, it's a thoroughly bipartisan thing, too.
Some people think that America would be better-off without its traditional system of political parties, or at least better-off without the two dominant parties--Republican and Democratic. Oddly, both parties seem to be hard at work helping to make the case for those who argue that the country would have better government without them.
You probably received mailers from both Democratic and Republican organizations during the run-up to last year's election, and my guess is that most of them ended up in the trash pretty quickly. Earlier this year, in the aftermath of the 2012 election, both parties started sending out a different sort of mailer; one from each party is on my desk in front of me right now. Each mailer--according to the way it presents itself--is intended to collect voter opinions to help set the party's course in preparation for the next election. For the Democrats, it's a "survey;" to the Republicans, it's an "assessment." Different terminologies, but they mean the same thing.
Each party survey, of course, is intended to convey the message that these are folks who are working for the best interests of the country. Consequently, they want to understand--so they say--how people feel about the major issues. Since these things cost a lot of money, I have to assume that they are serious about this. In which case, I have to tell you that they are both flawed and need fixing.
It's all about what's missing. The same thing is missing from both assessments. You would think that after more than twenty years of continually hearing a small piece of trite wisdom, both parties would know by heart, that, yes, in fact, it really is all about "the economy, stupid!" That simple statement is as true today as it was in 1992 when it was first uttered by a key strategist in Bill Clinton's successful campaign for the presidency.
So, perhaps each party would want to ask voters how they might want to go about having an improved economy in 2013 and beyond? Well, don't look for this in these two voter surveys; it's not happening there. It's really not happening anywhere else, either.
Almost unbelievably, both assessments glaringly omit any substantive query about opinions on how to improve America's economic environment. It's not that these things are really short on space, either; each one asks approximately two dozen questions. At least one of them could have been something exquisitely-focused on the simply-stated question of "how does the country go about getting more people employed, and how does it go about getting more people employed in better-paying jobs?"
Nope. Not there. And yes, I have re-read each survey just to be sure I didn't miss it.
The Democratic survey tantalizes by having an entire section titled "Part II: Economic Recovery." It contains three questions, so at first it seems promising. But the most direct question of that group is "Do you think the President's economic recovery plan will continue to expand the U.S. economy?"
Now, that's just an odd pitch in a hardball game. No matter how you hit it back, it's going to go foul. I'm a big fan of President Obama--no surprise there--but even I have to admit that his economic recovery plan cannot "continue" to do anything much more than has already been done because the part that was enacted during his first term has done pretty much all that it can do, and there's no chance that the next part will make it through a Republican-controlled House of Representatives.
Why not simply ask how people feel about getting some more Federal funding out into the economy for things that are directly linked to job creation? That's what the party poobahs are really thinking about. Or, maybe a question about different things that might be done to motivate big U.S. companies to put some of their trillion-dollar stash of cash to work by hiring more employees? These might be riskier fast-ball types of questions, but at least they aren't the screwballs that the survey is throwing out.
As for the Republican survey, it contains just a single question on the subject: "Do you think President Obama's government-centric economic policies have slowed job growth?" Come on, guys, we already know that's what you believe. Isn't it time to come up with the logical second half of that question, which would be something like "Here are our top ten new economic ideas, tell us how you would rank them in priority order?"
I don't think that either party is in danger of immediate demise because of a single flawed assessment document mailed out to selected groups of people. What's more worrisome is that their general public pronouncements have, in both cases, tended to mute any kind of constructive conversation on "the economy, stupid!" There are plenty of other strategic issues and initiatives that are worthy of debate--I would highlight foreign policy, immigration reform, education, the environment, healthcare (beyond the implementation of Obamacare in 2014), taxation reform and long-range Federal budget planning--but none of these, and none of the others that might be added by somebody else, can be adequately addressed without a healthy, growing American economy.
I believe that the two-party system of American politics has given us a better form of government than any other political system. It ought to continue to do so. But, at the moment, watching the two parties fritter away time on lost opportunities for economic development is like watching a baseball game where there's nothing but errors on the field.
Wednesday, August 21, 2013
Friday, August 16, 2013
Municipal bankruptcy
A judge is yet to to decide whether or not the city of Detroit can take advantage of Chapter 9 bankruptcy. The overseer appointed by the state of Michigan's governor--not the city's elected government--has filed for municipal bankruptcy on behalf of Detroit. Filing does not mean that bankruptcy has actually happened; it's up to a court to determine if the city is actually insolvent and--if that is so--grant the status of bankruptcy. If that happens--I imagine it will--then the hardest work begins. Eventually there will be clarity on the consequences of bankruptcy for the city's 700,000 or so residents, as well as for its thousands of city employees and retirees, and also for its various creditors.
This is going to be very complicated.
Detroit looms large in the American consciousness because of its civic leadership of the automobile industry from the beginning of the 20th Century until the early 1970s. What do you think of on hearing car model names like Impala, Thunderbird, Mustang, Roadrunner, Imperial, Charger, Roadmaster, De Ville, Continental? If you're like me, you conjure up images of sleekness and style from the '50s and the '60s. People who lived in Detroit during its glory years have told me of its beauty, comfort, culture and dynamism. There's only one Motor City; Detroit worked hard to earn that name.
Out of respect for such a remarkable heritage that is now being overshadowed by the unfortunate specter of bankruptcy, I think that Detroit deserves a select few observations in this space to help place current and future events into context.
Municipal bankruptcies take lots of time and are very expensive. Stockton, here in California, filed for Chapter 9 in June 2012, and has only recently been granted that status and begun to work through the resulting processes to determine who gets paid how much. Jefferson County in Alabama appears to be on a plan that will complete its bankruptcy late this year, which would represent about two years' worth of those proceedings. If approved--as seems likely--Jefferson County's case will set a major precedent for municipal bondholders since they will be losing a portion of their invested principle. All such bankruptcy cases, of course, cost the municipalities in question large sums of money; for the three mentioned here, those amounts come to millions of dollars each in legal fees and court costs.
Public employee pension obligations are only a part of the fiscal story. How much do Detroit's retirees receive in pension payments? According to an analysis presented by a blog in the Washington Post, most of the city's retirees receive about $1600 per month. That's not going to make for a lavish retired lifestyle, and it doesn't seem likely that reductions to such pension amounts provide much opportunity for balancing the city's books. Furthermore, in some states--California being one of them; I don't know about Michigan--public employee pensions substitute for Social Security payments. In other words, those retirees receive only their pension payments, and they do not receive Social Security benefits. Even so, there will be much said and written about retirement benefits, because for Detroit unfunded pension liabilities and unfunded retiree healthcare obligations seem to represent about half of the city's currently-known debt.
Detroit's decline is the result of more than just official monkeying-around with the numbers. There's plenty of juicy news about how the people running Detroit and Stockton--and, for that matter, American municipalities in general--have engaged in fiscal games that I call "fun with numbers." Of lesser renown, but probably to become more obvious to us all during the next few months and years, is the fact that having fun with numbers has been part of normal municipal governance for decades. My guess is that we will come to realize that not only is this compelling evidence that American politics can be a bipartisan undertaking (dark humor intended) but that it has even been sanctioned by third-party independent guidance, such as actuarial and accounting "best practices." Wherever these best practices have contributed to the current problems, they will have to be changed before the bankruptcy proceedings will produce a truly stable fiscal environment for the long term. And that's not meant for only Detroit, either; it's for general use throughout municipalities with unfunded future liabilities.
A successful bankruptcy outcome requires solutions that address more than just the fiscal number problems. It's worth recognizing that a root cause of these fiscal problems is that Detroit didn't keep up with the times. The rest of the world--that is to say, Detroit's marketplace--changed a lot faster than Detroit itself was able to change. The Big Three auto makers--General Motors, Ford and Chrysler--lost their leadership positions sometime in the early 1970s; we all know that story well. But the fact is that jobs, and therefore residents, started leaving Detroit in the early 1950s. Revenues to the city declined faster than did the need to provide municipal services over a sprawling territory. Loss of manufacturing jobs is part of the story, of course, but not all of it. After all, there's still plenty of affluence out in those suburbs, much of which is the result of outward migration from within Detroit's city limits. Somewhere along the way during those years, the city's leadership either missed opportunities to invest in whatever new things came along with the changing times, or--and here's the really scary thought--perhaps they failed to recognize that the times were changing so much, and the city was so firmly rooted in the past, that the only hope for the future would have been some kind of radical municipal devolution. It seems to me that Detroit--and probably many other older cities--need more than just resurgent numerical rigor to assure themselves of viability.
If you want a real economist's assessment of Detroit, then check out the essay by Joseph Stiglitz entitled "The Wrong Lesson From Detroit's Bankruptcy."
His conclusion is that we need some type of national policy that will pump investment money for education, job training and infrastructure into our cities so as to help prevent future additional municipal bankruptcies.
Seems like a good idea, even if the devil is in the details. At the very least, it's an idea that's worthy of consideration, and if there are any potentially better ideas out there then perhaps they will be prompted to come forth for similar consideration.
At the very least, let's not have Detroit and Stockton and others like them find that their fiscal problems are papered-over with a new type of fun-with-numbers game. I think that would end up as a plan for obsolescence, with no plan for future growth.
And, if we treat the current crop of municipal bankruptcies in that way--with no plan for long-term growth--then I think the odds are that we will end up treating a whole bunch of new ones in the same way over the next few years.
That would be a mistake.
This is going to be very complicated.
Detroit looms large in the American consciousness because of its civic leadership of the automobile industry from the beginning of the 20th Century until the early 1970s. What do you think of on hearing car model names like Impala, Thunderbird, Mustang, Roadrunner, Imperial, Charger, Roadmaster, De Ville, Continental? If you're like me, you conjure up images of sleekness and style from the '50s and the '60s. People who lived in Detroit during its glory years have told me of its beauty, comfort, culture and dynamism. There's only one Motor City; Detroit worked hard to earn that name.
Out of respect for such a remarkable heritage that is now being overshadowed by the unfortunate specter of bankruptcy, I think that Detroit deserves a select few observations in this space to help place current and future events into context.
Municipal bankruptcies take lots of time and are very expensive. Stockton, here in California, filed for Chapter 9 in June 2012, and has only recently been granted that status and begun to work through the resulting processes to determine who gets paid how much. Jefferson County in Alabama appears to be on a plan that will complete its bankruptcy late this year, which would represent about two years' worth of those proceedings. If approved--as seems likely--Jefferson County's case will set a major precedent for municipal bondholders since they will be losing a portion of their invested principle. All such bankruptcy cases, of course, cost the municipalities in question large sums of money; for the three mentioned here, those amounts come to millions of dollars each in legal fees and court costs.
Public employee pension obligations are only a part of the fiscal story. How much do Detroit's retirees receive in pension payments? According to an analysis presented by a blog in the Washington Post, most of the city's retirees receive about $1600 per month. That's not going to make for a lavish retired lifestyle, and it doesn't seem likely that reductions to such pension amounts provide much opportunity for balancing the city's books. Furthermore, in some states--California being one of them; I don't know about Michigan--public employee pensions substitute for Social Security payments. In other words, those retirees receive only their pension payments, and they do not receive Social Security benefits. Even so, there will be much said and written about retirement benefits, because for Detroit unfunded pension liabilities and unfunded retiree healthcare obligations seem to represent about half of the city's currently-known debt.
Detroit's decline is the result of more than just official monkeying-around with the numbers. There's plenty of juicy news about how the people running Detroit and Stockton--and, for that matter, American municipalities in general--have engaged in fiscal games that I call "fun with numbers." Of lesser renown, but probably to become more obvious to us all during the next few months and years, is the fact that having fun with numbers has been part of normal municipal governance for decades. My guess is that we will come to realize that not only is this compelling evidence that American politics can be a bipartisan undertaking (dark humor intended) but that it has even been sanctioned by third-party independent guidance, such as actuarial and accounting "best practices." Wherever these best practices have contributed to the current problems, they will have to be changed before the bankruptcy proceedings will produce a truly stable fiscal environment for the long term. And that's not meant for only Detroit, either; it's for general use throughout municipalities with unfunded future liabilities.
A successful bankruptcy outcome requires solutions that address more than just the fiscal number problems. It's worth recognizing that a root cause of these fiscal problems is that Detroit didn't keep up with the times. The rest of the world--that is to say, Detroit's marketplace--changed a lot faster than Detroit itself was able to change. The Big Three auto makers--General Motors, Ford and Chrysler--lost their leadership positions sometime in the early 1970s; we all know that story well. But the fact is that jobs, and therefore residents, started leaving Detroit in the early 1950s. Revenues to the city declined faster than did the need to provide municipal services over a sprawling territory. Loss of manufacturing jobs is part of the story, of course, but not all of it. After all, there's still plenty of affluence out in those suburbs, much of which is the result of outward migration from within Detroit's city limits. Somewhere along the way during those years, the city's leadership either missed opportunities to invest in whatever new things came along with the changing times, or--and here's the really scary thought--perhaps they failed to recognize that the times were changing so much, and the city was so firmly rooted in the past, that the only hope for the future would have been some kind of radical municipal devolution. It seems to me that Detroit--and probably many other older cities--need more than just resurgent numerical rigor to assure themselves of viability.
If you want a real economist's assessment of Detroit, then check out the essay by Joseph Stiglitz entitled "The Wrong Lesson From Detroit's Bankruptcy."
His conclusion is that we need some type of national policy that will pump investment money for education, job training and infrastructure into our cities so as to help prevent future additional municipal bankruptcies.
Seems like a good idea, even if the devil is in the details. At the very least, it's an idea that's worthy of consideration, and if there are any potentially better ideas out there then perhaps they will be prompted to come forth for similar consideration.
At the very least, let's not have Detroit and Stockton and others like them find that their fiscal problems are papered-over with a new type of fun-with-numbers game. I think that would end up as a plan for obsolescence, with no plan for future growth.
And, if we treat the current crop of municipal bankruptcies in that way--with no plan for long-term growth--then I think the odds are that we will end up treating a whole bunch of new ones in the same way over the next few years.
That would be a mistake.
Monday, August 5, 2013
Coming soon to a computer near you -- Obamacare 2013
It's been a while since we've talked about Obamacare -- formally known as "Public Law 111 - 148 - Patient Protection and Affordable Care Act" and oftentimes shortened to ACA. Click on that link to download your very own copy. I did.
It's hard to believe that over a year has passed since the last big excitement on this; that would be the Supreme Court's decision that was released in June 2012. Since that time anything newsworthy on this subject has been mostly regarding the drudgery of creating the various on-line insurance exchanges that are scheduled to be active on October 1 of this year. Not much excitement in writing about another Internet-based business, is there?
Not to let boredom reign, the various spokespeople of the Republican Party--in what we are probably expected to assume is a burst of alturistic public service--have lately been exclaiming that the date of 10/01/2013 is really the current End-of-the-World Scenario; the End will come as a result of the efforts to implement these public insurance exchanges.
Last year's "End scenario" was the Mayan Prophecies. That turned out to be wrong -- we're still here. Do you think the odds are pretty high that this year's end-of-the-world prophecy will also turn out in the same way? Yes, I think so, too.
The New York Times wrote about some of this in an excellent article on July 23. I offered some other thoughts, which were accepted as a comment to the article. Here's my comment as it appears on nytimes.com:
The insurance exchanges go on-line October 1. HeathCare.gov is a great resource; anybody can use it regardless of whether a person already has insurance, or not; and, it includes guidance for businesses. Also there is a state-by-state pull-down menu that links to those states that are doing their own marketplaces, such as California, Colorado, Hawaii, Minnesota, New York and others.
Everybody's entitled to their own opinions, and some of those opinions are going to continue to be something like "I don't like Obamacare." Okay, I get it, that's not a problem for me. Frankly, my opinion is "I like it until something better comes along." In time, there will be something better. It's notable that in all the votes taken by the House Republicans to repeal the ACA, none of them has included any proposed replacement that would retain the features described above that people say they like to have in their healthcare plans. Without that kind of thoughtfulness, these elected Representatives who have cast their 40 votes have convincingly proven that they are all about show and not about substance.
In the meantime, the state and federal insurance marketplaces are being built. They will contain a great deal of substance, and I think we can reasonably expect that they will be open for business as planned on October 1. Will it all go perfectly? My guess would be "no." But, just like any business, you try for perfection as something new is being built, and when it's rolled-out you make it "good enough" to get the job done, and go on to make it better over time.
It's hard to believe that over a year has passed since the last big excitement on this; that would be the Supreme Court's decision that was released in June 2012. Since that time anything newsworthy on this subject has been mostly regarding the drudgery of creating the various on-line insurance exchanges that are scheduled to be active on October 1 of this year. Not much excitement in writing about another Internet-based business, is there?
Not to let boredom reign, the various spokespeople of the Republican Party--in what we are probably expected to assume is a burst of alturistic public service--have lately been exclaiming that the date of 10/01/2013 is really the current End-of-the-World Scenario; the End will come as a result of the efforts to implement these public insurance exchanges.
Last year's "End scenario" was the Mayan Prophecies. That turned out to be wrong -- we're still here. Do you think the odds are pretty high that this year's end-of-the-world prophecy will also turn out in the same way? Yes, I think so, too.
The New York Times wrote about some of this in an excellent article on July 23. I offered some other thoughts, which were accepted as a comment to the article. Here's my comment as it appears on nytimes.com:
Well, you can say only so much within a 1500-character limitation; in my case, that's barely enough space to introduce myself. If they had allowed me as much space as I wanted--and if I thought that anybody would take the time to read as much as I wanted to write--then I would have added a few other thoughts, including these:
My oh my, what short memories we have! It wasn't all that long ago that most of us--Dems and Reps and Declines-to-States, conservatives and liberals and middle-of-the-roaders--were moaning about the high-and-getting-higher costs of healthcare, and the unfair discriminatory behavior of insurance companies that would arrogantly and arbitrarily use their absolute power to whimsically deny coverage; and finally saying "why doesn't somebody do something about this?" Rightfully so, too, as America's healthcare costs have for many years been on a trajectory to consume almost 1/5 of the nation's economic activity, while the benefits of premeditated healthcare were being denied to a growing segment of the population.
And so, since the fee-for-service, private sector model of healthcare--which we have been using for more than a century, unencumbered with government leadership--continued to sate its voracious appetite for our hard-earned dollars, somebody came along and actually did something about the problem. We defined the problem as something that was growing in an environment that had little or no national leadership, and therefore we now have a solution that involves national leadership.
Obamacare is certainly not perfect. It's a complex solution to a complex problem. Anything that's complex has lots of moving parts, and moving parts must be maintained and replaced over time; future replacements allow opportunities for improvements.
- Features of Obamacare that most people like -- you have a pre-existing condition? No problem now with the ACA; but it used to be a big problem if you wanted to change insurance carriers or if you were a first-time purchaser of insurance. No charge ("co-pay") now for preventative care; that's new. The Medicare "doughnut hole" for prescription drug coverage is finally being closed. No more lifetime limits on how much care an individual can receive. There's more, but that's enough for now.
- Length -- at 906 pages the text of the law is substantially long, but how does that compare to other things that we might read? Looking at the bookshelf, here's a copy of Executive Orders, by Tom Clancy; it's 874 pages, so that's similar. How about Years of Upheaval, by Henry Kissinger? That's 1283 pages, including the Index and a few pages of pictures. James Clavell's Whirlwind is composed of 1147 pages. And, considering that these laws get printed up with wide margins and large font size, the word count is much less than in these books. Yeah, I know what you're thinking: A Tom Clancy novel has lots more entertainment value than a law does. But, on the other hand, what with all the TV (think Fox News) and Internet chatter about death panels and so on, it seems to me that Obamacare has provided a great deal of entertainment to a lot of people over the last few years.
- Speaking of death panels -- one of the reasons I have my very own copy of this law is because of all that chatter about death panels, coverage for undocumented immigrants and other nefarious things that the ACA was supposedly written to include. You've probably seen at least one analysis of the law that was done by some so-called "expert" and which provided a page-by-page enumeration of its supposedly faulty provisions. So, I looked at the text of the law, using the page and section numbers that were so convincingly provided in one such analysis. What did I find? Let's just say that as analytical experts, those folks might make pretty good writers of stories about zombies and vampires.
- What's with all the voting to repeal the law? -- At last count, the Republican majority in the House of Representatives has voted 40 times to repeal or "defund" Obamacare; and yet, the law still stands! What a waste of time and money. That's right, the same people who preach about the virtues of fiscal restraint and austerity are the ones who are responsible for these 40 votes. You didn't think that these things are done automatically and without cost, did you? For each vote, Congressional staff are engaged, procedures and processes are followed, paper is printed on, bits and bytes are energized, and wheels turn. This involves lots of time and money, and the end product is always the same, and always non-productive. It makes a person think of that Albert Einstein comment about how insanity is doing the same thing over and over again and expecting different results. With that thought, go and come to your own conclusions on these continual voting events.
The insurance exchanges go on-line October 1. HeathCare.gov is a great resource; anybody can use it regardless of whether a person already has insurance, or not; and, it includes guidance for businesses. Also there is a state-by-state pull-down menu that links to those states that are doing their own marketplaces, such as California, Colorado, Hawaii, Minnesota, New York and others.
Everybody's entitled to their own opinions, and some of those opinions are going to continue to be something like "I don't like Obamacare." Okay, I get it, that's not a problem for me. Frankly, my opinion is "I like it until something better comes along." In time, there will be something better. It's notable that in all the votes taken by the House Republicans to repeal the ACA, none of them has included any proposed replacement that would retain the features described above that people say they like to have in their healthcare plans. Without that kind of thoughtfulness, these elected Representatives who have cast their 40 votes have convincingly proven that they are all about show and not about substance.
In the meantime, the state and federal insurance marketplaces are being built. They will contain a great deal of substance, and I think we can reasonably expect that they will be open for business as planned on October 1. Will it all go perfectly? My guess would be "no." But, just like any business, you try for perfection as something new is being built, and when it's rolled-out you make it "good enough" to get the job done, and go on to make it better over time.
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