Monday, October 17, 2016

"Public Pensions: Promises Promises"

Sydney M. Williams

Thought of the Day
“Public Pensions: Promises Promises”
October 17, 2016

“You made me promises promises
Knowing I’d believe
Promises promises
You knew you’d never keep.”
                                                                                             From the Neil Simon musical “Promises Promises” – 1968
                                                                                             Lyrics by Hal David
                                                                                             Score by Burt Bacharach

The end of liberalism is not an original thought, but it is a possibility. In 1969 (revised in 1979), Theodore J. Lowi, professor of government at Cornell, published The End of Liberalism: The Second Republic of the United States. He argued that government had become too big and that interest groups had caused Congress to cede responsibilities to unelected (and, in some cases, unaccountable) agencies. These agencies, including the Environmental Protection Agency (EPA) and the Consumer Financial Protection Bureau (CFPB), control more than a trillion dollars in annual expenditures – almost 25% of all federal spending. Ironically for Democrats, special interest groups have created another problem – they compete with unionized government, and the demands public-sector retirees exact from American taxpayers.

Today, global progressives see the end of liberalism in the rise of nativism, xenophobia and populism – manifested in decisions such as Brexit, the Republican nomination of Trump and the Colombia-FARC Accord. It is seen in the failure of the Arab Spring and the resurgence of Putin’s Russia and Xi’s China. Conservatives bemoan the unraveling of liberal values, which date to the age of enlightenment – the acceptance of anti-Western ideologies, cultural and moral relativism, and political correctness. The latter denies language from being used as it was intended – to accurately describe people, their actions and events.

I do not pretend to know if “liberalism” is at an end. What I believe is that big, activist government is being hoisted with its own petard. Promises have been made that will prove impossible to keep. Activist government was conceived in the belief that equality of outcomes supersedes that of opportunity. In the United States, “big” government was born during the New Deal, reached maturity in LBJ’s Great Society, and has come into senescence with ObamaCare and the CFPB; it is seen in the Administration’s videos: “Life of Julia” and “Pajama Boy.” The factors progressives cite allow them to ignore what seems an inevitability – that promises politicians made to those who elected them will not be possible to keep.

This is a world-wide problem, moving in slow-motion toward crisis. Citigroup recently identified nine countries where public sector pension liabilities (not included in debt figures) exceed more than 300% of their respective GDP – Austria, Britain, Denmark, France, Germany, Italy, Poland, Portugal and Spain. 

Progressives talk of “fairness,” when the conversation should be about saving a foundering ship. They talk of the one-percent not paying their “fair share,” when, in fact, they pay half of all federal income taxes. They say government is the answer, when what is needed is faster economic growth – requiring less regulation and flatter, lower tax rates, less government. They want to protect young people from “harmful words,” to grow up without the challenges and hardships that are part of everyday life. They find “victimization” everywhere, and then wonder why civility has receded.

The consequence of Goldilocks-like promises are most prominent in the public pension arena. Last Monday, the New York Times ran the story of tiny (700 people) Loyalton, California, a small town with four retired public employees. In 2012, the town opted out of CalPERS (California Public Employees Retirement System), because the annual cost of $30,000 was crimping their budget. CalPERS then sent the town a bill for $1,600,000 to fully fund the pensions of the four retirees, else annual pension payments would be reduced by about 60 percent. CalPERS only fully funds pension plans when a participant chooses to leave. They assume (probably correctly) that if an exception is made to Loyalton, the rest of the 3,007 participating governments will want similar treatment. Four people and the forgiveness of $1,600,000 doesn’t seem like much for a fund with total assets of $290 billion. But, could CalPERS afford to treat the other 560,000 retired public pensioners as liberally? Should contract law be abrogated so dismissively?

In August, Pensions & Investments wrote of a Pension Finance Task Force (PFTF), a joint effort created by the American Academy of Actuaries (AAA) and the Society of Actuaries (SoA).  The task force was not allowed to publish their findings. They had concluded that, since public pension plans are purported to be default-free obligations, they should use default-free interest rates when determining the discount rate to estimate returns and calculate future obligations. For example, the risk-free yield on the 30-Year Treasury is 2.5 percent. Yet the current actuarial practice is to use 7.5 percent. The more conservative number would add significantly to liabilities.  The Economist recently suggested that using a discount rate of 4% would mean that the average public pension fund would have a funding ratio of 45%, not the 72% used by the Center for Retirement Research. Using the higher rate makes funding look less of a problem than it is. It is delusional, at a time when $12 trillion in global debt has been issued at negative interest rates.

This is a big problem. Five states – Connecticut, Massachusetts, New Jersey, Illinois and Kentucky – have the largest unfunded liabilities. New Jersey has the highest pension debt per resident: $15,000. The underfunded portion of Illinois pensions has increased 500% since 1995, and 75% in the past five years! Scranton (PA) city auditors calculated that police and fire pension funds will be depleted in three to five years. If the discount rate used was actually the Thirty-year Treasury, estimates suggest the shortfall would exceed $3 trillion, instead of the $968 billion reported for fiscal 2013. Stephen Moore, writing in Investors’ Business Daily two years ago, put the unfunded number between one and five trillion dollars.

There are no easy solutions for a country with generous public retirement benefits and an aging population, apart from simply expunging the elderly, an unappealing suggestion to me. The best option – grow the economy. Other measures include: an increase in tax rates, which would hamper economic growth; raise retirement ages, which would further worsen youth employment; reduce contractually agreed-to pension payments, which may be illegal; convert existing and future plans from defined benefit to defined contribution plans, which will have to be done. It will probably take some combination. It is not unionization per se that is the problem. It is the willingness of politicians to make promises they cannot keep. Unions, though, are not innocent. In 2014, four public sector unions (NEA, AFT, SEIU and the AFSC&ME) contributed $85.6 million to political campaigns, with all but $210,000 going to profligate Democrats.

ObamaCare has made entitlements costlier. Debt, will increase should Hillary Clinton’s plan to provide free public college education be adopted. Debt and pension obligations have hampered infrastructure rebuild and military preparedness. They are a reason the Fed has kept interest rates so low. God help us, should we again face a crisis as we did in 1941, 2001 and 2008. Politicians should address these concerns. Thus far they have chosen a broom and a carpet.

Promises promises you knew you’d never keep.” But at some point the piper must be paid.

Monday, October 10, 2016

"The Election - What In Hell Have We Done?"

Sydney M. Williams

Thought of the Day
“The Election – What In Hell Have We Done?”
October 10, 2016

“I hold it that a little rebellion now and then is a good thing,
 and as necessary in the political world as storms in the physical.”
                                                                                                Thomas Jefferson (1743-1826)
                                                                                                Letter to James Madison, January 30, 1787

For a 10th grader, my fifteen-year-old grandson follows politics closely. His concern about the upcoming election is palpable: “Pop Pop, it isn’t fair. When you were 15 Eisenhower was President; when my dad (my son) was 15, Reagan was President. Now that I’m 15 it will be either Clinton or Trump! It isn’t fair.” I acknowledged his complaint, and its reality.

A fatalist would say our lives are pre-ordained, that this election was inevitable. A cynic could argue we get what we deserve. A sociologist might claim that democracy is incompatible with human nature – that power corrupts. Benjamin Franklin famously replied, when asked what had been created in Philadelphia: “A Republic, if you can keep it.” In 1787, Alexander Tyler, a Scottish professor at the University of Edinburg, wrote: A democracy is always temporary in nature; it simply cannot exist as a permanent form of government. A democracy will continue to exist up until the time that voters discover that they can vote themselves generous gifts from the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy, which is always followed by a dictatorship.”  Not being an historian, I cannot vouch for the validity of his observation. Perhaps America will prove the exception? But now we, a country of 330 million people, must choose between a serial liar who is both corrupt and mendacious, and a narcissistic, foul-mouthed braggart who appears clueless about affairs of state. While a full explanation is beyond my scope, some societal changes may have served as causation. Here are a few:

·        Moral Relativism: We have substituted moral relativism for the proven virtues of family, civility and our Christian/Judeo heritage. It has been a cultural shift that lacks moral and common sense.

·       Public Service: Public service, as a means of giving back, has been replaced by public service as a venue to personal wealth. The “pay-to-play” Clinton Foundation is exhibit ‘A.’

·       Education and Political Correctness: Many public high schools have given up trying to teach students discipline, civility, mutual-respect, and knowledge of the uniqueness of our history, its institutions and the advantages of free-market capitalism. In universities, diversity is applauded, except in ideas, while complaints of victimization have meant “safe places” and “trigger warnings.” PDAs have resulted in more time “on line” and less reading and thinking.

·       Short term gratification: In the political arena, we have “kicked the pail down the road” – to put off today what might be done tomorrow. “Short-termism” has become common among many of our banking and business leaders. The latter play to Wall Street whose biggest concern is the next quarter. Politicians find it is easy to make promises, but difficult to fulfill them. When we hear the promise of free public college tuition, we should be wary. While the nation’s debt, at more than 100% of GDP is worrisome, the bigger problems are promised but unfunded entitlements.

·       Media Bias: All news is slanted – NY Times, Washington Post, LA Times, NY Post, Wall Street Journal, for a few; NBC, CBS, CNN, MSNBC, Fox News, etc.; and internet pundits, like Huffington Post and Breitbart. So we read, watch and hear what we want to read, watch and hear.

The road we are on leads to a place we cannot financially or morally afford. The established elite are comfortable as to where we are, which is why they are so “anti-Trump.” They don’t want to change what works for them. However, their contentment is not universal. Globalization has declined and populism has increased. Too many people have been left out – not just “deplorables” and “irredeemables,” but millions who have been unable to participate in the last decade’s economy. The principal reason has been lackluster GDP growth. Mr. Obama will be the first post-War President never to have seen 3% growth in any one year. If the economy had grown at 3%, rather than 2% since recession ended, GDP would be $1.5 trillion bigger than it is – that’s a lot of jobs! While infrastructure spending is important (and perhaps critical), it is no substitute for encouraging entrepreneurship. Keep in mind, for the first time in post-War history more small businesses are closing than opening. It is fiscal, not monetary, policies that are needed.

Our position in the world has diminished, while threats from Russia, China and Islamists have increased. Lawrence Haas’ new book about the collaboration between Harry Truman and Arthur Vandenberg, “Harry & Arthur,” ends on a sobering note – “Today, however, no great nation sits in the wings, ready to defend freedom if we bow out for the long run. No single European power can do so, and Europe as a whole has shown no capacity to act robustly in the face of threats both near and far. The same goes for Asia, where Japan struggles economically while it seeks help to contain an increasingly aggressive China. If, then, the United States will not defend freedom and secure global order in the face of rising threats, who will?”

Personalities play a big role in this election, and the press makes cartoon characters of those they see as enemies to their progressive agenda. Much has been made of Donald Trump’s comments about women, Hispanics and Muslims – none of which are defensible. Much less, though, has been written about Hillary Clinton’s misanthropic outbursts. Like Tammy Wynette, Mrs. Clinton stood by her errant husband, and skewered those women who had affairs with him. She and Bill Clinton trashed the White House before leaving it in January 2001. Her e-mail scandals are legion and posed threats to our security. She destroyed the life of Nakoula Basseley Nakoula, after falsely blaming his video for the murders of Ambassador Stevens and three other men. She lies continuously, and by all accounts, treats her subordinates derisively.

When entering the polling booth and opting which lever to pull, we might consider words Jane Austen wrote in her posthumously published novel, “Persuasion.” The heroine Anne Elliot has doubts (correct ones) about her cousin who she believes will ask her hand in marriage: “She prized the frank, the open-hearted, the eager character beyond all others. Warmth and enthusiasm did captivate her still. She felt she could so much more depend on the sincerity of those who sometimes looked or said a careless or a hasty thing, than of those whose presence of mind never varied, whose tongue never slipped.” That puts to mind our two candidates: One is programmed, robot-like, at least in public; the other has never allowed himself to be harnessed, at least in public. But it is the private person that should concern us. Is Hillary Clinton as psychotic as some of those who have worked with her claim her to be? Is Donald Trump the misogynist mainstream media would have us believe him to be? Jane Austen’s words should warn us about the unnaturalness of politicians in front of cameras. To discover the real person, we must dig deep.

Regardless, we are in this mess and we must accept it. Washington’s establishment has brought us to this point. They are unlikely to get us out. Will Trump prove to be Themistocles at Salamis, Horatius at the bridge, or Don John of Austria at Lepanto? Probably not, but he does represent change. Perhaps my grandson’s fears will prove wrong? Perhaps not? In any event, citizens should make their decisions based on a thoughtful, not emotional, analysis of all pertinent information.

Thursday, October 6, 2016

"Retirement Ain't All Its Cracked Up To Be!"

Sydney M. Williams

Essays from Essex
“Retirement Ain’t All It’s Cracked Up To Be!”
October 6, 2016

Retirement is being tired twice, I’ve thought,
first tired of working, then tired of not.”
                                                                                                Richard Armour (1906-1989)
                                                                                                American poet and author

Three weeks will mark one year of retirement. It’s an odd sensation – not working – when you’ve been laboring for over fifty years. One day you have a place to go. The next you don’t. Easily, a quarter of one’s working life is spent on the job. That leaves a lot of hours to fill.

When young and prospects of retirement spun through one’s mind, they were of scenes of palm trees, white beaches and daiquiris, or they were of vistas of snow-peaked mountains, crystal-clear lakes and fine wines. In mind’s eye, one saw perfect villages, like Marie Antoinette’s Hameau de la Reine. We pictured ourselves hammock-bound in our own Arcadia, with grandchildren seen but not necessarily heard, a book and a beer within reach.

When young we had no idea of limits age imposes. We could not envision hips not working, or knees without the resilience of youth. Or the mind not functioning with the alacrity of yore. We never thought stairs could get steeper, or that the walk to the mail box would be longer. Pills, diet restrictions, glasses, incontinence and hearing aids – those were for the “old,” something that could not happen to us. We lived ignorant of the march of time. Now, trees we once planted have grown to full height, and the dog is our third, or is it the fourth? What happened to those beautiful, adoring children? They once looked up to me as the fount of all wisdom. Now they look down on my white head with what appears to be compassion.

We visit our children now and cannot understand why they are not as free as are we. We love seeing our grandchildren, but school, sports and iPhones occupy so much of their day. Where has time gone? I think of Harry Chapin, and those last lines from “Cat’s in the Cradle:”

‘When you coming home, son?’
‘I don’t know when, but we’ll get together then, Dad.
We’re going to have a good time then.

Like paper towels, time unrolls slowly at first, then at ever increasing rates. When we were young, days were endless – and so were long nights. The roll of paper seemed barely to budge. But, as time marched relentlessly forward the paper came off more quickly and its size became visibly smaller. We now know the past is longer than the future. We find ourselves talking about the “new” generation, their music, noise and lack of respect for their elders. It is the circular pathway of life. We forget our own indiscretions – the complaints of our parents now come from our mouths. We yearn for past days when time moved slowly, unaware that it is us, not “youth,” that has changed. Like the dray horse that has been put out to pasture, after spending a lifetime of monotonous work, we dream of friskier, coltish days when anything seemed possible – and was.

Yet, in spite of all this. my “retirement” was easy, as for the past few working years I had spent most of my time writing, including essays that had little to do with the work of my firm. It was self-indulgent, and I was indulged by those with whom I worked. Nevertheless, it helped my transition. I spend my time much as I did before, but now working from home, and seeing more of my wife than at any time since we were married. It has strengthened my love, but my dependency has increased.

While each generation subscribes to the old Chinese adage that we live in the most interesting of times, what doesn’t change are characteristics and emotions that make man man – love, happiness, respect, euphoria, compassion, apathy, grief and their opposites, hate, anger, jealousy, depression, envy, passion and joy. It is why reading Dickens, Austen, Shakespeare, Tolstoy and the Bible are as relevant today as when they were written. In doing so, we learn more about ourselves – the past, present and future. Still, there are times when,

“I’d like to get away from the earth awhile
And then come back to it and begin over.”

The words of Robert Frost shimmer through my mind. But the poem brings me back to reality, in lines further along:

“earth’s the right place for love
. I don’t know where it’s likely to go better.”

The fact is I don’t want to live my life over. I consider myself fortunate. I was born at a fortunate time and have been happy with the life I have lived.

I am as busy as ever. When not writing, I am reading, traveling, visiting grandchildren, or going for a walk – an opportunity to think about what I am writing. Usually I bring with me a note pad and pen, stopping every now and then to jot down some word or some thought, knowing that my memory is not what it was. Because I mostly write about current events – politics, the economy, education, climate, global affairs – I like to stay current. And since the media is so biased, I find I must read four or five newspapers every day. But, since I would rather get my news from the papers than TV, I save gobs of time in the evening. I also enjoy reading history – at times thinking education is wasted on the young! – and I recognize the value of reading classics, because of the eternal truths they relate.

So, while retirement may not be all it’s cracked up to be, I have found the transition quite pleasant. But no one should expect retirement to live up to its hype. While advice is not part of my purpose (“Chacun a son gout,” as my mother-in-law used to say), keeping one’s self busy is the secret. I should not, and will not complain – at least not any more than I already have. I am happy. I have been lucky in love. Caroline and I are still together after fifty-two years, and we both have our health. The future will bring what it will. I get pleasure from the thought my genes will live on, as we have three children (all happily married) and ten grandchildren. God willing, I will be part of their lives as well.