Pension Reform?

Professor Edward Glaeser, who writes on a regular basis for the Boston Globe, penned an article on public pensions a couple of months back. It raised some very interesting concepts, which included a call for additional centralization (getting rid of the local control over investment decisions) but calling for additional local flexibility in the types of pensions that could be offered to public employees.

On local control over investments Professor Glaeser decries the balkanized nature of the way we invest our pension money.

The same tension exists in public-sector pensions, which present a particularly precarious balance of state and local control. Since 1945, the terms of public-sector pensions — for instance, how large a pension a teacher can expect after a certain number of years of service — are determined by state law, and a state commission determines how much communities must set aside for pensions. But localities can run their own investment funds, as long as their returns aren’t too low. This is a bizarre set-up, since local investment boards are unlikely to out-invest the state system.

Good investments require expertise, and there is no advantage from having little laboratories of financial engineering. Using data provided by the state pension authority, Harvard graduate student James Mahon has found that since 1986, the systems outside of the main state fund have, on average, earned lower returns during every five-year period. This doesn’t mean that the local systems are boobs — some earn lower returns because they take on less risk — but the sheer number of funds is illogical.

The State legislature has recently changed the law, which now forces local systems to meet minimum return thresholds in order to remain “independent”. This change forced the Methuen Retirement System into the State system, where local money is now invested by the Commonwealth. That law, and the trigger that forced Methuen in, was deeply unpopular with both the Retirement Board members and the staff. I can only imagine the type of political firestorm that the Glaeser suggestion would have if all local boards were forced to turn over their investment portfolios to the State. But political unpopularity due to turf issues is not a good reason to dismiss the suggestion out of hand. Beyond the point that Professor Glaeser makes on better investment returns from the State other factors, such as duplication of costs, would tend to support consolidation. (Do we need to pay for separate staff for all these distinct localities?) Glaeser does not comment on how his suggestion might deal with local systems that have outperformed the state, but you can rest assured that question would be asked by those in opposition.

The second part of the Glaeser column dealt with the ability of the locals to modify the type of pension offered.

The core dollar amount that localities now contribute to worker’s pensions should be preserved, and there should also be a strict lower bound on the generosity of the traditional defined-benefit plan. Our public workers need that cushion, because they are not in Social Security. Above that base, though, local communities should be free to offer different deals, such as allowing workers to take 401(k)-style defined-contribution plans, instead of defined-benefit plans. This experimentation may help us explore lower-cost options that deliver more of what workers actually want: to be paid now, not in the distant future.

Another proposal that would likely cause a pretty big firestorm of opposition from public employees. Glaeser recognizes the inherent financial problems with our current pension obligations, and how we have funded them. From a financial perspective there is no question that his suggestion makes fiscal sense for localities. From a political perspective this is another slog, with deep opposition from public sector unions very likely. Glaeser does not go into deep detail on the pension problems we face, but he does not have to. They are steep, and will require additional painful reform at some point. For now it is possible to defer those decisions, but the day of reckoning is coming. Not a bad question for some of the upcoming debates! Candidates beware.

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Independents in the Senate Race!

There has been a flurry of polling activity in the U.S. Senate race, with most showing a movement to Elizabeth Warren, but all showing a still tight race. My polling house preference is Suffolk, and David Paleologos. So as I mentioned in a debate posting below the all important independent voter will ultimately determine who wins this race. What does Paleologos find? Independents favor Scott Brown in this survey by a 55% to 34% margin. Simply put that margin is not enough for Brown, who must widen it to get to the type of margins he racked up over Martha Coakley within that subset.

Another factor, which many Democrats hoped Elizabeth Warren would accentuate during the debate, is the drop in crossover support for Scott Brown. Suffolk has found that Brown took a 5 point drop from Barack Obama voters, from 24% down to 19%. Elizabeth Warren moved to further separate Brown from these voters during the debate, highlighting the impacts of Brown’s support for the Republican leadership, and specifically highlighting the potential for Senator James Inhofe to become the chair of the environmental oversight committee in the U.S. Senate. Scott Brown will have an uphill fight, and you can expect more in the way of Elizabeth Warren linking Scott Brown to Mitt Romney and the Republican Party in future debates. She is hoping that the next Suffolk poll shows further erosion in “crossover” support for Scott Brown.

http://www.c-spanvideo.org/videoLibrary/assets/swf/CSPANPlayer.swf?pid=304706-3

9_17_2012_tables Suffolk Senate

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Any Party Switchers Out There?

Any Democrats think that Scott Brown won last nights debate, or any Republicans think that Elizabeth Warren won the debate? Just curious about whether there are any folks looking at this from outside a totally partisan prism. My question does not include those party folks that have announced support for the “other team”. Don’t expect much response here, but it was worth asking. (I think).

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Lets Get Ready to Rumble Round One

Elizabeth Warren and Scott Brown held the first in a series of debates last night and it didn’t take long for Scott Brown to come out swinging on the “character issue”, hitting Warren right off the bat on the so called “native American” subject. Brown’s initial thrust managed, in my opinion, to knock Warren off stride a bit, and more importantly utilized valuable time that could have been used to discuss issues, which of course came later.

Eventually Elizabeth Warren managed to get the discussion to where she wanted it to be, on those issues facing the Commonwealth and the Country. Issues raised included Warren focusing in like a laser on specific votes taken by Senator Brown, including voting against equal pay for equal work for women, the support of Senator Brown for tax breaks for oil companies, and his vote against Elena Kagan for the Supreme Court. Brown continually returned to the charge that Elizabeth Warren wanted to raise taxes, and he continually defended the votes he has taken in that context. I do believe that the closest comparison might be the tact that Bill Weld took against John Kerry in those debates for U.S. Senate. An exclusive focus on the tax issue, and other hot button Republican issues, did not work very well for Weld, and I do believe that the tax equity issue, rather than the generic issue of being against “tax increases”, is what is resonating with people in Massachusetts.

Did either Senator Brown or Elizabeth Warren manage to achieve their debate goals? Did either candidate “win”? In light of the obvious initial edge in Party registration for Democrats Scott Brown should have a clear goal. Win over independent voters. I think both sides appealed to the Party faithful, but what about independents? The Romney drag is starting to weigh down Republicans nationwide, especially in races like this. Independents appear to be turned off to the Republican message, and although Scott Brown is fleeing as quickly as he can from the Romney campaign it is a rocky road for him. Let us, in the next post, look at some of the Suffolk poll cross tabs that may answer the ever important question on independents.

Who do you think won?

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Nevins Library Annual Book Sale

From the Nevins Library Web site!

Friends of the Nevins Library Annual Book Sale begins with a paid Preview Night on Friday, September 21st 5:00PM to 8:00PM.  Cost is $20.00 per person.  On Saturday, September 22nd, the event runs from 9:00AM to 5:00PM and continues on Sunday, September 23rd from Noon to 4:00PM.  On Monday, September 24th, we will hold “Bargain Day” from 9:00AM to 9:00PM in which a bag is purchased for $8.00 and filled to the brim.  So don’t miss out on our exciting event!

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Why Romney Can't Make the Bold Move

Scott Lehigh wrote a great column today, trying to give Mitt Romney some advice that might help bring oxygen to a campaign turning blue. Lehigh made the common sense suggestion that Romney immediately call for the adoption of Simpson-Bowles in a move to capture the political center and show that he had the guts to make proposals that would not sit well with the base.

The best way to bounce back is with a big, bold move, one that burnishes Romney’s image as someone serious about solving the nation’s budgetary problems, while letting him seize the political center.

That move? Endorsing the recommendations of the Simpson-Bowles deficit commission. Doing so wouldn’t just steal a march on President Obama. It would establish Romney as someone courageous enough to tell hard truths about what will be required to address our fiscal problems.

Lets face it, if Romney had that type of courage or political sense he might not be in the mess he is in today. The Lehigh advice has been given on the other side of the spectrum by David Brooks, who suggested that President Obama make a bold move to the center by endorsing that very same Simpson-Bowles framework.

Personally, I wish Obama would use this convention to embrace Bowles-Simpson. That would lay the foundation for decades of prosperity. It would galvanize a new center-left majority.

So the columnists of reason urge both candidates to adopt Simpson-Bowles. Why not? Let’s take a look at Mitt.

Romney and his team have determined, rightly or wrongly, that this will be a base election. And we know that the Republican base will not tolerate “tax increases”, even when coupled with real spending reductions. (Simpson-Bowles has about $3 in cuts to every dollar in revenue increases, a far cry from the $10 in cuts to $1 in revenues that EVERY Republican Presidential candidate indicated they would turn down). Paul Ryan, a member of the Simpson-Bowles Commission, actually joined every Republican House member of the Commission in voting against the final report. If the Republicans are deficit hawks, as they claim, then they must have an even more serious deficit reduction plan than Simpson-Bowles???? Well, when you just take a cursory look at the numbers you see that the Romney/Ryan plan (Ryan/Romney???) actually would add trillions to the deficit, and would do so to not only extend the Bush tax cuts, but to reduce marginal tax rates even beyond the Bush rates. How would they pay? They will get back to us on that.

All of that still doesn’t answer the Lehigh question. But the truth is that any policy that places deficit reduction in front of further tax cuts must be jettisoned by Romney and the Republicans. The central dogma of today’s Republican Party is that tax cuts come first, and deficit reduction is simply a tool to try to attract that independent voter who might actually care about our fiscal future. I have not given citations for the above paragraph, but they will come in future posts. Some validation of this view comes from the long held position of the Wall Street Journal editorial board, who have long argued that Republicans ought to stay away from advocating deficit reduction, as they would not be able to finance the necessary tax cuts called for by the Journal under a system where such cuts needed to be “scored” for their impact on the federal deficit. Dick Cheney’s observation that “deficits don’t matter”, often reported as an offhanded aside, is actually reflective of this view. Nope, Mitt Romney won’t be taking the advice of Scott Lehigh anytime soon. He will rise or fall on the tax cuts that, if enacted, would blow an even bigger hole in our budget than exists today.

 

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The Blog is Back

The billmanzi.com blog, retired while I took a hiatus to run for Senate, is back. (Obviously much sooner than I would have preferred.) We will be back to talking with local, state, and national figures, and hopefully will have other folks posting here as well. We will hopefully bring you some great video and audio clips as well. The foibles of Mitt Romney should be enough to keep me busy for the next month, but there is an exciting First Essex Senate race, and a lively 14th Essex State Representative race as well. Not to mention the Elizabeth Warren and Scott Brown race. All I can say is look out below. I am back.

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Please Stay Tuned…

We are updating Bill Manzi.com, please stay tuned.

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The Ryan Proposal

Once again Paul Ryan has produced a “budget” for the U.S. House, taking aim at entitlement spending and claiming (again) to be making the tough choices that President Obama and the Democrats refuse to make. Does he hit the mark? It really looks like he has come up way short again.

It seems that most everyone agrees that the numbers Ryan produces are ridiculous, and that he has failed to specifically articulate key points in his plan (what tax breaks would be done away with?). That criticism comes not just from the left, but from the right as well. Ross Douthat argues that the numbers are less important than the “political goals” of achieving structural reform in entitlements.

In this sense, liberals are right to highlight their implausibility — but wrong to argue that they discredit the Ryan budget as a policy document.

Douthat concedes on the fact that the budget numbers don’t add up, but credits Ryan with making necessary changes to entitlements. But in fact, as Ezra Klein points out, Ryan’s budget ax is reserved primarily for Medicaid, not Medicare.

Perhaps the simplest way to understand what’s going on in Paul Ryan’s budget, and whether it’s plausible, is to look at page 13 of the Congressional Budget Office’s summary of the Ryan plan (pdf). That’s where the CBO lists Ryan’s assumptions about how future budgets would differ under his proposal and under an alternative, high-deficit scenario. That lets us see where, exactly, Ryan’s presumed savings are. And they’re not, for the most part, in Medicare.

In 2030, spending on Medicare is .75 percent of GDP lower than in the alternative fiscal scenario. In fact, Ryan and the Obama administration have proposed the same rate of growth for Medicare: GDP + 0.5 percent.

It’s Medicaid and other health spending, which includes the Affordable Care Act, where Ryan really brings down the hammer: That category falls by 1.25 percent of GDP. So Ryan’s cuts to health care for the poor are almost twice the size of his cuts to health care for the old.

Ryan’s revenue numbers are simply a joke, with a huge hole in revenues over a ten year period. From Klein:

The Tax Policy Center looked into the revenue loss associated with House Budget Chairman Paul Ryan’s plan to cut the tax code down to two rates of 10 percent and 25 percent. They estimate the changes would raise $31.1 trillion over 10 years, or 15.4 percent of GDP. That’s $10 trillion less than the tax code would raise if the Bush tax cuts were allowed to expire, and $4.6 trillion less than it would raise if all of the Bush tax cuts were extended.

Even with all of the Bush tax cuts extended Ryan comes up real short on the revenue side. Recognizing this Ryan indicates he will “close loopholes” to bring revenues back to the 18.5% of GDP that he thinks he can run government on. It is estimated that he would need to close about $6 trillion in loopholes, or tax expenditures, to hit that number. But alas Ryan refuses to identify which “loopholes” he will close. Will it be the mortgage interest deduction? The Washington Post just ran a story that detailed just how difficult it would be to “reform the tax code through deduction elimination”, an obvious point driven home by the beneficiaries of the deductions with the greatest dollar values.

Finally it takes the right wing Club for Growth to point out what I have been howling about since Ryan’s last budget proposal. Ryan does not produce fiscal balance (by his own measures) until 2040. From the Club for Growth statement:

“Despite containing several important reforms and pro-growth policies, the Ryan Budget falls short in two critical respects. First, it does not balance for decades. Secondly, it violates the Budget Control Act by waiving the sequester,” said Club for Growth President Chris Chocola. “By waiving the automatic spending cuts required under the Budget Control Act, this budget is asking Americans to trust future Congresses to do the hard work later. It is hard to have confidence that our long-term fiscal challenges will be met responsibly when the same Congress that passed the Budget Control Act wants to ignore it less than one year later. On balance, the Ryan Budget is a disappointment for fiscal conservatives.”

As the Club for Growth points out Ryan is in favor of eliminating the budget sequester called for by the failure of the Congressional “Super Committee”. Ryan, like many others, chooses to kick the can down the road, and the Club for Growth called him on it.

The big media types simply refuse to ask the simplest of questions to Republicans: “If you favor a balanced budget, or a balanced budget amendment to the U.S. Constitution, where is your balanced budget proposal? Ryan, like most Republicans, does not really favor a balanced budget. What he and the Party favor is a reallocation of budgetary resources away from the middle class and the poor towards upper earners. That point has never been clearer.

Read the CBO analysis of the Ryan proposal here.

http://www.msnbc.msn.com/id/32545640

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Michael Collins, the Father of Ireland

A “reprint” of my piece from last year on Michael Collins, which was published in the Tribune. Happy St Patrick’s Day.

As we celebrate St. Patrick’s Day it seems fitting to remember and honor the man that Irish historian Tim Pat Coogan called the “Man who Made Ireland,” Michael Collins.

Collins remains a controversial historical figure, having made decisions that have been both hailed and vilified. To this day there is discomfort in some Irish republican circles talking about the historical record when it comes to Collins. The signing of the Good Friday Agreements in 1998 inevitably led to comparisons with the Collins decision, as one of the Irish plenipotentiaries, to sign the Anglo-Irish Treaty of 1921. Is it a fair comparison, and does it help us to assess the Collins legacy? I submit that it does.

The Collins legacy was created by his immense contributions to the Irish cause in the War of Independence that began in 1919. Collins had multiple roles in the self proclaimed Irish government, including Minister of Finance, and Director of Intelligence. As Director of Intelligence Collins was responsible for combating the British intelligence service, as well as being instrumental in the formulation of the guerrilla tactics employed by the Irish Republican Army with such great success against the occupying British army. The tactics of Collins allowed a smaller, lesser equipped and self-trained guerrilla army to fight the world’s greatest military power to a draw.

Collins’ creation of “The Squad” also allowed him to brutally eliminate British intelligence assets in Ireland, reversing the ability of the British to know what the Irish resistance was planning, and giving the Irish an insight that had never been available to them prior to his efforts, namely an insight into what the British were planning. His contributions, recognized by all as indispensable, led Arthur Griffith, the founder of Sinn Fein, to remark that Collins was “the man who won the war.”

With the declaration of truce in July of 1921 the Irish and the British began to talk about settlement of the issues outstanding. The Irish position was indeed difficult, as the political agenda had been laid out by the Easter Proclamation of 1916, which declared an Irish Republic, with governing authority over the entire island. The political and governing authority of the self proclaimed Irish Dail, flowed from that document. The British had other ideas.

Michael Collins was sent to London in October of 1921 as part of the Irish negotiating team, empowered by the Irish Dail to sign a treaty with the British. Space will not allow a full examination of the issues involved in the sending of Collins, but it is clear that the Irish President, Eamon De Valera, having been to London in July with a negotiating team that did not include Collins, realized that any agreement would, by necessity, fall short of the Irish ideal. He chose not to go again, but to send Collins and Arthur Griffith as the heads of the Irish delegation. De Valera’s decision, and subsequent actions, had tragic consequences for the Irish nation.

Collins brought home a treaty, later ratified by the Cabinet, the Dail, and the Irish people, that gave the unionist element in the North a veto over entry into the Irish Free State, gave Ireland Dominion status and recognized the British king as sovereign, and allowed British control over Irish ports. But it removed the British military presence from the 26 counties of the newly created Irish Free State, which enabled Collins to correctly state that the treaty was a “stepping stone” to true Irish independence. History has borne out the Collins judgment, but the treaty itself propelled the Irish Civil War, and split the Irish political leadership in two, and led to the death of Collins.

The political arguments centered principally on the oath of allegiance to the British king, and the acceptance of partition through the unionist veto in the northern six counties. Collins principal political opponent on the treaty, Eamon De Valera, entered the Free State Dail in 1927 and took the oath. He later, using the Free State apparatus that he had so vehemently opposed, got rid of the oath and produced a new constitution for Ireland. The Irish Free State, under a Fine Gael Taoiseach, proclaimed Ireland a Republic in 1940. Collins argument, that the Free State would propel Ireland towards a fuller freedom, had come to pass.

And so we arrive at the Good Friday Agreement, reached in 1998. The agreement included the I.R.A., and dealt with the issue of partition, amongst a host of other issues. In short it codified the principle that the northern six counties could not be compelled to join the Irish Republic, but would do so only by vote of the six counties. It deleted the provision in the De Valera constitution that made a territorial claim to the Northern six by the Irish Republic, and did so after approval by the voters of the Republic of Ireland.

The Good Friday Agreement, as well as the evolvement of the Free State into the Irish Republic, provides undeniable proof of the essential brilliance of Michael Collins. He saw in 1921 what it took so many others multiple decades to see. That vision and the record that follows him surely vindicates the difficult, but ultimately necessary decisions he had to make to create the Irish Free State and ultimately the Irish Republic. He truly is the father of modern Ireland.

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