Time to Occupy State Pensions?
Published on: June 25, 2012
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  • An intelligent legislature would legislate GAAP for all government entities. But we have Congress, the antithesis of “intelligent legislature.”

    And it’s worse – lots worse – than the post indicates. Coupled with the lunatic social welfare model of Europe & American Democrats, the entire Western system of sovereignty is about to blow-up, leading to the long-term goal of the Left: one-world govt, paid for by the profligacy of the Left, intentionally bankrupting the world to get there.

  • Anthony

    WRM, proposing stronger regulation of government pension funds implies legislation (which entails legislatures composed of politicians) enacted by one side of your unholy triangle – can the devastating political irresponsibility and opportunism you imply be curtailed from one end of country to the other? Just today, a report (State of Illinois pension funding crisis – The Civic Federation) on Illinois/Chicago public pensions highlights political wrangling militating against pension reform.

    The issue does not resonate left or right; nor is it simply regulatory capture but consequence of unsustainable model that no one questioned until 2008 fiscal/financial crisis. Now WRM, public retirees, government workers, taxpayers, and others need state governments (legislatures) to unring the bell and make the hard choices – certainly easier said than done.

  • cubanbob

    Madoff is in prison for life for less thieving than that. And depending on when they got in and what prior distributions they took, his victims will recover more than most of these pensions will pay unless the taxpayers are forced at gunpoint to make good on them. Yet another reason why laws applicable to the private sector should also be applicable to the private sector.

  • thibaud

    MUCH better. Nice to see Dr Jekyll-Mead again, and nice to see that the retirement of the flapdoodle phrasing about a phantom “blue” “social model” (though the VM database apparently retains the BSM tagging).

    “… the collusive effort by Wall Street, the political class, and public sector unions…. [T]he whole mess is a strong argument for those who believe that “regulatory capture” means that a powerful government ends up serving the rich and well-connected rather than helping working and middle class Americans.”

    Finally! This is progress. The issue has zip to do with partisan politics: there are reasonably well-managed pension funds in New York State, and atrociously-managed pension funds in rock-solid Republican states.

    The issue here is much deeper. It goes to the heart of our political culture, with the way Americans have allowed themselves to be governed – or rather, mis-governed – for nearly a generation by a political class that long ago was pocketed by the investment banking industry.

    Perhaps the Via Meadia interns will be directed to do research on how Holland, Canada and Sweden have reformed their banking sectors and ensured disciplined, honest, professional pension fund management? A reader can hope.

  • thibaud

    Speaking of regulatory capture, perhaps we will see an expose of how the for-private health insurance mafia captured the US healthcare regulatory apparatus and conned our gullible pols – it was the Republicans, originally, but who cares at this point -into ditching common sense reforms and instead adopting a cockamamie scheme to ensure steady profits for them.

    Aka the “individual mandate.”

    Aka the tribute paid by our sadsack political class to their masters at United Health et al.

  • Fred Koffman

    Yes, its not a perfect system. But picking on bureaucrats who make a modest salary when Wall Street tycoons are making money hand over fist seems trite. I think we are getting in dangerous territory when we disparage unions all the time, and are convinced all people under these systems aren’t pulling their weight. What are we doing to ourselves in the name of progress and efficiency. I am sorry, but I do think some of the blue models have merit, and we can move forward without making them the enemy. I see what happens when the markets and utilitarian values run amok, and it isn’t pretty.

  • Eurydice

    I wouldn’t even trust the way they mark their assets, let alone their liabilities. Those complex assets can have more legs than an octopus and each leg has a bid/offer spread you can drive a truck through. Ok, disturbing image – but the point is that they’re built on multiple assumptions of price/risk/volatility which compound the element of “theoretical.” And if a structure is created especially for one of these giant funds, the fund is a market of one – so how do you price that? Most consevatively, it should be at whatever level the counterparty is willing to take back the risk (which is why assets like this should be a very small percentage of the portfolio) – but it’s not the most politically correct way to price, for the fund or the manager.

  • Jim.


    Perhaps it’s a good idea for VM to do some research into Holland, et al. It would be good to know if there were as many disasters there as he found in the Blue states that one commenter pointed to as a model for probity regarding their pension funds.

    Weren’t some of those same “100% funded” pension funds the same ones he (or rather their managers) eviscerated here?

  • jvermeer

    The core problem is the defined benefit plan. Make all retirement defined contribution, participants would own their own account (which is why politicians don’t like it; harder to steal), add rules to insure a broad investment base.

  • Jeffersonian

    Why not invest pension like I do my retirement, i.e. with Powerball tickets?

  • “The biggest scam going in American financial life may be the collusive effort by Wall Street, the political class, and public sector unions to use union retirement money to prop up Wall Street speculation.”

    Sounds like China.

    The New Convergence!

  • Steve W from Ford

    The final link in this dishonest chain is that in many of these jurisdictions the payment of promised benefits to public employees is guaranteed by their state constitution.
    It is not even clear if a normal Bankruptcy can relieve the obligation of the local taxing entities from making up any shortfall.
    Short of constitutional reform the only way out of unaffordable pension promises in some localities will be complete collapse of the government. We have seen in Detroit how far down THAT ride can go!

    Some ambitious Attorney General could instantly make a name for himself if he arrested a few dozen politicians, former politicians, fund managers, trustees and the scheming union management that have all colluded to defraud the pensioners and the taxpayers by promising what can never be delivered. It might not lead to conviction but it would sure help to spotlight the bankruptcy of the current system.

  • gringojay

    “Moving paper fantasy….” lyric from
    Broadway play Hair still resonates.

  • Richard Treitel

    [email protected], it has been pointed out that public-sector pension funds in Canada are using well-paid professional managers http://www.economist.com/node/21548970 and achieving decent returns. Why can’t this be done in the USA? Your guess is as good as mine.

  • thibaud

    @ #8 Jim – “Perhaps it’s a good idea for VM to do some research into Holland, et al. It would be good to know if there were as many disasters there as he found in the Blue states…”

    Funny you should ask, Jim. Deep “blue” Holland’s pension system is known throughout the financial world as best in class when it comes to legal and regulatory toughness, professionalism, and financial integrity.

    “Blue” Canada is known for the excellence and integrity of is pension management, though its funding ratios do not quite reach the stringent standards of Holland’s.

    “Blue” Sweden long ago made the biggest and most consequential shift toward healthy pensions, ie moving from DB to DC.

    Re. Holland, here’s a commenter on another VM thread:

    Josher says:
    June 12, 2012 at 10:50 am
    Holland is very liberal when it comes to social policy, but speaking as an bond trader and observer of European fiscal and monetary policy for the last 20 years, Holland is one of the most fiscally conservative tough-minded states there is when it comes to realistic and conservative budgetary principles. If they vote for it, then they fund it. No fudges.

  • Jude

    Dead on. Just by way of example, a few weeks ago a woman who served as a financial advisor to John Edwards and Al Gore joined a NYC-based hedge fund (which invests in volatile “distressed debt”; the promise of higher potential returns is blinding the pension managers to the possibility of very large losses).

    The idea is that she will be able to assist at the hedge fund, via her Democratic/labor union connections, in attracting public pension money.

    No doubt she will. The Occupy Wall Street people surely have aimed at the wrong target.

  • The public pension problems of the states and localities are a disgrace. “Regulatory capture” doesn’t begin to capture it.

    Like most of other seeds of the financial crisis that started in 2007, the seeds of this one were planted in the Clinton years. While some of the regulator figures of that era tried pushing back on public pension accounting, the political pressure was too strong. Two major Democratic pressure groups stood to benefit, the public employee unions (which everyone knows about) and that other one … the crony leveraged finance crowd (which is curiously ignored by the media): Geithner, Rubin, Corzine, Falcone, Gupta, etc., etc., all Democrats. Transforming the Democratic party into a venue for hedge fund chiefs and celebrities was one of Clinton’s major “accomplishments,” one which Obama has taken to a new level.

    For example, take Corzine — please, take him, to jail 🙂 — the ex-senator and governor of New Jersey. In alliance with the NJ public employee unions, he loaded up his state with municipal debt and other obligations beyond what the state could ever realistically pay. (Gov. Christie is now dealing with the consequences.) The pension funds are invested with, and municipal bonds underwritten by, some large Wall Street banks, one of which is … Goldman Sachs, Corzine’s former employer.

    (It was the combination of bubble-economy tax revenues and false investment banking promises that lead to undersaving at the pension funds, under the misimpression that fabulous returns could make up for the too-low base saving rate.)

    Incredibly, unable to make it at GS again, he became the head of the commodities broker MF Global, which he promptly bankrupted, probably committing various illegalities along the way (using customers’ funds to cover losses elsewhere). Since Corzine was a major Obama supporter, donor, and fundraising “bundler,” he’ll never be prosecuted. Corzine exemplifies the corrupt nexus of public finance and crazy risk-taking, with regulators looking the other way, that became SOP in the late 90s.

    Nice work, if you can get it.

  • And … when a crisis blows up from these reckless maneuvers, you can bet that Greenspan and Bernanke have been there to provide “liquidity support” and ever-lower interest rates to keep the party going and cover up the losses.

    The corrupt nexus extends to cronyistic central banking, with representatives of the major Wall Street banks sitting on the board of the NY Fed, drooling at the possibility of more quantitative easing or some other other gimmick to shuffle the bad debts around.

    (The coming insurance and pension crisis, one that hasn’t happened yet, will arise from the crazy, artificially low interest rates of the last 12-14 years, which have distorted risk perception and risk-taking globally. To take limited risk, as Mead suggests, means being stuck with paltry returns and negative real rates, thanks to the insane Fed.)

    While Big Al and Big Ben are Republicans, they didn’t fit well in the monetarist, tight-money 80s. But they fit in very well in the Clinton era, implicitly promising everyone a never-ending party of cheap credit.

  • Marty

    You conflate two things, which are separate but by convention are often treated as one–the assumed rate of return on investmnents, and the discount rate used to calculate teh NPV of future benefit payments. GASB rules now say the discount rate should equal to investment rate–that’s a convention which the new rules will change. But people have gotten very loose about the difference.

    A higher rate of return means you will earn more on your assets and therefore employees and employers will have to contribute less. the higher discount rate which that drives makes the pension fund look healthier than it is (NPV of liabilities looks lower) and if teh funding scheme is based on the current NPV of teh liability, that ALSO makes for lower contributions.

    Rauh mostly talks about the discount rate, but the gist of this post is really more the rate of return being chased. In the end, you could give Rauh his low discount rate, but the Wall Street issue is more the assumed rate of return. Keep seeking 8% annual returns and Funds will still be chasing inappropriate investments, regardless of the discounted NPV of the liability.

    So, yes, the new GASB rules are weak because they only deal with the discounting side–but GASB has no power beyond financial reporting. Regulation of rates of return and investment policies must be done in each State. And because such realism increases costs, the pols of both parties are not happy about that.

  • Sefton

    Thibaud, you’re refuting an argument that isn’t being made.

    No one here is questioning the desirability and importance of worker pensions or unions for that matter. Mead does not mention the Blue Model.

    Mead’s point. is simple: these important safety nets – money these people are counting on –are often not being truthfully, economically and realistically managed. I’d think you’d be right behind him.

    Yes, Holland or Sweden or wherever may have a better system, but they are better because (as another commenter has said) they are well managed. Mead simply says ours are not due to the collusion of politicians, labor and Wall St. You say Holland is better, Mead is offering suggestions to get us there.

    And it doesn’t matter if a Blue State pension fund is fully funded, as you’ve said before, if it is paying an outrageous fee of 5%.

    And it doesn’t matter if a Blue State pension is fully funded or well managed if to do so brings the state to its knees. It is the expense not the management. The Blue Model is failing. I’m not saying this. NY and RI are. Someone has to explain it to CA and IL. When you think of the Blue Model you see a safety net. That may have once been true. When I think of the Blue Model I think of the collusion Mead writes of. I see liberals who don’t care if something works as long as there is more of it.

    In the liberal narrative Wall Street grew and took over the government. No, the government grew and grew Wall Street to finance itself. That’s where regulatory capture comes in. Profligate governments always need bankers. This didn’t happen in the last generation. You could see it in embryo as far back as the NYC financial crisis of the 60’s and 70s. More recently, Goldman Sacks snookered Greece earlier in this century, but it was only possible because Greece was trying to snooker the EU by hiding its enormous debt. Where did the debt come from?

    Oh, and I’ll disparage unions if they are responsible for not educating my kids.

  • Eurydice

    Richard @14 – There is no reason why pension funds can’t have responsible management in the US. In the article cited, the example of Georgia shows it can be done – that’s a pretty good return considering the average annual return on the S&P for the same period is about 2.5%. Of course, in a different environment, that prohibition against alternative investments might have hurt them relative to other funds, and then there’d be a bunch of articles about how they weren’t being responsible. Comparisons limited to a specific period are only useful when they corroberate a specific thesis.

    The thing is that when a client says “I’m offering a lot of money to the guy who can find me a unicorn”, suddenly there’ll be a line of guys all leading unicorns.

  • srp

    The problem with relying on supernormal returns is that by definition the average return across all investors has to be the percentage growth of the economy. For every investor doing better than that, there has to be someone doing worse. So the universe of active management is really a zero-sum game (or a negative-sum game if you consider fees to managers an outflow from the game).

    One implication is that if pension fund investments were to massively outperform the economy, then other investors would have to counterbalance that with sub-par performance. Who are these putative losers supposed to be? They can’t be passive indexers. I’m not sure there are enough individual defined-contribution suckers using bad active management to cover the tab. Active-trading investment banks might fill this role, except that they seem more likely to use their information advantages to screw the pension funds than be victimized by them. Maybe there are some naive foreigners to be fleeced.

  • SteveMG

    The Blue Model is failing. It simply cannot provide the benefits in today’s world. Period.

    As soon as our liberal commentators here recognize this and stop pointing to a Holland or a Singapore or some other odd example that bears no relationship to the US the better off we will be. Note: California alone has a GDP more than twice the size of Holland and is, alone, more ethically and religious and cultural diverse. Forget about the 49 other states.

    Conservatives are too radical in their reforms. They need to be reined in. But if liberals are only going to be reactionaries and ignore this problem than the conservatives will hold sway.

    As Lincoln said 150 years ago (in a more difficult situation of course): “Our problems are anew and we must think anew.”

  • Richard Treitel

    [email protected] is quite right, and I’d be interested to see the numbers for TX, but when two states the size of CA and NY are broken, the overall picture is still very bad.

    Now think about the trillions of Chinese retirement savings that have landed in the US (I can’t prove that they mean to use that money for retirement, but they’re staring at a funding problem that dwarfs Social Security and those T-bills may be the single biggest chunk of money they’ve got) and kept interest rates down. A case can be made that retirement all over the world is the underlying economic problem: literally billions of people are looking forward to a comfortable few decades when they can do all the things they’ve always wanted to do and their children can pay for it.

    The fundamental problem isnt’even much affected by whether you use a DB or DC scheme, though a DC scheme makes lying about it less likely. If there are a thousand retirees wanting hospital beds and only enough staff to run a hundred-bed hospital, it doesn’t matter how many pieces of paper the retirees have; something’s gotta give.

  • thibaud

    Even when Mead backs off of his silly and vapid phrase, the anti-government crowd here tries to resurrect it.

    What is meant by “the blue social model”? Is this grandiose, ten-dollar phrase actually just a narrow signifier for over-generous pensions managed by incompetent hacks in league with corrupt pols?

    Well, no argument here. Hacks: bad. Corruption, too. You betcha. Everybody on both sides of the Atlantic who’s been paying attention knows what’s needed to reform pensions, so there’s nothing added by the “blue model” trope.

    But if you’re just decrying poor pension management, then there’s not much “social” left, and no “model.” If you have to sneer at blue, then maybe “Blue Meanies” would be a more apt phrase: it’s definitely less confusing and less pompous.

    Alternatively, is this “BSM” code for that old-fashioned, libertarian attack on anything and everything related to the safety net?

    Well, that raises lots of questions. Are you trying to argue that a generous safety net is unsustainable under any realistic scenario? The experience of well-managed northern country after country blows this notion away.

    That cuts are required will get no argument from the Canadians, who under Chretien cut their deficits and trimmed intelligently during the 1990s, or from the Swedes, who did likewise, moving their pensions from DB to DC years ago.

    But the safety net remains intact. Canada, Sweden, Holland, Germany etc all have robust universal health insurance systems that continue to deliver excellent care – at half the per capita cost of our Rube Goldberg kludge. It’s our model that’s dying, not theirs.

    Do you mean simply that we should not offer programs if we’re not willing to fund them adequately? Again, your parochialism’s showing. The Dutch fund their promises. The Canadians have slashed their deficits. It’s the TPers who refuse to align revenues and expenditures, not our frugal, prudent cousins to the north and across the pond.

    There’s not much gas left in your BSM at this point, so perhaps it’s just part of some leftover 1980s narrative about shiftless welfare mommas and other scam artists.

    Well, since 1980, there’s been a rather more important implosion, of a real social model, aka the bread-and-circus model of easy money and artificially cheap consumer credit as a sop to Americans pinched or displaced by declining living standards, job insecurity, escalating healthcare costs etc.

    We’ve learned a few things since Falwell and Atwater and Reagan departed this vale of tears, most importantly about the extraordinary corruption of our financial sector and the extreme imprudence of that libertarian hero, Alan Greenspan.

    But apparently the starve-the-gum’mint crowd hasn’t learned anything.

    Why you’re trying to resuscitate the “BSM” canard, when Mead has abandoned it, is beyond me.

  • thibaud

    @ 23 Steve – “some other odd example that bears no relationship to the US …. Note: California alone has a GDP more than twice the size of Holland and is, alone, more ethically and religious and cultural diverse. Forget about the 49 other states”

    Why forget about the other 49? You mean that OK, AK, KY, AR etc do not have statutory control over their public pensions? Enlighten me: when did that happen?

    So if the sovereign authority for the Oklahoma Teachers Retirement System is the state of Oklahoma, then why is it not relevant to compare OK with the province of Ontario?

    Is it because your argument falls apart when it’s pointed out that Ontario’s bigger and more diverse, by far, than many of the US states that have pensions with funding rates that are 20 or 30 points below Ontario’s average?

    It’s really pathetic to keep seeing these excuses as to why we cannot govern ourselves as well as the Canadians or northern Europeans. You sound like a Russian bemoaning his supposedly ungovernable, sprawling _polny bardak_ of a backward nation.

  • John Nelson

    Putting worker pensions in high risk and high fee assets benefits the liberal pols, union leaders and “liberal” investments houses while screwing the state workers.
    Since the current recession begain most people choose to be more conservative with their investments. Unfortunately, most state workers enjoy no control over where their pension dollars are invested. The liberal politicians, union bosses and liberal investment bankers control how and where those pension dollars are invested.
    Those SEIU and AFSCME people sure are suckers.

  • William Livingston

    During the Viet-Nam War more than 303,000 Americans were WIA, although only rougly half of them, something more than 153,000 required any hospitalization.

    Roughly 7 3/4% of our WIAs, or 23,214 of us to be precise, were determined to be 100% permantenly disabled to our wounds.

    I one of the 23,214 am waiting on the fiscai axe to fall on me; after all, I’ve been coasting on the taxpayer’s dime for 42 & 1/2 years thus far. When is the taxpayer going to tire of feeding me?

  • KTnTX

    Private sector pensions are a bad idea for the employee. First they require you to stay with the same employer for 30+ years. Most people switch employers more than 9 times in their careers meaning they never accumulate the tenure to benefit from a pension. Even if they commit to one employer, a pension is too risky. If someone graduates from college and begins working for a company at age 22 it will be 43 years Before they begin drawing their pension( at age 65). If they are married at that point, they or their spouse has a good chance of drawing on that pension for 30 years. This means for this system to work the employee who forgoes the upword mobility that job jumping offer needs his employer to be financially stable and able to support the pension for 73 years. The odds of a company being able to do this are slim. In a given 50 years period more than 90% of the S&P 500 will turn over. A company surviving and supporting an expensive pension for 75 years is the exception not the rule. Anyone who yearns for a company pension is probably going to be disappointed (unfortunately this disappointment often comes so late in life that it is too late to save for retirement on their own).

  • Pronghorn

    Eliminate all public-sector pensions in favor of defined-contribution plans where the employee controls the principal. This lunacy has to end.

  • amathonn

    Our predecessors have created a system wherein one portion of the population works to support the other portion. The load on the latter is becoming unsustainable and the ultimate consequences will not be pretty. Better to fix it now before catastrophe arrives.

  • sestak

    the public pension system is a nightmare, politicians are spending other people’s money (ours) to get re-elected so they can retire wealthy. Unfortunately the final arbiters here might be judges who also of course are part of the entitled civil ‘servants’. Wall street and private equity of course also like spending other people’s money, but at least they do need to compete for it (e.g bain would argue in favor of their track record against dozens if not hundreds of comparable alternatives). It’s easy to knock ‘alternative’ investments when the market has been down, but i have no problem with pensions investing a reasonable % in hedge funds or private equity. Please be careful 1. not to confuse cumulative fees with annual returns, 2 use a variety of timeframes (say 5, 10 15 year) to measure returns net of fees and 3 compare those returns with benchmark treasury or S&P 500 returns for context.

  • I do applaud thibaud’s posts. He helps keep WRM honest assuming he is capable of changing his mind (which I assume that he is). Knowledge from facts!

  • We need to elect Mitt and conservatives to bring our Country back from the Brink of destruction.

    Mitt 2012

  • Don Ake
  • bob josephs

    i think that government pension funds were suckered by all the public relations baloney in the biz press in early & mid 2000’s about how the harvard, yale, etc. endowment funds were getting big returns on unconventional investments. the PR campaign was likely run by private equity , hedge funds & wall street people. when it hit the fan in 2007 they told the folks running these funds it was time to double down, because you couldnt be going to the taxpayer & say ante up .wall street traders view on life is “heads i win & tails someone else loses” in this case taxpayers & beneficiaries of the pensions. prop traders like JPM’s london whale who trade these exotic derivatives will get another job 2 billion loss or not.maybe with the counterparties to his trade .he made them billions after all

  • james m

    why tar Wall Street with this brush? this is clearly a issue w government and pensions and their collective mismanagement. Wall Street will sell them whatever they want/need. underfunded pension funds simply have to crawl further out on the risk/return spectrum to patch their underfunded plans.
    i would also point out that there are plenty of sophisticated investors that play in alternative assets a broader part of a diversified portfolio.

  • pottfullofpith

    Last evenining, I watched as Bill Moyers and two guests rose into higher and higher dudgeon as they accused the financial system (Dimon/JPMChase figured prominently) of all manner of crimes, including fraud in the form of selling mortgage-backed CDO’s to public pension systems, all the while “knowing” that the underlying assets were overpriced/overrated. This in turn led to outrage that the innocent pensions systems and their beneficiaries were now being painted as the greedy bad guys whose contracts ought to be broken. There was no mention of 1) how the CDO’s came into being, namely through the involvement of government in creating access to easy credit; 2) how the financiers “knew” about the overrating while the pension managers in charge of billions with staffs numbering in the hundreds were kept in the dark; or 3) that the existence of the supply of overrated stuff was at least in part a response to the demand on the part dishonestly valued pension funds for higher yields so that the true costs to taxpayers could be hidden for a while longer.

  • Wayne Lusvardi

    It is interesting to note that in the Stockton, California bankruptcy action the judge in that case, as of last report, has not invalidated the lucrative pension contract.

    In California the unions are still hoping to win in court appeals over the pension reforms passed by voters in San Jose and San Diego. And they may very well do so.

    Then what? Most local and county governments cannot meet their pension obligations unless they go out of business or scale back their operations to a skeleton crew of police and fire personnel.

    So pension reforms passed by two large cities in California are something to cheer about but it is premature to do so. The real fight will be in the courts and in California there is a history of the courts overturning the will of the electorate. And then there is always the infamous 9th Circuit Court of Appeals to appeal to in California.

  • RonRonDoRon

    thibaud –

    Have you actually read any of Mead’s writings on what he calls the “Blue Social Model”? If you have, then perhaps you could argue against his theories rather than just throwing around words like “vapid.”

    What he discusses is a much broader subject than just public pensions or even just public employees. His thoughts on the future are mostly questions – if the BSM (as he calls it) no longer works, what will replace it?

  • RonRonDoRon

    sestak –

    “pensions investing a reasonable % in hedge funds or private equity”

    I don’t think any reasonable person objects to that, but if some plans are putting 46% (PA) or 26% (CA) in that type of investment, I don’t think anyone could call that reasonable. I know for certain no private company’s pension fund could get away with it – it would be an obvious breach of the “prudent man” rule written into ERISA.

  • Wayne Lusvardi

    To expand on your article, billionaire Tom Steyer is an external fund manager for CalPERS – the California Public Employees Retirement System. He is an outside manager of investments for CalPERS through his company Farallon Capital Management.

    In 2010, Steyer donated $5 million in the campaign against Prop 23 in California that would have suspended the state’s Green Power law – Assembly Bill 32 – the Global Warming Solutions Act.

    Energy Sources are fungible, prices are not. Electrical energy is fungible which means that a number of different fuels and technologies (oil, gas, hydro, coal, wind, solar, geothermal, etc.) can function as substitutes. They all can produce electrons that can go into the electrical grid.

    However, hydro-power and coal power are typically the cheapest, with natural gas being of intermediate price and wind, solar and geothermal being the highest priced (including infrastructure costs).

    Should an energy provider be able to knock out a competitor, such as cheap coal power, using California’s Green Power law, then oil and natural gas prices would probably rise substantially.

    Without cheap hydro and coal power to keep oil and natural gas prices in line, it is likely that electricity rates would rise. Since the price of energy is loaded into the prices of food, transportation and many other economic goods and services, rampant inflation would likely be the result of eliminating coal power from the energy mix. Hydropower is explicitly banned as “clean” energy under California’s Green Power law even though it emits no pollution.

    Under California’s green power law those holding stocks in oil and gas and clean, renewable power providers would likely thrive while stocks in cheap coal and hydro-power and refineries would apparently suffer.

    See “Prop 23 Foe Profits From ‘Dirty Coal’ – Calwatchdog.com, Oct. 28, 2010

  • thibaud

    Ron Ron – just googled and got about 594,000 results.

    I’ve only read maybe 0.0001 percent of those results, but I feel like I’ve read all 594,000.

    A summary of his March 2012 talk at AEI tries to pin down the BSM and mainly ends up with the first two initials.

    First the poor intern at AEI tasked with parsing this mess describes his “blue social model of society” [sic] as an economic analysis, a description of the post-New Deal new industrial state.

    Then the poor soul or souls pivots and says the BSM is really all about governance.

    Then they call it a mode of organizing work and leisure and the family farm.

    Then they say it’s about the professions and institutional authority figures.

    Then they say it’s, well, gosh, it’s large, it CONTAINS MULTITUDES, it’s “the core institutions, ideas and expectations that shaped American life for the 60 years after the New Deal.”

    Because, whatever it is, it/they/whatever “don’t work anymore.”

    And isn’t that just the point? It doesn’t work anymore!! Whatever it is, it’s BROKEN, and we need new digital strategies for harnessing the power of crowdsourcing the kickstarters of the new path forward to the post-blue post- post-it note social economy governance work-life thing. I mean, Model.

  • gmonsen

    However the writer is, he is certainly a fool. As the basic notion of public employees getting such outsized benefits is wrong, so is the notion that pension managers can make “safe” investments returning 4 percent or whatever. Pensions set their return targets so that there is enough money to pay the benefits they are scheduled to pay and to do so, they need more aggressive returns from more risky investments. Safe investments, assuming you could know with certainty what is safe, won’t cover their payouts.

    And taking Wall Street out of the equation leaves you — the pensions — with no one who understands investing. Pension employees are themselves state employees and anyone who would have them make investment decisions are fools in the same vein as this idiot, politicized author.

    I really think liberals must have evil enemies to fight in order to save the victimized and oppressed. Much like God, liberals would have to invent bad guys if they didn’t exist. Wall Street is a great such villain. Although there are investors and financial advisors in every city and town in America, all these professionals who have their respective CFA, CPA, and Series 7’s and 63’s, which take many years of study and practice to obtain, are all “Wall Street”.

    Dumbing it down is not really understanding the problem, it is simply an emotional release of anger and frustration. And, did I mention the author is an idiot?

  • JPF

    Whoever above called this a disgrace has that right.

    As one trained in news gathering, I shudder to think of the difficulty of presenting this story to a Tweeting, Facebook, cable news dependent public. Numbers are discouraged in news stories, and limited to only the most dramatic one or two, in general. In addition, the subject matter quickly becomes arcane, except to actuaries and other sex pots.

    What is pretty easy to grasp here, however, is fiduciary responsibility, which is the provenance of elected officials, pension fund owners, and investment managers.

    Of course, the missing piece in this road to ruin is accountability. Ultimately, it rests with nearly all of us –
    those who took what we could because every one else was doing the same. To be sure, there are innocents, but
    mass outrage and blame is beginning to ring hollow.

    We need accountability and people need to go to jail for breaking the public trust. And if the federal government is going to be the final guarantor of those trillions of unfunded dollars, we need a bankruptcy law for the states that requires them to use the same assumptions as the private sector. New regulations in Dodd-Frank are driving
    the private pension fund managers bonkers.

    Double standards, in my experience, start with good intentions, and almost always end making everything worse.

  • Glen

    This is not a pretty sight, and the whole mess is a strong argument for those who believe that “regulatory capture” means that a powerful government ends up serving the rich and well-connected rather than helping working and middle class Americans. [emphasis added]

    The simple fact that regulatory capture is not accepted by everyone as a fact of life is the real problem.

  • richard40

    Good article, and completely correct. The union bosses dont give a hoot about their own members. They only care about power and influence. That is one reason why when public sector union members in WI were given a voluntary choice to remain in their public sector unions, they left in droves.

  • Jack Wallace, Jr.

    I challenge the author’s supposition that most public employees are unionized. That is an assumption that is simply not true in the South. I work for the State of Alabama and we do not have unionized workers. Period. It is very common for Republicans and other right wingers to call several employee organizations in Alabama unions but we do not have collective bargaining in Alabama. This is just another attempt to smear those good people who work hard to serve the public, making less money than people with comparable educations and comparable levels of responsibility make in the private sector. Keep in mind that the government work force is generally better educated than the average private work force.

  • non union professor

    1998 Illinois Supreme Court Sklodowski decision: “allegations of underfunding are insufficient as a matter of law to constitute an impairment of benefits. Plaintiffs … have alleged only an opinion that present funding levels are insufficient, from a prudential standpoint, to meet the accrued future obligations of the funds. These claims have no factual allegations that would support a finding that the funds at issue are ‘on the verge of default or imminent bankruptcy’ such that benefits are in immediate danger of being diminished.” Essentially, Supreme Court ruled that while beneficiaries do have a contractual right to benefits, the Illinois constitution does not require that the state pre-fund those benefits. http://businesspublicpolicy.com/?p=821

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