Real Rates of Return

It would be easy to condemn as irresponsible the City Council of Vacaville, California, for their vote last week, granting “3% at 50″ benefits to their firefighters. At this point, don’t we all know these are financially unsustainable promises? But on the other hand – isn’t ”3% at 50″ the standard for municipal firefighter contracts? Shouldn’t these firefighters earn pensions at the same level as their counterparts in other cities? Indeed they should. The real question is this – can Vacaville invest 23% of their firefighter’s salaries into a pension fund each year – Vacaville’s current commitment – and expect it to earn a sufficient amount to fund these upgraded retirement benefits? The answer hinges on what real rate of return their pension funds can expect to earn over the next few decades, and what variables will influence these returns upwards or downwards.

In this analysis, we assume a firefighter retires after 25 years work at age 50, which at 3% per year, would mean this firefighter would collect 75% of their final salary throughout their retirement. At various real rates of return on investment, for how many retirement years would this firefighter have a solvent pension fund? In the tables following this post are three cases which I believe use real rates of return – i.e., adjusted for inflation – that might be reasonably projected over the next few decades, 3%, 4% and 5% per year. Depending on which of these returns you choose, surprisingly different funding scenarios ensue, [...] Read More

The Footprints of Rail Transit

If you properly assess the financial and ecological sustainability of train travel vs. auto travel, you will find the present conventional wisdom that almost exclusively prefers train transportation is possibly misplaced. The idea that bullet trains are more efficient conveyers across long distances than airplanes, for example, is rarely accurate. Similarly, developing light rail transportation, other than in very large urban areas, instead of widening existing freeways, is usually a more wasteful option. Here are examples of ”footprints” towards a more comprehensive set of criteria with which to examine rail transportation vs. road vehicle transportation.

THE FOOTPRINTS OF RAIL TRANSPORTATION

(1) Greater Risk of Mass Casualties: With systems as big as passenger trains, an operator failure or systems failure leading to a catastrophic accident will necessarily result in more casualties than with individual cars or even busses. Moreover, with road vehicles, with ever advancing new designs, it is possible to eventually nearly eliminate the probability of fatal accidents, whereas with the size of trains and the necessity to maintain the rails, train transportation will always be like air travel – impossible to operate without risks of accidents with mass casualties.

(2) Greater Risk of Disease Transmission: Compared to the cocoon of one’s own car, there is a greater risk of spreading communicable disease when humans are packed together in trains. Will trains even operate during severe epidemics or pandemics?

(3) Greater Risk to Personal Security: Again, compared to one’s own car, there is far greater personal insecurity a [...] Read More

Resource Development vs. Rationing

California’s decision to “decouple” the amount of revenue their regulated public energy utilities receive from the amount of energy they deliver is hailed by environmentalists as a breakthrough. But the consequences of this decision to enforce artificial scarcity are not fully appreciated. It might be argued that this policy of “decoupling” the amount of money you collect from the amount of value you produce is a dangerous tampering with the natural laws of supply and demand, and is orchestrated by special interests who benefit while the consumer is victimized. Now the NRDC, in a report released last month entitled “Making Every Drop Work: Increasing Water Efficiency in California’s Commercial, Industrial, and Institutional (CII) Sector,” wants to do the same thing to California’s water supply.

Here are two of the recommendations the NRDC makes that make chills run down my spine:

(1) Prioritize water conservation above increasing supply. The State of California should codify the requirement that efficiency improvements precede supply side resources—as it did in the energy sector—to motivate investment in water efficiency and recycling by agencies who might otherwise be awaiting development of traditional water supplies.

(2) Decouple water agencies’ sales from revenue. Water agencies should not need to rely on water sales to assure their fiscal stability. Water agencies should instead adopt a structure that allows them to recover additional money from customers if sales are significantly below projections. This revenue [...] Read More

Trillions and Trillions

If the old saying were coined today, it would be “a few trillion here, and a few trillion there, and pretty soon we are talking about serious money.” Who knows what trillions mean anymore – is the U.S. a $15 trillion economy, or are dollars fluid, and benchmarks meaningless?

Deficits are now counted in trillions of dollars, joining quantities previously ascribed only to global reserves of major commodities, or the annual output of large nations. One trillion. A thousand billion. A million million. Debts and deficits are now routinely counted in trillions with a T. Will requiring counting and auditing CO2 emissions, then taxing and assessing fees on CO2 emissions – and auctioning permits to emit CO2 – become the mechanism for governments to address their exploding debts and deficits, now denominated in trillians, and will such policies best advance the interests of humanity and the earth?

Commodities, along with the value of economic output, or economic capacity, wax and wane in the flux of the global market. If you try to completely regulate all this capitalism, if you try to eliminate all the waxing and waning, you are very likely to create a political economy resembling either fascism or communism. Enforcing a regulatory scheme so comprehensive as to encompass literally all combustion, concerned not merely about clean burning but burning itself, cannot help but require such tyranny.

“A trillion here, and a trillion there, and pretty soon we are talking about serious money.” Is the output of the entire [...] Read More

Prosecuting “Future Crimes”

The “World Future Council” has recently issued a press release stating “Crimes against Future Generations need to become taboo” (pdf), with a lead sentence that states the following: “How can we prevent and prosecute activites today that severely threaten the living conditions and health of those living in the future?”

Does this sound sinister to you? If you don’t buy into some of the dominant concepts of mainstream environmentalism today, if you appreciate the potential for unintended consequences, and if you are paying attention to the ongoing momentum of mainstream environmentalism, you will find this pronouncement sinister indeed. Here’s more:

“The fundamental rights of future generations need to be recognized in international justice. Investigating the concept of Crimes against Future Generations is a very important initiative to support this,” according to Prof. Marie-Claire Cordonier Segger, a World Future Council “Councillor.”

Like most utopian concepts, this all sounds great except for one glaring, fatal flaw: We can’t predict the future, or the judgement of history. For example, in their press release, WFC notes the problem of rainforest destruction due to oil drilling – ignoring the fact that most rainforest destruction in the past decade or more has been financed by proceeds from European emissions allowance auctions, because “carbon neutral” biofuel plantations were considered until fairly recently to be eligible carbon offset projects. Deforestation on the scale of hundreds of thousands of square miles was enabled by social engineers of WFC’s ilk, [...] Read More

Exposing Public Sector Unions

Several years ago a consummate Sacramento insider told me “unions run this town,” and subsequent research and observations have confirmed the truth of this statement. Slowly, very slowly, this reality, and the disastrous fiscal consequences of this reality, are being recognized. Criticizing unions is still something responsible people do with some reservations, after all, in the 19th and through much of the 20th century, unions played a vital role in securing basic worker’s rights. These contributions should not be dismissed. But unions today, especially in the public sector, are a different beast entirely. In our current anti-capitalist political climate, unions are getting far less criticism than they deserve, particularly because in the case of state, city and county governments, the unchecked power of public sector unions are almost the sole reason we have a fiscal crisis. Here are some points to consider:

(1) Compensation to public sector employees is not limited to their wages, but must take into account the value of their increased number of paid days off (AND the “9/80″ program which equals another 26 paid holidays per year), as well as the current year funding requirement (less whatever they contribute out of their paychecks which is usually only a fraction of the cost) for their retirement health and pension benefits. This “overhead” can easily double the annual cost for public sector employees, whereas in the private sector, overhead costs of this sort rarely exceed 25%. This overhead must be included when assessing how much public sector employees [...] Read More

The Climate Alarm Industry

On May 22nd, 2009, in the Wall Street Journal there is a commentary by Danish economist Bjorn Lomborg entitled “The Climate-Industrial Complex,” and that description says it all. One would think Lomborg is pointing out the obvious – that climate alarm is the pretext to orchestrate a massive transfer of wealth from the poor to the rich – but sadly, this observation is still obscured by overwhelming and terrifying visions of planetary meltdown.

Lomborg has never said global warming isn’t a reality. Like most skeptics, he acknowledges there has been about a 1.0 degree (centigrade) increase in the average temperature of the planet in the past 150 years. Lomborg doesn’t even question the latest and greatest climate models, which, despite the disastrous worst case scenarios that are constantly emphasized, only predict minor sea level rise and moderate temperature increases over the next century. Lomborg’s primary mission has been to simply perform basic cost-benefit analysis on the measures being proposed to allegedly reverse global warming, such as it is. When you do these cost-benefit exercises (read “How Much for a Degree“), the rhetoric of those who think we can actually control climate quickly is seen for what it is – misguided and often misanthropic.

In his May 22nd commentary, however, for the first time, Lomborg went a step further, and exposed the agenda of the “climate-industrial complex.” He quoted U.S. President Eisenhower, who coined the phrase “military-industrial complex,” and [...] Read More

Californian Exceptionalism

The golden state is aptly named. The state of riches and opportunity. California is High Sierra and endless ocean shores, redwoods, saguaro, rice, cotton, alfalfa, snow melt and seasonal squalls, rolling hills of oak and granite cliffs, breathtaking vistas and vast, varied terrain. California is rich in beauty, rich in natural wonders, rich in resources.

California’s people are a reflection and embodiment of the golden state, they are as varied as the landscape, and drawn from around the world, Californians have both created and sought this destination of dreamers. From Silicon Valley to Hollywood, from those who rushed to find the Mother Lode or worked to harvest the timber, the oil, the fruit of the land, the bounty of the sea, California’s people do its natural riches justice.

California is indeed unique, a teeming nation unto its own, drawing peoples from all the nations of the world. California is a geographically isolated region over a quarter-million square kilometers in area, located on the temperate western shore of North America, separated from the world by the Pacific Ocean to the west, the Rocky Mountains to the east, high desert to the south and dense forests to the north. And California’s people are equally exceptional.

From making movies to inventing megabits or engineering life, California’s contribution to global culture and economic development is impossible to overstate. California is Athens, California is Leonardo da Vinci, William Shakespeare, Friedrich Krupp. California culture and California technology are the vanguard of the world. This is California’s [...] Read More