Apolitical Government Reform

Not as a libertarians, but as a good government fiscal conservatives, who value government and government programs, how might we respond to charges of right wing radicalism? How might we respond to charges that we are biased against working people, or want to destroy the middle class, or are a tool of the super-rich? If you want to keep good government programs, but want to make government more financially efficient, how to respond to charges of resenting government workers, or wanting to change the deal on government workers, or not appreciating government workers? Focusing on the state and local government entities here in sunny California, here are some thoughts:

(1) Public employees used to take jobs that paid less than private sector jobs. Up until about 20 years ago, the trade-off was clear: Government workers exchanged a lower salary for better benefits, a pension that was better than social security, and job security. This was a fair exchange, and the system worked just fine.

(2) Over the past 20 years, during the economically unsustainable internet bubble followed by the real-estate bubble, public sector unions stirred up envy among public sector employees, prodding them into demanding unsustainable increases to their compensation to match the private sector. Since these bubbles have burst, these unions use their nearly absolute power over California’s state and local politicians to maintain unsustainable levels of public sector employee compensation.

(3) We now have a situation where public employees have, in most cases, better base salaries than in […] Read More

The Contract on California

California’s state and local government workers, who enjoy pensions that average at least five-times what a social security recipient can hope to receive, love to claim they have a “contract” that makes reducing these pension benefits impossible.

They certainly do have a contract – sort of like the contract an underworld boss might order on a troublesome associate. Except in this example the underworld bosses are the public employee unions, the troublesome associates are the taxpayers, and the “contract” requires the taxpayer to cover public employee pension fund returns. That is, whenever these government worker retirement funds fail to achieve their projected returns, the taxpayer covers the difference with higher taxes. Nice deal for Wall Street brokerages, who get to manage all the money with no risk. Nice deal for California’s state and local government workers, who enjoy retirements that are, on average, five times better than social security. Really, really bad deal for the taxpayer.

Spokespersons for the government unions and the government worker pension funds have long stated that “the market has just been beat up a bit lately,” and “investment professionals assure us there is no cause for concern.” But the sobering truth is starting to emerge, and according to “contract,” taxpayers are going to get hit hard.

On December 20th the CalSTRS CEO, Jack Ehnes, in a rather convoluted acknowledgement on the “Ask Jack” section of CalSTRS website, admitted that funding to CalSTRS would have to increase by $3.8 billion per year for the next […] Read More

Agroforestry is Regreening the Sahel

The African Sahel is the arid belt of land that forms a buffer between the Sahara desert to the north and the more temperate savannahs to the south. From the coast of Mauritania and Senegal to the west, the Sahel stretches over 3,500 miles to Sudan and Eritrea’s Red Sea coast to the east. Over 500 miles wide, this vast area forms the biggest front line on earth in the relentless battle against desertification.

For decades there has been nothing but bad news. Population increase led to overgrazing and unsustainable harvests of fuelwood. Equally if not more harmful to the Sahel ecosystems were the imposition of western methods of agriculture and forestry, techniques that began under colonial administrations and have been perpetuated over the past 50 years by well-intentioned aid agencies. A fascinating article by Burkhard Bilger in the December 19th issue of The New Yorker, entitled “The Great Oasis (subscription required),” documents a new and hopeful trend in the Sahel that may reverse over a century of environmental decline.

Back in the 19th century and through the first half of the 20th century, French colonial administrators in the Sahel attempted to develop commercial agriculture according to Western techniques that worked well in temperate zones, where sunlight needed to be maximized, but were disastrous in the arid Sahel, where crops responded better if they were beneath a protective tree canopy that attenuated the sunlight. The areas designated as forest were considered state property and were protected, […] Read More

How Wall Street Bought the Public Employee Unions

Earlier this week, on December 7th, 2011, as reported by the San Jose Mercury, the “San Jose City Council votes 6-5 to place pension reform on June ballot.”

This plan is drawing fierce resistance, but there are two financial considerations that most critics of pension reform don’t take sufficiently into account when making their arguments:

(1) Pension contributions are very sensitive to how much the fund can earn. A pension that earns 3% per year, i.e., allows someone who works for 30 years to retire with a pension equivalent to 90% of their final salary, will require a 10% increase in annual required contributions (as a percent of pay) for every 1.0% the earnings on the pension fund drop. That is, if the contribution to a firefighter’s pension is currently 35% per year (based on employer and employee contributions combined), and CalPERS lowers their expected rate of annual return by just 1.0%, from 7.75% to 6.75%, then the required annual contribution as a percent of salary goes up to 45% per year.

(2) The rate of return being currently maintained by most pension funds, 7.75% per year, is much higher than can be sustained going forward. A key reason for this is because equity growth over the past 20-30 years, and especially over the last 10-15 years, was fueled by increasing debt. By enabling massive borrowing – consumer, commercial and government – more consumer spending was […] Read More