This turmoil on Wall Street likely will result in taxpayers making up for investment losses within the state's public-employee pension systems either with higher taxes or through state spending cuts. (boldface mine--Darren)
State pension assets dropped almost $14 billion in the period from Oct. 1, 2007, to Sept. 30.
What this means is that pension systems, underfunded by the state for years, face an even bigger gap between their assets and what they'll ultimately pay retirees.
For example, in June 2007, the Illinois Teacher's Retirement System, or TRS, was at a funding level of 64 percent, making it one of the most underfunded public pension systems in the nation.
Yes, this is from Illinois, but I'd place cold, hard cash that it applies to most states--especially California.
Illinois....isnt' that where Barak Obama is from? Surely he wouldn't underfund the pension for his wildly enthusiastic and highly partisan supporters? Sounds like a cold couple of winters for Illinois teachers to me.
ReplyDeleteIllinois was in great shape until Rod Blagoivich became governnor. In fact, when I moved to Colorado, PERA advisors told me to leave me "vested" money in Illinois. Yet, the market drop is going to affect everyone's investments. The only one that's consistent and unaffected by the market is social security. Kind of sad I don't pay in at this point, seeing what the free market is doing to my retirement.
ReplyDeleteSo the free market's terrific when it works in your favor, i.e. "PERA advisors told me to leave m(y) "vested" money in Illinois" and not so wonderful when it doesn't? I just can't work up much sympathy for someone whose happy to take the good cards when they're dealt to them and full of complaints when the inevitable bad cards are dealt.
ReplyDelete> The only one that's consistent and unaffected by the market is social security.
Where do you think the money comes from for that consistency and independence from the markets? And where do those tax dollars come from?
Yeah, the free market.
My guess is that if you take the ideological bag off your head and look at the situation with regard to the Illinois retirement program you're complaining about you'll find that it was deliberately underfunded for years by the legislature and that the underfunding was justified by unreasonably rosy return-on-investment projections.
That way current revenues could go to fund the pet projects of the legislature which, from the point of view of an incumbent, is a much better use of the money then putting it out of reach in a retirement system.
Allen,
ReplyDeleteI wasn't looking for sympathy on leaving my money in Illinois, and I made the decision to do so based on a fair amount of market research. Subsequently, the money could have been in worse shape if I'd pulled it and invested it myself (or better shape depending on my savvy). Ultimately, the money I left in Illinois is one source of my retirement, the money I put in PERA is another, and the money I invest myself is a third. There is also the small sum I will get from Social Security from non-teaching work. Thus, I feel pretty good about all my prospects precisely because I am so well-informed (and diversified), and I am not lamenting my decision to leave the money in Illinois. It was an investment decision, and like all, it had its risks and rewards. No sympathy required, nor was it requested.
You have a point about the misuse of funds, as well as underfunding, though it's no worse than if I'd invested it in AIG, Merril Lynch, IndyBank, Ford, WorldCom, Enron, etc. Governments aren't more likely to mis-invest the money than the private sector. Of course, once Enron folded, investors were left with no one to sue. The government funds, on the other hand, still have to answer to voters and taxpayers. When my Ford stock goes bust, or when the railroads abdicated their pension responsibilities, the free market left investors with nothing. Those pensions were eventually picked up by the government. And, Social Security will always be honored - Enron stock is worthless.
If I won the lottery these days, I'm inclined to take the payouts over twenty years because I know I will see the full amount. If I took a lump sum and invested it, I could lose half my value. The government (as noted by President Bush to be the only entity that can solve the mortgage problem precisely because its stability) offers consistency and a responsible party that can't walk away. Voters know where to find them.
By the way, I have no ideological bag to remove, as I am fiscally conservative and a free market proponent, as I have noted numerous times in this forum. I'm just not naive about it. I believe the free market is the best answer to most questions, and free trade will do more than protectionism. I am heavily invested in, knowledgeable about, and supportive of free market capitalism. However, like both Adam Smith and Teddy Roosevelt, I acknowledge the pimples on the system, and accept the need to occasionally regulate what TR called its "more unsavory elements."
> Governments aren't more likely to mis-invest the money than the private sector.
ReplyDeleteHar! Here ya go. I'd suggest buzzing forward to about 2:25.
http://tinyurl.com/27tjw2
Mis-investment of money is one of the reasons government has grown so enormously over the past bunch of decades.
Whether you're a sturdy, independent farmer whose merely trying to get what you're due because, well, you're the salt of the earth, the backbone of this country and have enough senators on your side or a noble champion of the less fortunate, you're still trying to get funds for some expenditure that *isn't* a good investment by the financial definition and turns out to be a pretty lousy investment by the substantially loser social definition.
Access to tax money creates a commons and all commons' result in a tragedy.
> And, Social Security will always be honored - Enron stock is worthless.
No. There's a mathematically-calculable and inescapable time in the future when Social Security will go bust. That date has been put off at least once by substantial tax increases and that's the only way to keep the system functional.
By the way, the hollowness of your argument is noticeable in the comparison of the Social Security system to Enron.
The return on investment of the Social Security system is a fraction of even extremely conservative investments and over any reasonable period of time outdistances Social Security easily. That's why those few constituencies with sufficient political clout to opt out of Social Security do so.
And as far as Teddy Roosevelt is concerned, he was a good shot with a rifle but he couldn't hit the broad side of a policy barn. The self-destruction of monopolies is inherent in a free market system, was evident to anyone who was interested in looking, but TR couldn't be bothered to let the system do it's inevitable work. He was too fixated on righting wrongs before they righted themselves, depriving him of the opportunity to be the savior of the common, workin' man.
Social Security is fundamentally true to its name. It was designed to provide security for people in old age to keep them out of poverty and a drain on society. It has exceeded its mandate beyond anyone's dreams, and problematically, has been too successful. As I noted, Social Security was never meant to be the sole source of income for seniors, but merely a supplement lifting those on the bottom out of poverty. Sadly, more than 60% Americans rely on it as their sole source of income. I'm not a fan of that. It can, should, and will be changed. I feel the same way about teachers pensions that allowed retirement at 52 on 80% salary. That's ridiculous and should change. But that doesn't change the fact that Social Security has survived for nearly a century as an effective social program. That's pretty impressive.
ReplyDeleteThe self destruction of monopolies is inherent in the free market? Even the most conservative economists - back to Adam Smith - warn of the danger of monopolies and the need for some regulation to ensure competition. There is hardly a rationale way to argue against Roosevelt's regulation, as the system benefitted enormously and in appropriate time. In a really extreme analogy, I could argue that eventually the self-destruction of criminals happens as they kill each other off. But a logical society would step in and regulate them and end their practices before too many innocent people have been hurt.
I can't think of many people who generally appeal to both conservatives and liberals the way Teddy Roosevelt does, and for good reason.
I attended a presentation by Jack Ehnes, the CEO of CalSTRS, back in 2007.
ReplyDeleteI'm not an expert, by any means, but I would consider myself to be financially saavy, at least when compared with John Q. Public.
One of the things I was surprised to hear from Ehnes is that about 75% of CalSTRS obligations are funded by investment returns, and not contributions from members, the state, and so forth. While I'm sure that figure has dropped down a bit, of late, I'm sure it's still higher than I would have guessed prior to this presentation.
Say what you will about teachers and saving for retirement, but CalSTRS is a much better deal that social security. Most participants in social security will experience negative returns on their contributions in the years to come, but I think that the probability that recipients of CalSTRS benefits will receive a significant positive return on their contributions is pretty high. In addition, I think many social security contributors will have their contributions confiscated via means testing, but I doubt that CalSTRS participants will experience that in my lifetime.
I used to bad-mouth CalSTRS regularly, but after looking into things, I don't bad-mouth it any more.
> Social Security is fundamentally true to its name.
ReplyDeleteNice slogan but demonstrably untrue.
Social Security is funded out of current tax revenue; there's no "lockbox" and there are no investments. The continued solvency of the system is a function of the political clout of its supporters and should the day arrive when that support fails so will the system. So the "security" in Social Security consists of the determined belief that the politically unthinkable mustn't be considered - if it was there yesterday it *will* be there tomorrow.
> But that doesn't change the fact that Social Security has survived for nearly a century as an effective social program. That's pretty impressive.
Really? Then you'll probably very impressed with the program the British government set up to warn of an approaching invasion by Napoleon's armies. That program was dissolved in 1945. Also, Social Security is 73 years old. I suppose you could call that "nearly a century" but it seems a bit labored to do so.
> Even the most conservative economists - back to Adam Smith - warn of the danger of monopolies and the need for some regulation to ensure competition.
Since capitalism can't exist without a framework of law - remember, it isn't capitalism if it isn't the *voluntary* exchange of considerations of value - the warning would be redundant if the term "regulation" hadn't been hijacked to mean "whatever makes me uncomfortable".
The monopolies that TR attacked were the result of technical innovations. When those technical innovations were copied the monopolies, inevitably, sought to use the power of government to continue to enjoy their monopoly. Had that protection not been forthcoming the monopolies would have collapsed due to their conversion from lithe innovators to cautious protectors of the status quo they enjoyed. It's only when the power of government is deployed in the protection of monopolies that they needn't worry about swiftly-moving competition the public education system being one, particularly good, example of that phenomenon.
> I can't think of many people who generally appeal to both conservatives and liberals the way Teddy Roosevelt does, and for good reason.
Har! Yeah, and for good reason; he's such a mixed bag. Mr. Rugged Individualist, Roughrider, mighty hunter, builder of the Great White Fleet on the one hand and eager expander of the intrusiveness of the federal government on the other hand. None of that "limited government" namby-pamby nonsense for TR by gosh. Give him a San Juan Hill and, by gosh, he'd charge up without much regard to consequences. What's not to like?