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Joshua Rauh

 

In a New York Times editorial, Richard Riordan and Tim Rutten propose a national plan to address the pension crisis facing state and local governments. As the authors remark, this plan bears a number of similarities to a plan I proposed in 2010 in a piece in the Economists’ Voice with Robert Novy-Marx, and then again in short form in the New York Times Room for Debate Blog.

There are some important differences, however, between the Riordan-Ruttan plan and our own.

First of all, I agree that some form of federal intervention to stem the state and local pension tsunami is desirable and necessary. Otherwise our cities indeed face the bleak future described in the op-ed: long emergency response times, unfilled potholes, and cash-starved public services of all kinds, as taxpayer resources will be increasingly diverted to pay for public sector pensions. Furthermore, the prospect of more municipal bankruptcies could undermine investor confidence in the municipal bond market and restrict this vital source of capital for states and cities.

Given this state of affairs, I think some kind of carrot-and-stick approach from the Federal government is absolutely appropriate. In an ideal world, we would all tell Washington to “just say no” to any state or local government bailouts. If Congress could make a credible commitment to that policy, then states would on their own have the incentive to reform their own finances and stop running up of massive unfunded liabilities.

The reality today, however, is that Washington cannot credibly commit not to bail states out. As a result, in expectation Federal taxpayers face a huge and ongoing cost associated with the likelihood of a multi-trillion dollar bailout of these systems. Is there some chance this bailout can be avoided? Possibly. But there is a very large chance that it will not be avoided.

A bailout could take many (undesirable) forms, including Federal Reserve purchases of muni bonds (they did it with mortgage backed securities so why not) or direct aid to the most profligate of state governments. And of course cities and states know of this possibility now and are behaving accordingly. Talk about moral hazard.

The main similarity between our plan and the Riordan-Rutter plan is the carrot-and-stick approach. In both plans, the federal government would offer the states and cities some support in the issuance of new bonds to cover pension liabilities (the carrot). And in both plans, a state or city could only access this support if they implemented serious reforms to their pension systems that would stop the accrual of new unfunded liabilities (the stick).

The one point of departure, and it is an important one, is that in the Riordan-Ritter plan, the carrot is larger, as in their plan the program would “essentially serve as an insurance agency,” with participants paying fees, and the federal government guaranteeing repayment on the bonds.

In our plan, there is no new national insurance agency and no federal guarantee for the bonds. The federal support for the bonds in our plan is simply a tax advantage.

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Bill Whalen

 

In politics, as in life, timing’s everything.

Just ask our last three presidents. Had he not run for an open U.S. Senate seat in 2004, complete with a keynote address at that year’s Democratic National Convention, Barack Obama most likely isn’t his party’s nominee in 2008 (another Illinoisan, Abraham Lincoln, had two Senate runs under his belt, plus a national voice in the slavery debate, by the time 1860 rolled around). If George W. Bush doesn’t run for governor of Texas in 1994, he’s probably not in a position (re-elected, wind at his back) to seek the presidency in 2000. As for Bill Clinton, he ran for president in a cycle that saw other, more nationally established Democrats (Lloyd Bentsen, Bill Bradley, Mario Cuomo, Dick Gephardt, Al Gore) taking a pass. Had he waited until 1996 – and assuming a lesser-skilled Democrat would have failed in unseating George H.W. Bush – Clinton might have gone missing in a more crowded field of better-known and better-financed rivals.

And that’s just the last three fellows to hold the job. If you want to step further back in modern presidential history, John F. Kennedy’s House run in 1946 and Senate upset in 1952 are integral to his relatively fast track to the Oval Office (14 years from the time of his first political campaign to the White House, which is two years more than Obama). If Ronald Reagan had waited four years later, until 1970, to run for governor of California, perhaps another conservative beats him to the punch as the right’s post-Goldwater standard-bearer.

We can even apply this rule to Hillary Clinton. If she doesn’t run for Daniel Moynihan’s vacated Senate seat in 2000, she has one of two options: run for president in 2004 (and probably lose); or wait for an office of parallel value to become available (i.e., running for Empire State governor in 2006).  Maybe she still runs for president in 2008. However, she would have done so without much of a record to fallback on (a Senate record that Obama supporters in 2008 suggested was vastly overrated, by the way).

With the November 2014 election now 15 months ahead and fast approaching, we’re beginning to see next year’s class “wisteria” candidates emerge (I’m borrowing that descriptive from the British press, which have described Kate and Pippa Middleton as the “wisteria sisters” – “highly decorative, terribly fragrant and with a ferocious ability to climb”). Should they succeed in gaining higher office, these climbers will gain access the national political highway – C-SPAN and cable talk shows, coast-to-coast invites to fundraisers, maybe a spot on a national ticket.

With that in mind, here are a few contenders who fall into the “wisteria” classification.

1)  Ken Cuccinelli. As the year began, Virginia’s attorney general had three options: run for re-election; a Senate run in 2014; run for governor this fall (Virginia and New Jersey holding off-year votes). He opted for the latter, putting himself in a gubernatorial contest that will test what worked well for Democrats in 2012 (“war on women”, vague campaign promises). Should he prevail, Cuccinelli’s stock rises higher among conservatives who already like his legal maverick style.

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Bill Whalen

 

What can we say about America’s “Millennial” generation, aka “Generation Next” – that group of men and women, born between 1980 and 2000, which has begun to flex its muscle in the national discourse?

Depending on who’s doing the looking, it’s a generation full of brio – or simply full of beans.

According to this 2010 analysis by the Pew Research Center, America’s youngest voting bloc is “confident, connected, open to change”.  That’s not the conclusion reached by the good folks at Time, which just this past May blistered Gen Next as the “me, me generation” – in Time’swords, “lazy, entitled, selfish and shallow” and plagued by a “narcissistic personality disorder.”

If the outsiders are confused, consider the view from within the Millennial herd.

On the one hand, should you belong to that particular age demographic, you arrived amidst an era of remarkable progress in science and technology – advancements that promise greater longevity and connectivity. And, because you now outnumber Boomers (Americans born from 1946 to 1964), you can have your way in elections and public referenda – just ask Barack Obama – if you bother to turn out in force, which you did in 2008 and 2012.

On the other hand, life will be an upstream swim. Millennial unemployment is mired in double digits; the average student loan is triple what it was 20 years ago (over $28,000). And there’s the question of where Social Security, Medicare and pension guarantees all will be 30 years from now, when Gen Nexters segue into retirement.

Such challenges call for leadership – a guiding light.

And that light, as chosen by Pivot, a new TV channel launching this week with an audience of “passionate Millennials” in mind: Meghan McCain, daughter of the 2008 Republican nominee and media provocateur extraordinaire.

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Joshua Rauh

 

Paul Krugman and Dean Baker took the Washington Post editorial page to task yesterday for stating that unfunded state and local pension liabilities amounted to $3.8 trillion. They accuse the page of misquoting a study in which the total was cited as only $1 trillion.

The WaPo editorial page did misquote the study, but that doesn’t change the fact that the $1 trillion is a completely mismeasured and fictional number. Unfunded state and local liabilities are around $4 trillion when the liabilities are correctly measured.

Since Professor Krugman’s post links to the study in question, by the Boston College Center for Retirement Research, I am sure he saw that the authors actually discuss these measurement issues at length. The Boston College authors even provide liability estimates under what they agree is a more appropriate methodology, and find that unfunded state and local liabilities are a multiple higher than the uncorrected $1 trillion.

Currently, standard practice measures the funding status of public pensions in the US under the laughable assumption that every dollar in the pension funds will earn compound returns of 7.75% or 8% per year. That’s the basis for the $1 trillion in unfunded liabilities.

But if a state or local government promises a risk-free pension, one that will be paid regardless of how the stock market performs, then that promise is like a government bond and should be measured accordingly. That’s the way pension promises are measured in most public or semi-public plans in countries like Canada and the Netherlands. In the Netherlands, for example, discount rates of 0-4% are used. Even US companies follow this basic principle that a pension is like a bond issued by the sponsor by treating their pension liabilities as corporate bonds for the purposes of their books.

Figure 5 of the study professor Krugman links to shows $3.8 trillion total liabilities at an 8% discount rate, but $6.2 trillion of total liabilities using a 4% discount rate. A 4% rate is much closer to long-term government yields, but still too high a rate given that the benefits are guaranteed and many of them are short-term. If unfunded liabilities are $1.0 trillion under an 8% rate, then they are $3.4 trillion unfunded under a 4% rate.

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Bill Whalen

Scandals and Animals

 

Fans of Seinfeld might recall an episode where Cosmo Kramer reassembles the set of the old Merv Griffin Show, but then struggles to achieve anything close to a scintillating conservation. The format he ultimately stumbles into: “scandals and animals” .

The same might be said of American politics in the summer of 2014: not Seinfeld’s “summer of George”, mind you, but the summer of scandals, political animals and the voters who apparently are willing to forgive them.

It began with former South Carolina Gov. Mark Sanford – he of “hiking the Appalachian Trail” fame – finding redemption in the form of a special-election victory in the state’s 1st Congressional District.  Two months later, former New York Rep. Anthony Weiner, driven from Congress in June 2011 after it was revealed he’d been posting lewd photos on Twitter, released a slick two-minute video (featuring – tear wipe – his   wife and infant son) announcing his desire and intent to be the next mayor of New York City. And six weeks after that: former New York Gov. Eliot Spitzer, the reluctant star of Client 9, announcing a run for comptroller of New York City – five years after he was exiled from Albany for being a frequent user of a high-priced prostitution service called the Emperors Club VIP.

It’s not the first time that a shamed politician tried to get back in the game. Back in the 1988 presidential campaign, for example, Gary Hart vacated the Democratic field after he was caught having an extramarital affair. Hart reassessed and then re-entered the race, his beleaguered wife by his side.

But the difference, then and now: Hart’s comeback promptly flat-lined, whereas Spitzer has the lead and Weiner has moved to the front of the pack in their respective primaries (New Yorkers go to the polls onSeptember 10).

So what does this say about the already troubled state of American politics – such a sweeping statement would seem to apply, as we’re talking about referenda in decidedly liberal and conservative pockets of America – and those that strive to be part of the elected elite?

The temptation is to lay blame at the feet of Bill Clinton, the reasoning being that the former president set a dreadful precedent back in the 1990s when he chose not to do the honorable thing by resigning and hanging his head in shame for the sex scandal that disgraced his office. Instead, Clinton rode out the scandal. But in doing so, some would argue, he lowered the bar for future scandalmongers (in addition to affecting attitudes toward other pursuits).

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Bill Whalen

 

The temptation is to view congressional special elections as a harbinger of things to come.

Take 1991, for example. A year before Bill Clinton captured the White House, a little known Democrat named Harris Wofford won a U.S. Senate special election in Pennsylvania by making a blue-collar pitch for health care reform (beer-and-shot politics being a wee stretch for a Yale Law grad whose middle name was Liewellyn). The same theme worked for fellow Yalie Clinton in 1992 (not coincidentally, Clinton and Wofford shared the consulting services of James Carville and Paul Begala).

Nearly two decades later, in Massachusetts, another Senate contest was a preview of coming attractions. In the race to replace the late Ted Kennedy, Republican Scott Brown pulled an upset in the deep-blue state by simply offering himself as a regular truck-driving guy who was fiscally conservative and deeply suspicious of Washington – pretty much what worked for GOP candidates later that year in retaking the House.

On Tuesday, the Bay State was the site of another Senate special election – this time, to replace John Kerry (Massachusetts has now held four Senate elections in the past five year). But history didn’t repeat itself.  Democrat Edward Markey breezed to victory – a 10-point win that Barack Obama carried by 23 points in 2012 – in a contest that offered little in the way of drama or voter interest.

The takeaways?

1)  Boston, Home of the Big Dig Yawn. Candidates, unlike Kardashians, have to work for media attention. The last thing they want is a crowded news space, or excuses for voters to forget about their civic obligation. Now, consider what the two Massachusetts candidates, in trying to crack the airwaves in Boston, encountered in this week’s vote:Whitey Bulger’s trial (think Jack Nicholson’s psychopath in The Departed), the Bruins battling at home for the Stanley Cup, a New England Patriots’ star now under arrest in a homicide investigation. Add to that the timing of the contest – late June, when families are on vacation, plus some mischief from Mother Nature in the form of an Election Day heat wave which maybe kept some folks away from the polls – and small wonder that the turnout in this contest seemed historically awful. That won’t be the case in the fall of 2014, despite the public’s low regard for Congress.

2)  This Time, It Was Personal. The Massachusetts special of 2010 had its focal points – the Kennedy legacy, the 41st vote against Obamacare. While there were some departures from the policy stage (for example, Democrat Martha Coakley calling Red Sox legend Curt Schilling “another Yankee fan”), the contest wasn’t ugly. In 2013, instead of Lincoln-Douglas, Massachusetts’s voters got Tyson-Douglas – a very personal brawl.  Markey accused his Republican foe, Gabriel Gomez, of playing fast and loose with his tax returns. Gomez, a first-time candidate and former Navy SEAL, called Markey “pond scum” after an ad likening the Republican to Osama bin Laden (here’s a look at the two campaigns’ attack ads). The 2014 races won’t lack for their personal digs, but they’ll also be more policy-driven in that Republicans will make be making the case against six years of the Obama presidency, while Democrats will push against the idea of total GOP control of Congress.

3)  The 2014 Numbers Game Didn’t Change. In 2010, as previously mentioned, Brown represented the 41st vote against Obama – huge ramifications for Washington and the nation. Had Gomez somehow pulled an upset, he would have pushed the Republican total to 47 seats – enough to make cloture votes a little more challenging, but not the same dramatic shift as that 41st vote. Moreover, just as Brown was ousted in 2012, Gomez may not have had much of a shelf life in a state where Democrats still enjoy a 3-1 advantage in registration (to give you idea of just how formidable edge it is, Brown had to win 65% of the independent vote in that 2010 special election to escape with a 5-point win). As for 2014, Massachusetts doesn’t factor. What will decide the balance in 2015 and beyond is how Republicans fare in Senate contests in seven states that Mitt Romney won in 2012 (compared to only one Obama stare – Maine – where a Republican incumbent is being put to the test). Those red states are: Alaska, Arkansas, Louisiana, Montana, North Carolina, South Dakota and West Virginia. Win six of those seven states (Nate Silver thinks that’s iffy, at best) and Barack Obama gets to experience the same joy as the last three presidents in completing the final two years of their administration: the opposition party controlling both halves of Congress.

 

Follow Bill Whalen in Twitter: @whalenhoover

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Bill Whalen

 

In 1992, Queen Elizabeth had a yearlong run of personal woe that she famously likened to an annus horribilis. And horrible it was: two princes’ and one princess’s marriages going up in flames; even Windsor Castle catching fire.

We still have seven-plus months before 2013 plays out, but so far so bad for President Obama in this, the first of his last four years in the Oval Office. Which begs the question of who or what’s to blame for this presidency going from the high of a sweeping re-election to the valley of scandal and unshakable controversy – the Benghazi affair that won’t go away, IRS heavy-handing with tax-exempts, Justice Department record-seizing.

What should we chalk it up to?

1) The inevitable fate of second-term presidents (George W. Bush, Bill Clinton, Ronald Reagan, Richard Nixon all hitting rough patches after their re-elections)?

2) Mr. Obama’s lack of preparation – scant leadership experience – for the job?

3) Much ado but nothing, the assumption being a friendly media will build Obama back up once they’re done treating his administration as a chew toy?

4) Bad karma in the personage of Michelle Obama and her bangs – the new hairstyle she broke out just in time for her 49th birthday a precursor to this spate of political misfortune.

Forget about the bangs (the First Lady already has, reverting to her side-swept look). And the last thing the White House should complain about is critical press coverage. As for a second-term curse, let’s see where this White House stands going into 2016 and its last year.

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Bill Whalen

Guns and Ammo…and Political Camo

 

Pardon the cynicism, but I wonder if President Obama is really all that upset with the Senate’s inability to pass gun-control legislation this past week.

In case you missed it, the Democratic-controlled half of Congress failed to pass seven measures having to do with guns, gun-trafficking and gun-ownership, the most notable being an amendment to expand background checks that fell six votes shy of the mark.

The President wasted no time in showing his disgust, calling the 54-46 outcome “a pretty sad day in Washington” (more, in a moment, on why the majority advantage constituted a legislative defeat). A series of gun-control advocates joined the chorus. New York City Mayor Michael Bloomberg labeled the background check vote a“disgrace”. Former Arizona Rep. Gabrielle Giffords, in this New York Times op-ed, said she was “furious”.

So why the cynicism?

Three reasons:

1)  The Votes Were Designed to Fail. Keep in mind that this Senate amendment didn’t merely fail – it failed under the rules of the debate. Let me amend that: rules determined by the Democratic majority leadership, with the entire chamber’s approval. Rather than setting the rules so that each gun-related amendment would need only 51 votes to pass, Senate Majority Leader Harry Reid instead set the bar at 60 votes. Why? Because, as this analysis explains, it enabled Reid to get votes on the measures without opening the door to further tinkering by gun-rights advocates (for example, allowing concealed-weapon permits to cross state lines). Did Reid think he had 60 votes going into the debate? As a Nevadan surely he can count cards heads. If not, and he knew 60 was out of reach, why not lower the threshold to 51 votes (50, actually, since Vice President was presiding) and dare Republicans to filibuster?

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Bill Whalen

 

Once upon a time, the nation’s capital was synonymous with a special form of incompetence having nothing to do with politics – a cellar-dwelling baseball existence best captured by sportswriter Charles Dryden: “Washington – first in war, first in peace, last in the American League”.

That’s no longer the case. The current Washington franchise – that would be the Nationals, nee the Montreal Expos (Washington’s two previous franchises, both named the Senators, fled D.C. for the greener pastures of Minnesota and Texas) – resides in the National League. Moreover, the “Nats” are a consensus choice to make this fall’s World Series.

That said, the Washington Nationals aren’t the only prohibitive favorite found inside the beltway. Residing about 20 minutes from the ballpark is Hillary Clinton, the trendy choice these days to be the Democratic nominee in 2016 and America’s 45th president.

At least, that’s what the polls tell us. One survey shows Mrs. Clinton dominating both Republicans and her fellow Democrats in hypothetical 2016 matchups. Another poll has Florida voters preferring her to native sons Jeb Bush and Marco Rubio.

Add to those numbers: the chattering class’s clamoring for a Hillary run.

Paul Begala, the Democratic consultant who helped engineer Bill Clinton’s win in 1992, “hopes and prays” for a Clinton candidacy. Kathleen Parker, a Washington Postcolumnist, believes it’s nothing less than Hillary’s duty to run: “The calculus comes down to this: She has been working toward this moment essentially all her life, diligently clearing away the brush blocking her path. The zeitgeist is ready for a woman president. Most important, she can win – and few think the country would be worse for it.”

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