Anyone who’s followed the bulge in short term deficits understands they are primarily caused by the drop in revenue created by the
Great Recession.  Once the economy recovers, these deficits disappear.

The same is true for widely published pension shortfalls.  These shortfalls are primarily caused by the losses in equities, and no doubt overpriced mortgage securities, pensions invested in.  As the equities and mortgages recover lost ground, the pensions shortfalls will shrink dramatically.

Dean Baker has a paper explaining this over at the Center for Economic and Policy Research.  But Princeton economist and New York Times columnist, Prof. Paul Krugman, has distilled the essence of Baker’s piece in a brief blog post.

“The Truth About Pensions:

Dean Baker has a deeply enlightening analysis of state pension shortfalls (pdf), containing a lot of stuff I didn’t know. The basic moral is that the official story these days — of years and years of huge giveaways to unions, resulting in gigantic, unpayable debts — is just wrong: to a very large extent, the pension shortfall has emerged just since 2007, thanks to the financial crisis, and even then it’s not nearly as big relative to future state incomes as widely imagined. Here’s a key figure:

It puts an entirely different light on the situation. Whaddya know, we’re being sold a bill of goods.”

Beezer here.  This goes to the problem we have of an ignorant, often lazy, mass media.  They take political statements, whether it’s about the recession deficits, or union pay, or pensions in this case, and simply repeat them as truth.  So it’s no longer about being accurate and protecting a public that doesn’t have the time to figure out what’s going on by themselves, it’s just about regurgitating whatever a politician says in public.

A true story as printed in the New York Times.

Redwood City, Calif. 

THIS isn’t the story of a poor family with a mother who has a dreadful disease that bankrupts them, or with a child who has to go without vital medicines. Unlike many others, my family can afford medical care, with or without insurance.Instead, this is a story about how broken the market for health insurance is, even for those who are healthy and who are willing and able to pay for it.

Most employees assume that if they lose their job and the health coverage that comes along with it, they’ll be able to purchase insurance somewhere. The members of Congress who want to repeal the provision of last year’s health insurance law that makes it easier for individuals to buy coverage must assume that uninsured people do not want to buy it, or are just too cheap or too poor to do so.

The truth is that individual health insurance is not easy to get.

I found this out the hard way. Six years ago, my company was acquired. Since my husband had retired a few years earlier, we found ourselves without an employer and thus without health insurance.

My husband, teenage daughter and I were all active and healthy, and I naïvely thought getting health insurance would be simple.

Why did we even need insurance? First, we wanted to know that, if we had a medical catastrophe, we would not exhaust our savings. Second, uninsured patients are billed more than the rates that insurers negotiate with doctors and hospitals, and we wanted to pay those lower rates. The difference is significant: my recent M.R.I. cost $1,300 at the “retail” rate, while the rate negotiated by the insurance company was $700.

An insurance broker helped me sort through the options. I settled on a high-deductible plan, and filled out the long application. I diligently listed the various minor complaints for which we had been seen over the years, knowing that these might turn up later and be a basis for revoking coverage if they were not disclosed.

Then the first letter arrived — denied. It never occurred to me that we would be denied! Yes, we had listed a bunch of minor ailments, but nothing serious. No cancer, no chronic diseases like asthma or diabetes, no hospital stays.

Why were we denied? What were these pre-existing conditions that put us into high-risk categories? For me, it was a corn on my toe for which my podiatrist had recommended an in-office procedure. My daughter was denied because she takes regular medication for a common teenage issue. My husband was denied because his ophthalmologist had identified a slow-growing cataract. Basically, if there is any possible procedure in your future, insurers will deny you.

The broker then proposed that the three of us make individual applications. Perhaps one or two of us might be accepted, rather than the family as a group.

As I filled out more applications, I discovered a critical error in my strategy. The first question was “Have you ever been denied health insurance”? Now my answer was yes, giving the new companies reason to be wary of my application. I learned too late that the best tactic is to apply simultaneously to as many companies as possible, so that you don’t have to admit to a denial.

I completed four applications for each of the three of us, using reams of paper. I learned to read the questions carefully. I mulled over the difference between a “condition” and “something for which you have sought treatment.” I was precise and succinct. I felt as if I was doing a deposition: Give the minimum true information, and not a word more. I was accepted by exactly one insurance company. So was my daughter, although at a 50 percent premium over the standard charge for a girl her age. My husband was also accepted by one insurer but was denied by the company that approved me.

Our premiums, which were reasonable at first, have increased substantially over the last six years; the average annual increase has been 20 percent. I now am paying premiums that are more than double what they were initially. And because these are high-deductible policies, we still are paying most of the medical bills ourselves.

The new health care reform legislation is not perfect. Nothing that complex could be. But I have no doubt that the system is broken and reform is absolutely essential. If we are not going to have universal coverage but are going to rely on employer plans, then we must offer individuals, self-employed people and small businesses a place to purchase insurance at a reasonable price.

If members of Congress feel so strongly about undoing this important legislation, perhaps we should stop providing them with health insurance. Let’s credit their pay for the amount that has been paid by the taxpayers, and let them try to buy health insurance in the individual market. My bet is that they all would be denied. Health insurance reform might suddenly not seem to them like such a bad idea. ”

Donna Dubinsky, a co-founder of Palm Computer and Handspring, is the chief executive of a computer software company.

Beezer here.  Yeah, it’s definitely the freeloaders, the drug dealers, the shiftless lazy people responsible for crashing our existing health care system.  What nonsense.  The truth is the existing health care industry owns too many Congresspeople.  These people don’t give a rat’s behind about the nation’s overall health care.  They care only about the profits extracted by the current winners.  That’s who pays them and that’s who they work for.

From Dean Baker over at the Center for Economic and Policy Research (cepr).

“FactCheck Gets It Wrong on Social Security and the Deficit

Written by Dean Baker

Saturday, 26 February 2011 21:12

FactCheck.org, a project of the Annenburg Public Policy Center, wrongly attacked a number of prominent Democrats for correctly pointing out that Social Security does not contribute to the deficit. The people attacked, included New York Senator Charles Schumer, Senate Majority Whip Richard Durbin, and President Obama’s Budget Director Jacob Lew, who had all correctly pointed out that Social Security does not contribute to the budget deficit. This point should be pretty straightforward. Under the law, Social Security is financed by a designated tax, the 12.4 percent payroll that workers pay on their first $107,000 of income each year. The money raised through this tax is used to pay benefits. Any surplus is used to buy U.S. government bonds. All funding for the program comes either from this tax or from the bonds held by the program’s trust fund. (It also is credited with a portion of the income tax paid on Social Security benefits.) Social Security is prohibited from spending any money beyond what it has in its trust fund. This means that it cannot lawfully contribute to the federal budget deficit, since every penny that it pays out must have come from taxes raised through the program or the interest garnered from the bonds held by the trust fund. The one exception to this rule is the roughly $120 billion being credit to the Trust Fund in 2011 to offset the lost payroll tax revenue due the 2 percentage point reduction in the payroll tax. Apart from this special 1-year exception approved by Congress at the end of last year, Social Security is literally prohibited under the law from adding to the deficit. FactCheck argues that Social Security will contribute to the deficit because it will be drawing on the interest on the bonds that it holds beginning in 2016 and later will begin selling these bonds. This would be like claiming that Peter Peterson, the Wall Street investment banker and vociferous proponent of cutting Social Security, is contributing to the deficit if he sells a billion dollars in government bonds to finance his anti-Social Security agenda. In both cases the government would need someone to buy up the bonds to replace the bonds that were already sold. However, this is just a redistribution of the debt. The decision by the Social Security trust fund to sell its bonds no more increases the debt of the U.S. government than the decision by Peter Peterson to sell his bonds. FactCheck’s confusion probably stems from its reliance on figures for the “unified budget.” This budget adds in the annual surplus or deficit from Social Security. However, every single budget document put out by the government also includes the “on-budget” budget that treats Social Security as the distinct program it is under the law. This budget would show that Social Security has no effect on the deficit (except due to the payroll tax cut for 2011), since it is a self-financed program. Obviously Senators Schumer and Durbin and Mr. Lew were referring to the on-budget budget. It is hard to believe that Factcheck did not understand this basic fact about the U.S. budget. They were right and FactCheck is wrong. Social Security does not contribute to the budget deficit. That is the law.”

In his most recent blog, Congressional Budget Office (CBO) Director, Douglas Elmendorf explains why we can’t simply cut spending and cut taxes in order to restore long term fiscal order.

Beezer here.  So a big driver of our imbalances is tax cutting.  Any way you figure the stats out, tax cuts aren’t paying their way in terms of raising sufficient revenue.  And unless growth accelerates markedly above projections, always a possibility, we’ll still have substantial debt even if we let the recent tax cuts expire.  Of course, it could get a lot worse too–especially if we keep thinking we can cut taxes.  If we keep on that path, then the Director spells out the magnitude of what spending cuts we’ll need.

Beezer again.  In other words a complete dismantling of the nation’s social safety nets.  Who are the Republicans trying to mislead here if not the American public?  This way lies insanity.  Who knows, maybe we are crazy.

It may seem obvious to you and me, but based upon calls for slimming government down now, it’s not obvious to everybody.

From the New York Times.

“Item No. 1 is today’s revised report on gross domestic product for the last quarter of 2010.

Output last quarter grew more slowly than initially reported, according to the Bureau of Economic Analysis: an annual rate of 2.8 percent rather than 3.2 percent. One of the main reasons for the downward revision was that state and local governments cut their spending at a 2.4 percent annual pace.

That was a much sharper decline than the 0.9 percent first estimated. The drop was also faster than what the country had experienced in the previous two quarters, reflecting the fact that state and local budgets are in more trouble than ever.

A decline in state and local spending — and the layoffs that are likely to be involved — can have dangerous reverberations throughout the economy. So would the cut in federal spending that many Congressional Republicans have been threatening. Besides chucking even more workers into the pool of the unemployed, such cutbacks would also take away services supporting the many Americans trying to get back on their feet. This in turn hurts their ability to spend, threatening the bottom lines of the businesses they patronize, potentially leading to even more layoffs in the private sector. And so on.

In other words, government cutbacks during a weak economy affect much more than just government payrolls.”

Beezer.  Another myth surrounding the debate of slimming down government is that public sector employees are paid more than their private sector counterparts.  Except for the lower paid, unskilled labor in the public sector which is paid more than their counterparts in the private sector, this myth is an outright lie.  From an article at the Center on Budget and Policy Priorities, entitled ‘Five Things You Might Not Know About Public Employees.’

1. Education is by far the largest category of state and local government employment. Nearly 7 million teachers, aides, and support staff work in the nation’s public elementary and secondary schools, more than twice as many as in the next largest job category (protective services, which includes police officers, fire fighters, and correctional officers).

2. Outside of education, the public workforce has shrunk as a share of the population over the last three decades. Counting education, the number of state and local workers has grown modestly relative to the overall population, from about 59 per 1,000 in 1980 to 62 per 1,000 in 2010.

3. Public-sector workers earn less than their private-sector counterparts. The typical middle-wage worker earns about 4 percent less in the public sector than the private sector.   Low-wage state and local workers, by contrast, receive a small wage premium (see graph).

4. Public-sector workers also earn less than their private-sector counterparts when one counts both wages and benefits. Benefits like pensions and health insurance are more generous and secure for public employees than for most private-sector workers, but factoring in the value of these benefits does not eliminate the gap between state and local employees and their counterparts in comparable private-sector jobs.

5. Labor costs make up a significant share of state and local spending. This reflects the fact that providing services is the primary business of states as well as school districts, cities, counties, and other local governments. Total compensation for state and local workers (including wages and benefits) makes up about 44 percent of state and local spending.

Beezer again.  The real anxiety comes from lower paid labor in the private sector.  Their wages and benefits haven’t come close to keeping up with inflation and they’re angry.  Right now that anger has been directed at their public sector counterparts, who do make more and have more stable employment.   The second group is retired folks, even retired folks who are financially secure, who see their relative financial standing erode as costs rise.  Their use of public services is actually high, but not education services–and it’s education services that have grown within a public sector where overall growth is declining.  So their anxiety, like lower paid labor but for different reasons, is directed at the public sector in general and teachers in particular.  It’s a toxic brew that guarantees slower economic recovery and guarantees both groups will be further hurt.

That Republicans have manipulated this anger in order to carry out an entirely different agenda (the real Republican agenda is to further enrich the wealthy class–socialism for the rich), is shameful.  Their use of what are known as ‘beautiful lies’ may be marketing genius, but they are taking the country down the path of perpetual recession.  Those beautiful lies?  ‘Tax cuts pay for themselves’  ‘Government is too big’ ‘Public Employees are paid too much’ and ‘Unions are bad for the economy’ rank high on a very long list of lies.  As long as these lies are believed Republicans can flourish.  When the house of cards come crashing down as a result of these lies, once again, then the Republicans will be tossed out, once again.  When will we ever learn?

Pensions are deferred compensation.  Funny how it’s a secret to so many, including the Governor of Wisconsin and most journalists. 

Award winning journalist David Cay Johnston writes an excellent article about pensions at tax.com.

Here’s part of the article:

“Out of every dollar that funds Wisconsin’ s pension and health insurance plans for state workers, 100 cents comes from the state workers.

How can that be? Because the “contributions” consist of money that employees chose to take as deferred wages – as pensions when they retire – rather than take immediately in cash. The same is true with the health care plan. If this were not so a serious crime would be taking place, the gift of public funds rather than payment for services.

Thus, state workers are not being asked to simply “contribute more” to Wisconsin’ s retirement system (or as the argument goes, “pay their fair share” of retirement costs as do employees in Wisconsin’ s private sector who still have pensions and health insurance). They are being asked to accept a cut in their salaries so that the state of Wisconsin can use the money to fill the hole left by tax cuts and reduced audits of corporations in Wisconsin.

The labor agreements show that the pension plan money is part of the total negotiated compensation. The key phrase, in those agreements I read (emphasis added), is: “The Employer shall contribute on behalf of the employee.” This shows that this is just divvying up the total compensation package, so much for cash wages, so much for paid vacations, so much for retirement, etc.

The collective bargaining agreements for prosecutors, cops and scientists are all on-line.

Reporters should sit down, get a cup of coffee and read them. And then they could take what they learn, and what the state website says about fringe benefits, to Gov. Walker and challenge his assumptions.

And they should point out the very first words the state has posted at a web page on careers as a state employee (emphasis added):

•  
  •  
    •  

  The fringe benefits offered to State of Wisconsin employees are significant, and are a valuable part of an individual’s compensation package.

Coverage of the controversy in Wisconsin over unions collective bargaining, and in particular pension plan contributions, contains repeated references to the phrase “contribute more.”

The key problem is that journalists are assuming that statements by Gov. Scott Walker have basis in fact. Journalists should never accept the premise of a political statement, but often they do, which explains why so much of our public policy is at odds with well-established principles.

Beezer.  One can say that teachers are overpaid, or overcompensated.  But one cannot say that they must contribute more to their pensions, or their health care benefits, because they contribute everything that’s put into both types of benefits because it’s deferred compensation.   Read the article.  It has some good information about the efficiencies of defined benefit pensions vs 401ks, IRAs and all the rest of the retirement account types.