January 2012

The Wall Street Journal on the Union Pension Debacle

by Ivan Osorio on July 27, 2009

in Bailout Watch, Economy, Labor

Two weekend Wall Street Journal editorials sum up well the ticking time-bomb of underfunded union pension funds. First, the dire state of many union pension funds:

On average, the asset to liability ration at so-called multi-employer plans, which union funds make up the bulk of, stood at 66% in 2006, according to the Pension Benefit Guaranty Corporation. By contrast, single employer plans, basically most company-provided pensions, were funded at 96%.

And on who will pick up the tab when these plans implode:

[T]his week the federal Pension Benefit Guaranty Corporation took over the pension liabilities of Delphi, the auto-parts spinoff of GM that has been working its way through Chapter 11 since 2005. As with the previous taxpayer rescues, this one includes a special favor for the United Auto Workers.

Under the agreement, the PBGC will assume some $6.2 billion in pension liabilities from Delphi, including both hourly and salaried employees.

[...]

When the PBGC was created in 1974, Democrats running Congress assured everyone there was no taxpayer risk because the agency would be funded by fees from pension plans, as well as by the assets of plans the company takes over. But like Fannie Mae, we are learning that sooner or later these government guarantees always come due. Now the PBGC has a $33.5 billion deficit even before Delphi, and more bankruptcies are headed its way.

For union pensioners, this gets worse. The PBGC guarantees maximum annual payment for someone with 30 years of service is a mere $12,870. By contrast, for single-employer plans, the annual guarantee is $54,000 per year.

The perilous state of union pension funds is a major motivator for organized labor to push as hard possible for enactment of the so-called Employee Free Choice Act, especially its binding arbitration provision, which would empower a federally appointed arbitrator to impose a contract on newly unionized companies. Such contracts could easily include millions in new liabilities in the form of payment obligations into severely underfunded pension funds.

For more on the PBGC, see here.

For more on union pension funds, see here and here.

For more on binding arbitration, see here and here.

Put it in quotes: health care “reform”

by Fran Smith on July 27, 2009

in Healthcare, Politics as Usual, Regulation, Sanctimony

Robert J. Samuelson has a hard-hitting column in today’s Washington Post on the non-reform elements of the health care reform package.  He points out the inherent contradictions in the Administration’s claims that health care can both be expanded to cover the uninsured and reduce costs.  As the Congressional Budget Office noted in its devastating assessment, the proposals don’t represent fundamental changes and won’t reduce future health spending.

Samuelson says that in the president’s advocacy for the Democrats’ health care proposal, Obama has demonstrated “the ability to make misleading statements sound reasonable or sophisticated.  Still, they’re misleading.”

Samuelson is no supporter of the current health care system, but he excoriates the president’s claims as “self-serving exaggerations and political fantasies.” As he concludes:

Unchecked health spending is depressing take-home pay, squeezing other government programs — state and local programs as well as federal — and driving up taxes and budget deficits. The president has said all of this; he simply isn’t doing much about it. He offers the illusion of “reform” while perpetuating the status quo of four decades: expand benefits, talk about controlling costs. The press should put “reform” in quote marks, because this is one “reform” that might leave the country worse off.

Dems’ Health Care Bill Looking Weaker by the Day

by Alex Hankins on July 27, 2009

in Economy, Healthcare, Insurance, Personal Liberty, Politics as Usual, Regulation

For the Democrats still supporting the health care overhaul, the blows just keep coming. As if the financial problems I described in a previous post were not enough to deter this fiscal suicide, the Congressional Budget Office has now said that a plan to offset the massive costs by putting an outside panel in charge of budget-cutting for other government health care programs will amount to savings of only about $2 billion over 10 years — practically negligible in comparison to the final price tag, which is already expected to exceed $1 trillion.  For those who still consider this legislation financially feasible, that is a discount of 0.2%.  Oh boy, I can’t wait to cut out the coupon!

When the Congressional Budget Office announced its cost assessment of the health care bill, Senator Chuck Schumer (D-N.Y.) called the estimate “wacky” and accused the CBO of omitting the savings he inexplicably expected the plan to reap after full implementation. This new statement from the CBO directly counters that claim and casts even further doubt on both the viability of the bill and the credibility of leading Democrats.

Yet, instead of heeding the advice of their own budget analysts, Democratic lawmakers are still charging forward and losing Blue Dog support in the process.  Senate Majority Leader Harry Reid has already acknowledged that the bill will not come to a vote in the Senate until after the recess.  By then, the bill likely will have lost so much support due to increased awareness of what it entails that it will either disappear entirely into obscurity (along with the last of Obama’s invested political capital) or be diluted down into a politically innocuous and much less  economically threatening shell of its former self.

The latter is the safer and more probable option for the administration to choose. Its rush to pass this legislation may be related to its desire to have some major policy accomplishment of which it can boast in time for the 2010 midterm elections, the inevitably disastrous effects of which will not materialize until well afterward.  Obama has a lot riding on this.  Given his rock-star status and his party’s dominance of Congress, Obama will look embarrassingly weak if his prized health care initiative fails to pass.  He and the leaders in Congress must quietly cut away much of the spending from the bill or risk halting their already ebbing momentum.

Senator Jim DeMint (R-S.C.), who compared the prospect of a defeat for Obama on health care to Napoleon’s career-ending battle at Waterloo, may turn out to have been right on the money.  Obama’s victories so far have been enabled by confidence in his personal leadership and still-unfulfilled promises — so if he cannot deliver on the crown jewel of his policy agenda, he will be vulnerable to a catastrophic loss of both the necessary support in Congress and the iconic status that has served him so well until now.

NEW VIDEO: Policy Translated

by Richard Morrison on July 27, 2009 · 2 comments

in Economy, Stimulus to Nowhere, Zeitgeist

Often, the policy issues people here in D.C. talk about can cause the eyes of non-wonks everywhere else to glaze over. With that in mind, we’ve created a new video series: Policy Translated.  We take the complicated issues, add some irreverent subtitles, and bingo: instant comprehension.

Information Policy Analyst Ryan Radia introduces the series:

Regulatory Studies Fellow Ryan Young explains the economics of stimulus spending:

Don’t forget to rate, comment and subscribe to the YouTube channel!

UAW Gives Taxpayers the (Gettel)finger

by Ivan Osorio on July 27, 2009 · 1 comment

in Bailout Watch, Economy, Labor

Considering the enormous amounts of cash that the federal government has hurled at the auto industry since the start of the financial crisis, recipients of government largess in Detroit should at least have the common courtesy of telling taxpayers what they’re doing with their money. Unfortunately, United Auto Workers boss Ron Gettelfinger doesn’t seem to think that applies to him or his union. So kudos are in order to Rep. Jeb Hensarling for calling out Gettelfinger and the UAW on this:

The lone member of Congress on an oversight panel reviewing the use of the $700 billion Troubled Asset Relief Program criticized the decision of the United Auto Workers union not to testify at today’s hearing in Detroit on the auto industry bailout.

Rep. Jeb Hensarling, R-Texas, who is member of the Congressional Oversight Panel, said the UAW refused to testify at today’s hearing at Wayne State University.

The panel confirmed that it sought the testimony of the UAW. Alan Reuther, the UAW’s legislative director, didn’t immediately return a call seeking comment.

Hensarling said he was “disappointed” that UAW President Ron Gettelfinger did not accept invitation to testify.

“He was able to rearrange his schedule to come and ask for TARP money,” he noted.

[...]

“The UAW came before Congress and pleaded for billions of taxpayer assistance. Their ownership stakes in Chrysler and GM look suspicious at best and like sweetheart deals at worst. It’s outrageous they would benefit from the taxpayers’ money and then refuse to testify about it,” Hensarling said in a statement before the opening of today’s hearing.

It’s beyond outrageous; it’s disgraceful — especially in light of the preferential treatment the union has gotten from the government vis-a-vis other bondholders. Even more disgraceful is the fact that the White House and Congress are unlikely to do anything about it. At least now we know what the UAW thinks of the rest of us.

Health Insurance Reform: look at what does and doesn’t work already

by Michelle Minton on July 27, 2009

in Deregulate to Stimulate, Healthcare, Insurance

“One of the methods used by statists to destroy capitalism consists in establishing controls that tie a given industry hand and foot, making it unable to solve its problems, then declaring that freedom has failed and stronger controls are necessary.” ~Ayn Rand

Most agree that the US health insurance market is in need of reform. However, there is a wide spectrum of beliefs about what the problems in the market are and the best way to confront them.

Those who believe that the reason premiums are high and insurance is less available than it ought to be due to rampant market freedom, believe that the solution is to create a government insurer that can pick up the slack of the private market. These folks would be wise to examine other insurance markets that have tried similar approaches to insurance “reform.”

Florida’s property insurance market, though they are not exactly comparable, provides a good example of what increased controls and the presence of a government funded entity can do to the insurance market.

Before the 2004/2005 hurricane season Floridians could find relatively affordable property insurance without much effort. Of course, there were a number of residents who could not find insurance or who could not afford the premiums (the cost of living in a region rife with environmental instability). After several large hurricanes, and paying out billions of dollars in claims to Floridian homeowners, insurers tried to raise rates to recover their losses. When they were denied the ability to raise rates as high as they wanted by the FL insurance department insurers began dropping or refused to renew hundreds of thousands of policy holders—leaving them without insurance at all. On top of that, in 2007 FL Governor Charlie Crist froze the rates that Citizens Insurance Co. could charge and set up a state Catastrophe fund (a taxpayer-funded nest-egg) that would bailout the state run insurance company if a bad season exhausted it’s funds—something that became increasingly likely as the rates it charged fell far short of the amount it needed to charge for the risk it was taking on. The fund was also no more than political smoke and mirrors since, like the state run insurance company, it drew money from taxes on the same limited pool—namely the residents of Florida.

After only 5 years in existence in its current form, Citizens Property Insurance, which was originally setup to serve only those residents who could not find or afford insurance in the private market, (much as Obamacare proposes to deal with the millions of uninsured Americans) it has become the largest single insurer in the state. By charging less than the private market and accepting people who could find private insurance, albeit at higher prices, private companies found it increasingly difficult to compete and some chose to leave the state all together. Fewer private companies forced more residents into the under-funded state-run insurance program and increasing the enormous potential liability that now threatens to bankrupt Florida.

Much like Floridian politicians, current proponents of state-run health insurance claim that it will not interfere with the private market; that it will only accept those millions of citizens who cannot find or afford insurance anywhere else. Not only is this assertion untrustworthy (every government program from the Department of Agriculture to the National Flood Insurance Program started small) but it also obscures the real causes of trouble in the  health insurance market. It isn’t because of too much market freedom, but too little. If we really want to solve the “crisis,” to whatever extent there is a crisis, we need to free the market and increase private competition (look to Massachusetts auto insurance market for an example of liberalization increasing availability and decreasing premiums), not undercut it by adding a taxpayer backed government insurer.

The People’s Phone

by Ivan Osorio on July 27, 2009

in Culture, International

Venezuela’s increasingly ridiculous strongman, Hugo Chavez, would be funny if not for the misery and repression he continues to impose upon his own citizens. From changing the name of the country — he inserted the word “Bolivarian” in front of “Republic of Venezuela” — to his weekly marathon TV rants, his self-aggrandizing antics border on the cartoonish. Now he wants to his government to dominate…the cell phone market. As the Guardian has reported:

It is perhaps the world’s cheapest mobile phone. It is the latest offering from Hugo Chavez’s socialist revolution. And its name is derived from a slang word for penis. Behold the Vergatorio.

Venezuela‘s president launched the handset on his TV show with a Mother’s Day call to his mum and predicted it would conquer all rivals. “This telephone will be the biggest seller not only in Venezuela but the world,” he said. “Whoever doesn’t have a Vergatario is nothing,” he joked.

Were this a true “Bolivarian” phone, it should turn on to blast Hugo’s marathon speeches automatically, and cut off calls critical of him. There may be even more such schemes to come. According to an Italian newspaper, this follows the “Bolivarian laptop” among Chavez’s bizarre ventures.

Still, it’s too early to dismiss this. After all, the People’s Car was a success. (Thanks to Dave Rohm for the tip.)

An Important, yet Little Noticed Civil Liberties Case

by Ivan Osorio on July 27, 2009

in Legal, Personal Liberty

A friend currently in law school complained to me recently about the lack of public attention and media coverage that has been accorded to the Supreme Court case Melendez-Diaz v. Massachusetts, which he characterized as one of the most important civil libeties cases in recent history. But now at least one columnist has caught on to the significance of the case. The Washington Examiner‘s Barbara Hollingsworth ranks the Melendez-Diaz decision alongside the momentous Heller decision, which overturned the District of Columbia’s gun ban.

In this year’s Melendez-Diaz v. Massachusetts decision, Justice Antonin Scalia has written another outstanding decision, but one that will make some conservative law-and-order types shudder. But any legitimate fears that some drug dealers and drunk drivers could go free is overshadowed by the constitutional protection it provides against being sent to jail by a piece of paper.

Luis Melendez-Diaz was convicted of selling cocaine after Boston police officers found plastic bags containing white powder in the police cruiser following his arrest. In his appeal, Melendez-Diaz argued that prosecutors violated his Sixth Amendment rights by offering certificates that the powder was cocaine signed by state laboratory analysts instead of their live appearance in court.

The high court agreed. Citing “the deeply rooted common-law tradition of live testimony in court subject to adversarial testing,” Scalia pointed out that the Sixth Amendment clearly grants the accused the right “to be confronted with the witnesses against him” – no matter how logistically difficult that might be for the prosecution.

The Sixth Amendment, Scalia added, does not create a category of witness that is somehow immune from cross examination. Such courtroom confrontation “is designed to weed out not only the fraudulent analyst, but the incompetent one as well.”

The burden of getting crime lab techs into court has now been placed squarely on the prosecution – where it belongs.

In an era of expanding government power, this is rare welcome news. As my friend rightly noted, the Court affirmed an individual’s right to not be convicted by a piece of paper.

Bureaucrash’s video on the Heller case is below.

Radia reacts to Zittrain in NY Times

by Gary Howard on July 27, 2009

in Tech & Telecom

CEI Information Policy Analyst Ryan Radia responds to Jonathan Zittrain’s “Lost in the Cloud” in today’s New York Times.  Read it here or see below.

To the Editor:

In discussing the privacy risks that have accompanied the growth of the Internet, Prof. Jonathan Zittrain rightly bemoans the willingness of governments to violate individuals’ privacy rights. Unfortunately, he proposes new legal restrictions that would stifle online innovation while doing little to enhance consumer privacy.

Mr. Zittrain proposes a “fair practices law” that would require companies to release personal data back to users upon request. Such a rule may sound workable, but purging specific data across globally dispersed server farms is no simple endeavor. Who is to pay for the implementation of such privacy procedures – especially for free services like Facebook or Twitter that have yet to turn a profit?

A better approach to online privacy is to educate users on safeguarding personal information. Ultimately, however, the only foolproof approach to protecting sensitive data online is to simply not disclose it.


How to End the War over Antitrust

by Ryan Young on July 27, 2009

in Deregulate to Stimulate, Economy, Regulation

The government is at war with itself over antitrust policy, according to the New York Times.

On one side we have Christine Varney, who heads the Justice Department’s antitrust division. On the other we have the Department of Transportation (over both airlines and rail policy), financial regulators, legislators from both parties, and some of President Obama’s advisers (but not all of them).

The reason for the infighting is that antitrust policy, by its very nature, is vague and arbitrary. If the Sherman and Clayton Acts were followed to the letter, all prices, all mergers, and all business agreements would be illegal. Therefore they aren’t followed to the letter.

Regulators instead must use their discretion. Different people have different discretions; of course they will disagree on the proper boundaries of antitrust enforcement. Hence the government’s war with itself.

There are two ways around this: either enforce the laws as they are written, or repeal them. A quick look at the laws is enough to make the case for repeal.

Suppose you charge a higher price than your competitors. You are abusing your market power and can be prosecuted. If you charge the same price as your competitors, then that is evidence of collusion; also prosecutable. If you charge lower prices than your rivals, then that is predatory pricing, intended to drive your rivals out of business so you can then raise prices and make monopoly profits. Prosecutable. Literally, all prices are illegal. No one is innocent.

Same with mergers. There are three kinds: horizontal, vertical, and conglomerate. Horizontal mergers are between direct competitors. Fewer competitors implies less competition. Prosecutable. Vertical mergers are between firms with a supplier-customer relationship, and can lead to undue market power. Prosecutable. Conglomerate mergers unite unrelated, non-competing firms. By raising barriers to entry in multiple markets, they are prosecutable. All mergers fall under at least one of the three categories. All are technically illegal.

This is absurd, obviously. Companies have to charge prices. And even the most hawkish antitrust advocate knows that some mergers can actually increase efficiency and competitiveness. So the government doesn’t enforce antitrust statutes literally. Individuals pick and choose which companies to go after, and different people pick and choose differently.

If the executive branch is not going to consistently enforce antitrust laws — and they shouldn’t — they should be repealed.

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