Relevant and even prescient commentary on news, politics and the economy.

Scotusblog’s Wednesday roundup links Angry Bear

Another recognition for Angry Bear contributors comes in the form of Scotusblog Wednesday roundup:

You may have heard of Scotusblog because of the coverage of Supreme Court’s decision on court challenges to parts of Obamacare. Beverly Mann, having begun to write for Angry Bear as an added subject which I believed to be an increasingly important impact on policy decisions, again makes it to recommended links to read.

Wed roundup at Scotusblog.

Jess Bravin of the Wall Street Journal reviews the latest book by Justice Antonin Scalia and Bryan Garner. Coinciding with the book’s release, Justice Scalia recently sat for interviews with CNN (which Beverly Mann discusses at the blog Angry Bear) and NPR’s Nina Totenberg.

(bolding mine)

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Health Care Thoughts: The Deloitte Survey

by Tom aka Rusty Rustbelt

Update 7/26:  The Deloitte link is working:

Health Care Thoughts: The Deloitte Survey

The annual employers survey by Deloitte (Big Four CPAs) has caused some buzz among us talking heads, although sadly drowned out by the tragedy in Colorado.

(As of this moment the download link is broken, apparently it was a popular download.)

Employers surveyed believe the US health system under performs, has some strengths in ability and access, is wasteful, employee lifestyles are a problem, and the system could be improved by investments in primary care.

Larger firms tend to be somewhat confident of coping with PPACA, smaller firms are not confident at all.

The headline finding is that 10% of employers are likely to dump employees onto state exchanges. My spin on this is the health of the labor market and the relative value of employees will be major decision factors come 2014.

Whatever happens in the November election, PPACA is not a done deal or finished project.

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Wages driven down, now relative to market you’re over paid!

Update: spelling corrected in title.

I heard and then went to look see that Caterpillar is working hard to control it’s costs.

“Despite earning a record $4.9 billion profit last year and projecting even better results for 2012, the company is insisting on a six-year wage freeze and a pension freeze for most of the 780 production workers at its factory here. Caterpillar says it needs to keep its labor costs down to ensure its future competitiveness.” 

It has purchased 17 other business since 2008, 9 were non US companies. Two companies were purchased in 2011. Here’s the thing, a 6 year freeze? I guess there will be no inflation? I mean like zero. Though economist are saying inflation is needed as part of the solution to our slow economy. Of course, Obama having frozen government wages, I guess Caterpillar is just being patriotic. Nothing like We the People blazing the trail for how we want the private sector to treat We the People.

Caterpillar made $4.9 billion profit. If they raised these people’s pay $10,000 each, your only talking $7.8 million. It is 0.159% (0.00159)of Caterpillar’s profit. Inflation has averaged since 2008 about 2.075%.  Giving the worker $10,000 more per year does not equal the inflation rate as a share of the profit. If the worker were getting their due based on inflation they would get a piece of $101,675,000. This would be $130,352.56 each for the 780 workers. Caterpillar would still have $4,798,325,000.00 profit. Imagine what that $130,352.56 would do for the economy in Joliet! I’ll bet Caterpillar equipment sales would rise do to demand for construction.

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Did Scalia Pointedly Hint At A Major Limitation To Citizens United? (No need for the Disclose Act, because Citizens United itself requires disclosure?)**

I think Thomas Jefferson would have said the more speech, the better.  That’s what the First Amendment is all about. So long as the people know where the speech is coming from. … You are entitled to know where the speech is coming from — you know, information as to who contributed what.

— Justice Antonin Scalia,responding to interview questions by CNN’s Piers Morgan about Citizens United, Jul. 18

Antonin Scalia, bless his heart, is on a book tour, which he kicked off yesterday in an interview with Piers Morgan of CNN.  The online and print headlines, predictably (both substantively and procedurally, as lawyers would say), mostly read along the lines of “Scalia Says He Had No ‘Falling Out’ With Chief Justice” (Adam Liptak, New York Times) and “Scalia says no ‘falling out’ with Roberts” (Jesse Holland, Associated Press).  Well, of course that would be the attention-getting subject of the interview.  (Procedurally.)  And, of course Scalia’s had no lasting falling out with Roberts. (Substantively.)

And, of course that would be the subject of the headlines and the opening paragraphs of news reports on the interview.

But these headlines and opening paragraphs bury the lede.  Which is that the Disclose Act, which would require disclosure of the identity of all contributors to purportedly-independent campaign-expenditure groups, and of the amounts contributed—the enactment of which congressional Republicans keep blocking—is, it turns out, unnecessary.  As the Times’ Liptak notes, the proposition that “[y]ou are entitled to know where the speech is coming from — you know, information as to who contributed what” is actually part of Citizens United itself; eight justices (all but Thomas) endorsed this in that case, as a rule of First Amendment law.  The First Amendment right of the Koch brothers and the Chamber of Commerce and ExxonMobil to make “independent” campaign expenditures via nonprofit tax-exempt “social welfare” advocacy groups depends upon disclosure not just that the nonprofit tax-exempt “social welfare” advocacy group paid for the ad but also that the Kochs, the Chamber of Commerce, and ExxonMobil donated a specified amount to the nonprofit tax-exempt “social welfare” advocacy group.*

So sorry, Karl Rove.  But such is life.

Or at least it will be, sometime before the November election, I think.  Because all that is necessary now for this disclosure to be compelled is for the Obama campaign, or the DNC, or the campaign of any Dem candidate who’s being attacked in “independent” campaign ads—or, for that matter, even the news media—to file lawsuits invoking none other than Citizens United, asking the courts to order the disclosure of that information.  Because of the shortness of time before the election, and because of the obvious relevance of this to the November elections—and because this is purely a legal issue, requiring very little factual record—this would proceed through the courts very quickly.

Liptak also mentions Scalia’s invocation of what even Scalia surely knows is a pretty porous defense of Citizens United:
Mr. Morgan argued that spending may be regulated because it is not speech.

Justice Scalia responded that money facilitates speech and suggested that it would be unconstitutional to tell a newspaper publisher that “you can only spend so much money in the publication of your newspaper.”

Mr. Morgan said that was different, as “newspaper publishers aren’t buying elections.”

Justice Scalia said that “newspapers endorse political candidates all the time,” adding that “they’re almost in the business of doing that.”

Yes, indeed; they almost are in the business of doing that.  But the most jaw-dropping, and mocked, part of the Citizens United opinion is its out-of-nowhere—and clearly false—statement of fact upon which the opinion’s outcome relies: The five justices said they “find” as a matter of fact that unlimited “independent” campaign expenditures gives rise neither to corruption nor to the appearance of it, and therefore the First Amendment free-speech interest trumps the interest in allowing statutory limits on these expenditures.  This is, in other words, not like falsely shouting “Fire” in a crowded theater.  Or like inciting to riot.  Or like …. 

The New York Times and the National Review endorsements and commentary don’t operate as de factobribes, real or perceived by the public.  Nor does anyone other than Scalia and his four cohorts pretend to think so.

About that independent-expenditures-give-rise-neither-to-corruption-nor-to-the-appearance-of-it thing, among those whose opinions the justices neglected to ask were the seven current justices on the Montana Supreme Court, and those justice famously begged to differ with the Citizens Unitedmajority on that point last December, in a case about a longstanding Montana campaign-expenditure statute.  Six to one, they upheld the constitutionality of the Montana statute.  The seventh justice dissented because of Citizens United’s clear mandate, but trashed the finding of fact as clearly false.

On June 25, the Citizens United majority summarily reversed the Montana Supreme Court.  In a dissent joined by Ginsburg, Sotomayor and Kagan, Stephen Breyer acknowledged that the four dissenters could have forced the Court to have a full hearing on the case—full briefing and an oral argument—next term.  But, he said, there would be no point to it, as the majority had made clear in discussing the Montana case that no member was willing to reconsider any part of the Citizens United ruling, including the ridiculous finding of fact.

It’s not hard to recognize the likelihood then that both Kennedy—the author of Citizens Unitedand apparently the force behind the deeply controversial decision by the majority to raise, on their own, the issue of the constitutionality of centerpiece of the McCain-Feingold statute rather than to just strike down the minor section of the statute the challengers had challenged as unconstitutional—and Roberts, who allowed this stunningly inappropriate judicial role, understand by now that, at least from the prospective of a vast majority of the public, the Citizens United-created status quo is simply untenable. 

There appears to have been some horse-trading there, forced by the minority, who agreed to not force a full hearing in the Montana caseAmerican Tradition Partnership, Inc. v. Bullock, thus relieving the majority from having to defend its indefensible finding of clearly-false fact.  And in return, the majority agreed to interpret Citizens United as mandating meaningful disclosure rather than just gimmicks for effective nondisclosure.  And to do so informally, with enough time before this November’s election for it to actually matter.*
As someone who believes that the current system results in actual corruption and certainly the appearance of corruption, I think the minority got the better of the deal.

In any event, I don’t see how, in light of Scalia’s straight-from-the-horse’s-mouth public statement, lawsuits requesting immediate injunctive relief compelling disclosure could be legitimately denied.  

*Obviously, this is speculation on my part. [Added Wed. at 11:36 a.m.]

**CORRECTION: Turns out that I was confusing super PACs with nonprofit tax-exempt “social welfare” advocacy groups. (No surprise, I guess; I’m neither an election-law specialist nor a tax-law specialist.)  So I’ve changed “super PACs” to “nonprofit tax-exempt ‘social welfare’ advocacy groups.”  This matters only because super PACs already have to disclose their donors. Nonprofit tax-exempt “social welfare” advocacy groups don’t, and so the Disclose Act targeted the latter but not the former in this respect.  The Disclose Act also, though, would have required certain disclosures in each ad itself, whether the ad was sponsored by a super PAC or a “social welfare” advocacy group. [Corrected Fri. at 6:38 p.m.]

UPDATE: Hmm.  Here’s an article from the Sunlight Foundation published on July 13 about the Disclose Act.  The article suggests that super PACs do indeed legally hide the identity of their donors.  [Fri. at 8:37 p.m.] [Ah. There’s the link; I didn’t put the link in last night when I posted the update.]

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Miya Water’s quest to plug leaks

Via David Zetland’s Aguanomics. I continue to follow David’s thinking on how to plan, price, and ultimately use water in a 21st century manner. He offers interesting notions on the roles of government/pricing (and markets). There is currently big bucks involved and only to grow in importance and critical decisions to be made. Water is also an intensely watershed based arena (local) except when it is not. Re-posted with permission.

Miya Water’s quest to plug leaks

While in Jerusalem, I had the opportunity to speak with Tami Gaoni Feldman of Miya Water.
Her company is in the business of reducing non-revenue water (NRW), or water that goes into pipes but never reaches a customer’s meter gets paid for.
Well-managed water systems might have a NRW rate of 5 percent (due to fire hydrants, flushing the system, minor leaks, etc.). In a poorly-managed and maintained system, NRW rates range from 40 to 90 percent. The most common causes of high NRW rates are theft of water, non-payment of bills, leaking pipes and miscalibrated meters.
IBNET tracks NRW rates for about 2,000 utilities.
Tami told me that Miya is working with one of two utilities in Manila, where the 300 staffers in the NRW division tackle 100 leaks per day and overall system losses of 300 ML per day (about 240 acre feet per day). Miya has had some success so far in reducing NRW from 67 to 50 percent.
Miya uses three main tools to reduce NRW: monitor and fix leaks, manage system pressure to reduce leaks in low-demand periods (middle of the night), and increase payment for services. As a first step, Miya makes sure there are water meters at big junctions, to make it easier to track down branches with high 24/7 baseline use.

These technical details were interesting, but Miya faces an additional problem: water managers and politicians facing water shortages prefer to increase supply (via desalination, reclamation, groundwater pumping, etc.) instead of reducing NRW losses.
This behavior does not make sense from a cost-benefit perspective. A decent NRW program will increase revenue per unit of treated water pumped into the system. Those revenues mean that NRW programs “pay for themselves.”
I hate to say it, but this feature is even more attractive than my “raise prices” recommendation: it’s an engineering solution (water managers like those) that will not increase prices (politicians like those).
So why is it hard for Miya to sell its services?
I see two main reasons. First, a good NRW program requires up-front financing to pay for staff, software, meters, and so on. For most cash-strapped utilities, additional money is hard to come by. So why not get a loan from a bank or development agency? Because (according to Tami, but within my understanding) bankers are not familiar with NRW programs. They are more comfortable with making loans on physical assets like desalination plants that can be pledged as collateral.
Now stop and think about this for a second. What happens if a water utility fails to repay a loan on a NRW program? There’s no collateral to grab. What happens if it fails to repay a loan on a plant? Yes, there’s collateral, but then what? Are the bankers going to drag a plant from Dhaka back to Geneva? So the “collateral excuse” is hollow.
That leaves conservatism and one other excuse: managers and politicians like new facilities that they can pose in front of, cut ribbons for, etc. There’s no photo opportunity at a non-leaking pipe.
We couldn’t think of any other reasons, but maybe you can.
Until then, I will conclude that NRW reduction programs are an underutilized method of improving utility performance.
Bottom Line: Every water utility should have a program to track, report and reduce its NRW rate — for its financial stability, environmental stability, and the good of its customers

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Economics an Almost Social Science

Peter Dorman at Econospeak discusses problems with microfoundations, and in a more thorough paper at Association Economique politique explores the Political Econonomic Outlook for Capitalism.

Mark Thoma had pointed to this Business/behavioral science can help guide economic-policy view notion of looking at incentives in an empirical way.

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Trans Pacific Partnership

The US Trade Representative website posts:

The next negotiating round of the Trans-Pacific Partnership will take place in Leesburg, Virginia from September 6-15, 2012. As in the past, USTR will be hosting a Direct Stakeholder Engagement event to provide stakeholders the opportunity to speak directly and one-on-one with negotiators, raise questions, and share their views as well as a stakeholder briefing.

Other links talk about the lack of interim transparency and drafts of agreements to date, continuance of secret deliberations when making decisions on trade ‘infractions. and the enhanced ability of companies to sue domestic industries (a la WTO) in domestic courts:

The Trans-Pacific Partnership, Global Corporate Coup D’Etat
by Lori Wallach, The Nation

Citizens Trade


The New York Times

Other links appreciated in comments.

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Social Security: Trust Funds, Actuarial Balance, Sustainable Solvency

Social Security arithmetic isn’t hard. Tedious perhaps and with counter-intuitive results but once certain terminological obstacles are swept away not requiring advanced math skills. But oy that terminology! This post proposes to start demolishing those conceptual barriers.

Social Security is considered ‘solvent’ when its ‘Trust Fund’ is in ‘actuarial balance’. The Social Security Trust Fund was created pursuant to the Social Security Amendments of 1939 to hold any excess of dedicated Social Security revenue over cost and serves primarily as a reserve fund. Those excess revenues are held in the form of interest earning Special Treasuries with that interest being included as revenue. When the accumulated principal including retained interest equals 100% of projected NEXT YEAR cost the Trust Fund is considered to be in ‘actuarial balance’. Now since Social Security income and cost project to change each year ‘actuarial balance’ cannot effectively be measured in nominal dollar terms because a year end 2012 balance equal to 100% of 2013 projected cost will generally be something less than 100% of 2014 cost. And this quite aside from any fluctuations in the economy, that is all things being equal a steady-state Social Security system requires a steadily increasing Trust Fund principal balance to be judged in ‘actuarial balance’.

Meaning ‘fixing’ Social Security, making it ‘solvent’, means something more than restoring actuarial balance for the current year, instead it requires having the system project to maintain ‘actuarial balance’ over time. Historically the Trustees of Social Security established two different measures of solvency: ‘short term actuarial balance’ and ‘long term actuarial balance’. ‘Short term’ here means the same 10 year budget window used by the rest of government, if year end principal balance in the SS Trust Funds projects to be 100% or greater (in SS jargon a ‘trust fund ratio of 100 or more’) in EACH of the next 10 years Social Security ‘meets the test for short term actuarial balance’. Similarly if the TF ratio projects to be 100 or more in EACH of the next 75 years Social Security meets the test for ‘long term actuarial balance’. In the last couple decades ‘short term’ and ‘long term’ actuarial balance have been supplemented by two new ways of considering solvency. In 2002 we saw the introduction of  ‘Infinite Future Horizon’, that is in principle extending solvency to Heat Death of the Sun. More reasonably for long-term planning purposes is something called ‘sustainable solvency’ which takes into account the predictable increase in structural cost year over year and argues that ‘long term actuarial balance’ should include not just years 1-75, but also the trend for year 76 and after. That is we shouldn’t just fix Social Security for 2012, we should take steps to make sure it won’t fail the test for ‘long term actuarial balance’ come 2013.

Okay having (I hope) adequately defined ‘solvency’, ‘actuarial balance’, ‘trust fund ratio’, ‘Infinite Future Horizon’ and ‘sustainable solvency’ we can develop some implications below the fold.

What would ‘sustainable solvency’ look like? Now given that year 76 total cost will be predictably more than year 75 year total cost even if the current year 75 year model is perfect, it follows that maintaining a trust fund ratio of EXACTLY 100 requires a small increase in Trust Fund balance EACH year. Which is where things start getting odd.

Okay assume we have a Trust Fund with a principal balance equal to 100% of next year’s cost where that principal is held in interest earning Special Treasuries whose interest is in turn counted as income. Further assume that all non-interest SS income for the upcoming year projects to be equal to projected cost. What is the result for the Trust Fund? Well one thing to recognize is that maturing Special Treasuries are not in themselves counted as ‘income’. If the dollars represented by those Treasuries are not needed for current year cost they are simply retained and rolled over into new issues. The second is that interest on the current portfolio IS counted as ‘income’ but if not needed to pay current year cost is itself rolled over into new Special Treasuries. That is under the assumptions of our current scenario, where NON-interest income equals current cost, the result will be retention of 100% of principal augmented by interest converted to new principal in the form of new issues along side those rolled over.

Simple enough but with some odd results. Under our scenario maturing principal is not redeemed for cash, it is simply exchanged for new Special Treasuries with new (typically) 10 year maturities. And a few seconds of thought shows that in a steady state system of  ‘sustainable solvency’ they might NEVER need to be redeemed for cash. In fact, and this is a key point, they would all need to be retained and augmented with new principal sufficient to maintain that Trust Fund ratio of 100. Meaning that those Treasuries, though real interest earning obligations of the U.S. government, never actually get paid off.

This tends to throw supporters of Social Security for a loop. Because they often believe that the Trust Funds were established in 1983 as a method of pre-funding Boomer retirement and were ALWAYS expected to be paid down to zero and so be temporary: “Reagan borrowed the money to pay for tax cuts, they NEED to pay it back”. Well actually under ideal circumstances they don’t need to pay it back. They only need to honor the obligation by continuing to pay and/or credit interest on the accumulated principal with the latter being retained to maintain the crucial function of ‘sustainable solvency’ as measured by ‘trust fund ratio’.

And this is where things get hairy, because note I said in reference to interest that it needs to be paid and/or credited. And by ‘credited’ I mean retained in the form of new Special Treasuries sufficient to maintain a trust fund ratio of 100. Which means that portion of interest retained to maintain an overall condition of ‘sustainable solvency’ is never paid off by cash transfers either. In terms understandable to Paulite TeaTards those Special Treasuries used to roll over existing principal and to ‘finance’ retained interest are just ‘fiat money’. Or in terms understandable by the rest of us ‘Interest Earning Obligations backed by Full Faith and Credit of the U.S.’

If this sounds crazy it is probably because Social Security is not now in ‘sustainable solvency’. Although on a combined basis the OASDI Trust Funds do meet the test for ‘short term actuarial balance’ they DO NOT meet the ‘long term’ test and still less either the test for ‘sustainable solvency’ (i.e. year 76 and some years after) or ‘infinite future’ (i.e. year 76 and EVERY year for centuries to come). Under current projections Trust Fund principal will need to be redeemed for cash starting in the 2020s and project to be totally redeemed by the mid 2030s. But given a sensible worker friendly fix that starts by taking the numbers and methodology of the Social Security Reports seriously they don’t need to be.

(After all it is eminently sensible to maintain a prudent reserve and reasonable enough to consider a TF ratio of 100 to be a simple minimum. On the other hand there is a limit beyond which too much reserve actually becomes dangerous (topic for another post). And when I started blogging on this in 2004 it appeared we were on that dangerous ‘over-funded’ path. But the 2007 recession took care of THAT problem with the result that TF ratios are already dropping from their peak even as they still remain right around 350 (three and a half years of reserve). Of course there is no real world problem with those ratios dropping, that is after all what the extra reserve is for, to be tapped as needed. On the other hand simple prudence mandates putting into place a plan to keep them from dropping to levels which would cause the failure of  ‘short term actuarial balance’ and even to put them onto a glide path towards ‘long term actuarial balance’ and heck even ‘sustainable solvency’. Which (cough, cough) the Northwest Plan for a Real Social Security Fix does even as it maintains 100% of the current law scheduled benefit. Even as it largely avoids substantial paydown of Trust Fund principal in nominal terms, instead putting Social Security on the path to permanent TF ratios in the 130 range.)

What then would ‘sustainable solvency’ look like from the perspective of the General Fund? Well for one thing the Social Security Trust Fund balance, while still being a very real claim on the future, with a minimum amount of due diligence never actually become itself ‘due’. Not in cash anyway. And interestingly neither will that portion of accrued interest needed to maintain the targeted TF ratio whether that be 100 or 130 or whatever. On the flip side not all interest can simply be credited to the Trust Fund as new Special Treasuries without potentially boosting the TF ratio to a point where worker’s rebel as a prudent ‘reserve’ transmutes into an interest free loan to the General Fund. I mean who is the ‘moocher’ or ‘looter’ in that scenario?

I leave as an exercise for the reader to poke at the numbers and see what part of Trust Fund interest simply gets retained as Special Treasuries (and so not financed from the real economy) to maintain minimum TF ratios as opposed to that portion of that interest that needs to be paid out in benefits to keep that TF ratio below acceptable sustainable maximums, which for the sake of argument we could put at 166. Whatever is the result of the offset due to retained interest is in effect the discount on the cash interest rate and under standard Intermediate Cost assumptions is something like 40% off the nominal rate. But it doesn’t discount to zero, the Trust Fund never becomes (or shouldn’t anyway) a purely free lunch. Pretty cheap for the social utililty and equity Social Security delivers but not cost free. As Chief Actuary of SS Steve Goss explained in a crucially important article in the 70th anniversary edition of the Social Security Bulletin: The Future Financial Status of the Social Security Program  (bolding mine)

However, the occurrence of a negative cash flow, when tax revenue alone is insufficient to pay full scheduled benefits, does not necessarily mean that the trust funds are moving toward exhaustion. In fact, in a perfectly pay-as-you-go (PAYGO) financing approach, with the assets in the trust fund maintained consistently at the level of a “contingency reserve” targeted at one year’s cost for the program, the program might well be in a position of having negative cash flow on a permanent basis. This would occur when the interest rate on the trust fund assets is greater than the rate of growth in program cost. In this case, interest on the trust fund assets would be more than enough to grow the assets as fast as program cost, leaving some of the interest available to augment current tax revenue to meet current cost. Under the trustees’ current intermediate assumptions, the long-term average real interest rate is assumed at 2.9 percent, and real growth of OASDI program cost (growth in excess of price inflation) is projected to average about 1.6 percent from 2030 to 2080. Thus, if program modifications are made to maintain a consistent level of trust fund assets in the future, interest on those assets would generally augment current tax income in the payment of scheduled benefits.

That is within stated limits neither the fact nor the timing of Social Security going cash flow negative means a damn thing in the bigger picture. Something some commenters have a hard time grasping.

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