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

Hey anti socialist! You really don’t want to sit on UHC, Cigna, Microsoft, Walmart, Koch brother’s, GE, Boeing or Buffet’s corporate boards?

By Daniel Becker

Just thought, being the new year, we might want to start it off with some actual new thinking about how to make our economic system better. I have been meaning to purchase the book: Were you born on the wrong Continent. I’m just a very slow reader though and have to finish what I have. So, I found this Book TV interview to satisfy my “should I buy it” meter. Yes I should, and will.

Here in this country, it’s unthinkable that you would have a high school graduate on the corporate board of a major corporation. And there it happens, I don’t want to say routine, it happens a lot. You know, at least in terms of the supervisory board.

My favorite example, which I give in the book is, is this ah, nascent global bank which was just starting up and I asked a young banker there about co-determination, how it worked and he said well ah, “I’ll tell you how it works. The guy who brought us the plants, around the bank building, he’s on the corporate board.” Well what do you think about? “Well I think it’s very funny.” He said “the other thing I think about, is that they can’t hold the meetings in English” which is the global language … because this guy only speaks German. Everybody has to go at the pace of the gardener on the… corporate board.

Imagine that! Mr. Smith actually does go to Washington. As a lobbyist.  Daily even, if he were a German citizen.

The author, Mr Geoghegan goes on to say that Germany was punished for the conception and implementation of co-determination by the boycott of international capital. The Financial Times, the Economist all editorialized against it. Thus, their people have to be on guard for those who want to bring it down. However, he notes that the post 1945 constitutions that were adopted came out of the New Deal, consequently they have in stone rights to healthcare, employment and education. Things our New Deal could not get constitutionally in-scripted. Under their constitution the courts have to look at whether the law will help or hurt the family. Is education free or not free?

Ultimately, Mr. Geoghegan sees Germany having an advantage in their system because the people are pulled into the system and thus are responsible for the results of their decisions. He notes that in the US we have no real power (at least as it relates to economic outcomes via labor) which allows one to talk irresponsibly about power. Remember that gardener? He is at the table of economic policy decisions. Kind of makes you realize just what we’re about to experience now that the Tea Party is calling some major shots. All of a sudden a group of people who have been able to sit on the outside in their own circle of reality is at the table of the worlds circle of reality. Think there is not going to be some major crashes? Even Carl Rove understood the danger in O’Donnell’s limited understanding of power because of lack of exposure and all it experiences. The issue we should all have with Rove et al though, is that he does not want to helper her learn about real power and thus truly be able to make decisions that enhances her life and reduces the risk of living.

In Germany, because of their system that makes it hard for even the least educated to sit on the outside, and the most powerful to ignore or leverage the least knowledgeable for their own gain, they have a better chance of surviving those who would create the world in their own vision.

 One caution when asked what the down side is of the German system? The least knowledgeable being employed. Here, we have a service economy as the solution. That is personal service to those who have the where for all to buy personal service. This leads to a crack in the foundation of an egalitarian mind set and thus the policy that follows.  

Truth is, not everyone is born to go and get a traditional BS type college education.  Germany obviously is going to struggle as we have with making sure the lowest common denominator and not the highest is the the standard for acceptable earning capacity.  Sure, promote being the best you can be.  Great as an individual motto, but not as a minimum standard for policy setting.  We need to understand that the best for some is simple manual labor.  If we don’t, then we are only left with welfare policy, which I have no problem with if that is what we choose.  One way or the other, people who for what ever luck in life they have or have not been blessed with have to be able to receive enough money to live in the society we have set up.  Either we allow this to happen by assuring “living wages” for the lowest work society needs accomplished or we do it by welfare.  Preferably not the penal kind of welfare we seem to be choosing.  It cost the most to society and not just in money.

Besides, is it not what made us the model for and the envy of the world that we had created an economy which allowed such capacity to be considered valuable enough to earn the basic American Dream of a house, car, education and retirement without being broke or broken?

Do watch the interview.

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Paying better wages and profit sharing another way to success?

Higher Wages, Profit Sharing and Greater Flexibility Benefit All Employees — And the Company Bottom Line Too
(link repaired)

Costco is so certain that its policy is sound that it has kept paying better wages than rivals, even as Wall Street has pressured the company to conform to industry standards.

As the economy slowly recovers, it’s no secret that companies would like to boost productivity and profits. Many think the best way to do so is to slash costs. As an entrepreneur and business owner, though, I’d like to suggest another idea: Pay your employees more.

That’s not as crazy as it sounds. A growing body of evidence is revealing that companies that pay fair wages, and offer flexibility and training to even entry-level and lower-skilled employees, do better than those that don’t. A vast number of businesses mistakenly assume that their lowest-wage workers are easily replaced or not worth investing in, but those that do the right thing soon find that they’re doing the right thing for their bottom lines. It’s time that this becomes a business norm.

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Preface to a Thought-Experiment on Labor, Capital, and Income Distribution

Mark Thoma goes to something called the Business Ethics Blog for an economics thought-experiment:

A Montreal accessories company has taken its policy of using no animal products beyond the rack and has forbidden its staff from eating meat and fish at work.

A former employee says the policy violated her rights as a non-vegetarian….

It’s an interesting experiment for many reasons, none of which deal directly with economics as it is currently taught.  For one thing, it is a dictated change in a contract with workers.  As a standard microeconomics problem, there is a negotiation, the worker’s preferences are examined, and the student is asked to find an economic balance that will satisfy the worker, with the implication that the employer desiring the change with provide compensation. (Note that the standard intermediate or graduate-level microeconomics problem merely teaches math, with dollars and preferences substituted for widgets and variables.)

For another, there is insufficient information to discuss externalities. (Aside to Brad DeLong: it’s not only, or even most importantly, Irving Fisher who is forgotten; Alfred Marshall appears to have been stripped from the curriculum as it transmogrified into a Libertarian Wet Dream.)  Absent evidence, we cannot know if the company had a legitimate reason for banning meat eating. Perhaps chemicals used in their processes combine with some proteins and produce a marginally higher level of cancer in those exposed for long periods. Perhaps the maintenance crew has discovered multiple rat nests because the workers have not been attentive to clean-up requirements, leaving enough pieces of pork, chicken, beef, and tripe around to make the building a desirable habitat. We do not have sufficient information.

We do, however, know that bars that permit smoking produce lung, throat, and other cancers in even the non-smoking bartenders and wait staff.  It may be unlikely that the aggressive hormone and radiation treatment given to meat these days produces a similar effect—radiation and drug treatment, after all, are both perfectly safe—but it is also possible that the company has seen recent research that indicates otherwise and fears for its future health-care costs.

We also do not know whether the company provides eating areas for its staff, or under what conditions it does.  Is there a company cafeteria (or eating spaces on various floors) that provides napkins and utensils to those who bring their own food? Is eating at one’s desk permitted? (I have worked places where it is not.) In such a case, we cannot even model the type of microeconomics problem referenced above, because we do not know the extent to which the workers are being told to give up something. (Smokers having to leave the building has positive externalities for them, such as work breaks others do not get and social networking opportunities that provide compensation.)  We cannot, in short, know the value of the widgets or the identities of the variables.

The question then becomes whether this is an economics problem at all.  And, if we assume it is, what does that mean for other. more standard, problems?  On the Next Rock: capital, labor, and taxation.

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The Class war summed up in quotes

By Daniel Becker

I just want to lay out the debate going on in our economy right now. There are 4 debaters. President Obama/Geithner et al, President Obama 2008, the rich (or capitalist, those who make their money from money) and the rest of us.

From President Obama’s 60 Minute interview:

PRESIDENT OBAMA:…And it turns out that actually the people who are most likely to use that money and spend that money are actually people of more modest means, and if what we’re concerned about is how we can grow the economy, there are more efficient ways to recirculate dollars out there and get people to spend.

PRESIDENT OBAMA:…But probably the biggest uncertainty right now for a lotta companies is there gonna be enough demand out there for the products, and we’ve gotta make sure that we’re workin’ with them to try to improve that.

KROFT: You’ve got a situation right now that banks have not significantly loosened up credit in spite of all the money that they’ve received, in spite of the fact that they’re quite profitable right now. And you’ve got manufacturing companies that haven’t replaced many of the jobs or hired back the people that they’ve cut. How do you get the banks to loan money, and how do you get businesses to hire people back?

PRESIDENT OBAMA: Well, it starts with businesses wanting to hire people back because they see customers out there. And so everything that we can do to expand consumer confidence, everything that we can do to get businesses to invest in plants and equipment through the tax code, through accelerated depreciation, through keeping taxes on middle class families where they are, as opposed to having them spike up — all that can make a difference. The more companies are doing well, the more likely they are to go to banks and say, “We need to borrow.”

The two Obama’s are struggling to have it both ways and thus the lack of action on issues such as easing unionization while going to South Korea for a trade deal ala NAFTA.

However, the other 2 parties in this debate have been very clear for years now. I present “Other People’s Money” 1991

The Capitalist represented by Lawrence Garfield:

“Ah, but we can’t,” goes the prayer. “We can’t because we have responsibility, a responsibility to our employees, to our community. What will happen to them?” I got two words for that: Who cares? Care about them? Why? They didn’t care about you. They sucked you dry. You have no responsibility to them. For the last ten years this company bled your money. Did this community ever say, “We know times are tough. We’ll lower taxes, reduce water and sewer.” Check it out: You’re paying twice what you did ten years ago. And our devoted employees, who have taken no increases for the past three years, are still making twice what they made ten years ago; and our stock – one-sixth what it was ten years ago. Who cares? I’ll tell you. Me. I’m not your best friend. I’m your only friend. I don’t make anything? I’m making you money. And lest we forget, that’s the only reason any of you became stockholders in the first place. You want to make money! You don’t care if they manufacture wire and cable, fried chicken, or grow tangerines! You want to make money! I’m the only friend you’ve got. I’m making you money. Take the money. Invest it somewhere else. Maybe, maybe you’ll get lucky and it’ll be used productively. And if it is, you’ll create new jobs and provide a service for the economy and, God forbid, even make a few bucks for yourselves. And if anybody asks, tell ’em ya gave at the plant. And by the way, it pleases me that I am called “Larry the Liquidator.” You know why, fellow stockholders? Because at my funeral, you’ll leave with a smile on your face and a few bucks in your pocket. Now that’s a funeral worth having!

The rest of us represented by Andrew Jorgenson:

“…The entrepreneur of post-industrial America, playing God with other people’s money. The robber barons of old at least left something tangible in their wake- a coal mine, a railroad, banks. This man leaves nothing. He creates nothing. He builds nothing. He runs nothing. And in his wake lies nothing but a blizzard of paper to cover the pain. Oh, if he said, “I know how to run your business better than you,” that would be something worth talking about. But he’s not saying that. He’s saying, “I’m gonna kill you because at this particular moment in time, you’re worth more dead than alive.” Well, maybe that’s true, but it is also true that one day this industry will turn. One day when the yen is weaker, the dollar is stronger, or when we finally begin to rebuild our roads, our bridges, the infrastructure of our country, demand will skyrocket….God save us if we vote to take his paltry few dollars and run. God save this country if that is truly the wave of the future. We will then have become a nation that makes nothing but hamburgers, creates nothing but lawyers, and sells nothing but tax shelters. And if we are at that point in this country, where we kill something because at the moment it’s worth more dead than alive, well, take a look around. Look at your neighbor. Look at your neighbor. You won’t kill him, will you? No. It’s called murder, and it’s illegal. Well, this, too, is murder, on a mass scale. Only on Wall Street, they call it maximizing shareholder value, and they call it legal. And they substitute dollar bills where a conscience should be. Damn it! A business is worth more than the price of its stock. It’s the place where we earn our living, where we meet our friends, dream our dreams. It is, in every sense, the very fabric that binds our society together. So let us now, at this meeting, say to every Garfield in the land, here, we build things, we don’t destroy them. Here, we care about more than the price of our stock. Here, we care about people. Thank you.”

Unfortunately, the President appears to be debating parallel to the real debate.  Capitalist vs the rest of us.  Time to get engaged sir

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A proxy for nominal aggregate demand and payroll growth: Treasury receipts are recovering…

I present an update on aggregate demand using the highest frequency of economic data available, US Treasury tax receipts. Tax receipts serve as a proxy for nominal aggregate demand via a nominal indicator of private payroll growth.

US daily Treasury tax receipts are improving. (This chart has been modified since its original posting to enable reader to click to enlarge).

The chart illustrates the federal deposits of income and employment taxes that are recorded on a daily basis and presented here as the annual pace of the 30-day rolling sum. The red line illustrates the average annual growth rate spanning the period 2005-current.

Since roughly April of 2010, the annual pace of income and employment tax receipts has been above the average, 2.8%. In the third quarter, the annual pace of income and employment tax receipts remained around 4%, consistent with the second quarter pace. Hours and employment are improving, supporting wage gains and higher tax receipts. But more importantly, the pace of tax receipt growth has not faltered, demonstrating ongoing recovery in the labor market and consumer demand.

But it’s not enough. The gains in tax receipts are likely a function of firms adding back hours instead of pumping up the work force. (see my previous post with links on the “hourless recovery“).

The chart above illustrates the cyclical loss from recession and gains during the recovery of private net-jobs (payroll) and aggregate weekly hours (you can see the summary data from the September payroll report here).

Both series found a trough in the third quarter of 2009, which is consistent with the bottom in tax receipt growth (chart above). However, the hours index has recovered quicker than has its payroll counterpart (of course it fell farther, too). To date, both private hours and payroll are 7% short of their values at the peak of the economic cycle.

Receipts are growing, but not vigorously enough to indicate any shift in the current trajectory of payroll growth. Therefore, nominal aggregate demand remains weak. Furthermore, the still-nascent household deleveraging cycle is very likely moving at snail-speed (see this article for a discussion of the link between consumption growth, income growth, and deleveraging for today’s commentary).

Rebecca Wilder

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My Kids Have School Today: An Inequality Survey

The kids in the next town over don’t.  Indeed, the place where my Eldest Daughter’s swim team practices is closed because it’s a holiday, and their schools are.  But not here: the banks are closed, the government offices are closed, the local libraries are closed. (Heck, the New York Public Library is closed.)  But the schools are open.

For more than three years, the teachers worked without a contract.  While the Administration grew—and paid itself very well, taking an ever-increasing share of the budget—the teacher showed good faith.  They continued to negotiate, continued not to strike.  It wasn’t until the third year that they started cutting back on the extra effort they put in—things such as displaying children’s art projects in the hallways–.

Finally, two years ago, a contract agreement was reached.  One of the things no one bothered to specify—since the schools are public, and therefore a government institution—was that Federal and State holidays would not be school days.  The teachers might work some of them—teachers, as with most academics, do more work outside of the classroom (in preparation, in training, in research) than in it, so there might be a training day on some of the minor ones—but there would not be classes.  No Administration would be crazy enough to schedule classes on a Federal holiday, when many of the parents would have planned three-day weekends.

Except ours, to punish the teachers for having the temerity to negotiate for a contract, would do exactly that.  And it has for the past few years.

While taking my usual walk from Penn Station to Times Square, I saw more than the usual amount of tourists: a marginal effect of the holiday, as economists would note.  And that marginal effect is marginally reduced by the families whose children had to go to school today, even though their parents have the day off.  By the Law of Large Numbers, economists won’t even notice the difference—though individual stores and businesses might.

Columbus Day may be a minor Federal holiday. An NCIS “Undercover Marathon” on the USA network does not a unique celebration make.  And explaining why it is a holiday may become problematic. (“Well, white men with guns came here because like most men they were really lousy at asking for directions. And unlike the previous white men, they stayed, more or less.” is so much less doggerel or open to misinterpretation than “In 1493, Columbus sailed the Deep Blue Sea.”)  But explaining that the kids have to go to school, not the beach, because the superintendent wants to punish the teachers and the kids are collateral damage, well, that’s an economics lesson that will abide.

Especially when you tell them the punch line: Despite more than containing teacher expenses, the school budget has exploded for the past several years as more and more Administrators have been paid more and more money. And the result of this is that the Superintendent who is responsible for that got a five-year contract extension, bloating the budget even more, with even less of it allocated to children’s education (since the Superintendent is a Fixed Cost).

From there, explaining the growth of income inequality is at worst a lay-up.

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Payroll Tax Cut

Labor cost as a share of business output is now at a post WW – II low. and has fallen about eight percentage points since 2000. This would suggest that the weak demand for labor does not stem from high labor cost. Actually since the third quarter of 2000 while labor cost as a share of total business cost has plunged, private payroll employment has also fallen from 111.2 million to 107.6 million in the second quarter of 2010. Yes, this data contradicts the theory taught in introductory economics.

But, if as this data series implies that weak employment is not because of high labor cost why should further cuts in labor cost via a cut in the payroll tax lead firms to hire more employees? I strongly suspect that those advocating cutting the payroll tax simply remember the theory they learned in their introductory economics class and have never actually looked at the data. If they had they would know that changes in the demand for labor and changes in labor compensation have a strong positive correlation. Of course this directly contradicts the theory they learned in introductory economics that labor demand is a downward sloping function of labor compensation. But remember, that theory is simply a massive over-simplification used to explain basic economic concepts to some teenagers. The theory assumes that all other things are constant and in reality that never really happens. In reality, the demand for labor is a function of many things of which labor compensation is only one factor and generally a relatively minor factor at that. In the real world the demand curve for labor is not a downward sloping function of compensation. Remember, when Alfred Marshall the great economist who did more to develop graphical analysis than anyone else was asked why he developed this approach his answer was,”so the gentlemen in the back row can understand what I’m talking about”.

Labor demand is a derived demand. Firms hire labor because they think they can profitably sell the goods and/or services the labor produces not because they derive some utility from hiring labor. Consequently, the dominant factor in the demand for labor is the firms perception of the demand for that firms output. Even if the cost of labor falls, firms still will not hire more labor to produce more output if the firms does not expect to sell the expanded output. Consequently, those claiming that cutting labor cost will induce firms to hire more labor are just spouting some ideological fantasy that has no basis in reality or even in advanced economic theory.

So what drives the demand for labor. If I want to forecast employment I make it a simple estimate of GDP less productivity. In this estimate labor cost does not play a enter the equation at all. In my experience labor costs is only important in the labor supply equation where higher labor payments induce individuals to enter the labor force.

In response to questions in the comments that if labor’s share fell, what rose, I’ve added this chart.
PS. The last time I published this chart it was of an index number that was derived by dividing one index number by another. So anyone could download the data from the BLS and reproduce it. But this chart is of the actual raw data that shows labor cost as an actual share of business output. BLS does not publish this raw data. Haver Analytics made special arrangements to get the raw data from the BLS so they could generate this data series. Consequently you will not be able to reproduce this data series from publicly available data.

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Be afraid on Labor Day

by Dan Crawford (Rdan)

Business Insider offers one sort of opinion by Mike Shedlock… what I can gather from the short article are the implications that outsourcing over the globe is a consequence of unions, that we should be more like Louisiana, and there is no economic literature on labor to offer some alternative explanations. And serves notice to public employee unions of what is next…you privileged workers are next after we finish off what is left of the private unions. Really nice offering.

Now this particular effort might reflect some lack of understanding on the unions part, but absolves any decision by Cessna management for stupid decisions it appears. Be afraid is the message.

Here’s the deal. The Hises and the union in general appear ready willing and able to “hurt the whole Wichita economy” if they do not get what they want.

I have to ask “How stupid is that?”

The answer is “tremendously stupid”.

It is far better to have a good paying job and no job security than no job at all and no prospects of a job. That’s what it boils down to, and like it or not, that is the economic reality.

I do not know what salaries are, but a 10 year contract with only a 4.2% pay cut does not strike me as a bad deal. Those who think otherwise need to compare it to the alternative: seeing all the jobs go to Louisiana, Mississippi, or outside the country.

By the way, wouldn’t residents of Louisiana and Mississippi be very grateful for those job, regardless of what the salary was? I think so. So the bottom line is this mess, is the unions would be to blame and only the unions to blame if Cessna moves elsewhere. The union will also be responsible for wrecking the entire local economy if it happens.

Take the contract and run! It’s for 10 years! Because …. You Don’t Know What You’ve Lost Till Its Gone, Then It’s Too Late. In this case, it will be gone forever.

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GIIPS labour costs not moving in the "competitive" direction

by Rebecca Wilder

GIIPS labour costs not moving in the “competitive” direction
The GIIPS (Greece, Italy, Ireland, Portugal, and Spain) hope: exports. Fiscal austerity crimps the saving of the private sector. And provided the governments make good their plans to put on the fiscal straight-jacket, there’s no other impetus for growth except foreign demand. Financial crises are often accompanied by currency crises, i.e., Sweden 1991, which drives export growth if there is sufficient external demand. For Sweden, there was.

For the GIIPS, there is not. But worse yet, there’s not a possibility of a currency crisis deep enough to drive sufficient external demand growth in Greece, Italy, Ireland, Portugal, and Spain. Therefore, it’s generally understood that the GIIPS will get the economic boost if internal competitiveness is restored. Put another way, in lieu of a domestic impetus to economic growth, “internal devaluation” (Marshall Auerback calls it “infernal devaluation”), i.e, dropping hourly labor costs and final goods prices through productivity gains and reform, is the only economic means to attract a sufficient boost of external income to grow the economy.

Well, internal labour cost devaluation has yet to materialize in the GIIPS or the Eurozone as a whole. According to last week’s Eurostat release of Q1 2010 quarterly labour costs for the European Union, labour costs are still very much rising:

The two main components of labour costs are wages & salaries and non-wage costs. In the euro area, wages & salaries per hour worked grew by 2.0% in the year up to the first quarter of 2010, and the non-wage component by 2.1%, compared with 1.6% and 2.0% respectively for the fourth quarter of 2009. In the EU27, hourly wages & salaries rose by 2.3% and the non-wage component by 1.9% in the year up to the first quarter of 2010, compared with 1.9% and 2.5% respectively for the previous quarter.

There is a lag associated with labor cost growth, especially in Europe. But over the last two years, the Eurozone 16 saw labour costs rise a cumulative 5.3%, which is on par with the previous two-year horizon, 5.7%; labour cost growth isn’t even slowing.
(this chart was updated at 4:00pm on June 23)

The chart illustrates the two-year cumulative labour cost gains across the Eurozone 16 (seasonally and working-day adjusted) alongside the annual gains over the last year (working-day adjusted only). Note: country-level data for Ireland, Finland are not available. Furthermore, country-level data through Q1 2010 are not available for Belgium, Italy, and Greece, so Q4 2009 is used instead.

According to the measure of “labour costs”, it appears that “competitiveness” is not improving markedly in any country across the Eurozone, especially in the GIIPS that need it. In contrast, US nonfarm business unit labor costs dropped 4.2% over the last two years.

To be sure, there are other measures of “infernal devaluation”, like final goods prices. But strictly speaking labour costs remain too sticky in the Eurozone to attract external demand sufficient enough to offset the drag that would stem from the announced fiscal tightening across Europe.

Rebecca Wilder

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How to Explain Moral Hazard

It took me many years to understand the phrase “moral hazard.” It’s a fundamental tenet of economics, usually used to explain that, since consumers are untrustworthy, businesses need to charge them more.*

It was finally cleared up for me in the midst of a presentation last year about how it’s a “moral hazard” issue that divorce rates go up as more women work outside of the house/family business. So I asked the presenter, “You mean it’s a moral hazard issue that women who have an independent income can now get out of an abusive relationship?”

Fortunately, one of the best Labor Economists in the world was in the room. He just looked up and said, “Or guys start leaving their wives because the wife can go to work now.”

Aha! The light dawns: moral hazard is, indeed, about power relationships: it allows arseholes to be even greater arseholes. (One step further, and you start spouting Ayn Rand.)

Preceding is preamble to correcting an error made by a worker in today’s Phialdelphia Daily News (h/t Dr. Black, of course):

Yesterday, Local 234 President Willie Brown said that the wage package was acceptable but that he was worried about the underfunded pension fund, funded only 52 percent. He said he believed that SEPTA had not contributed to it for 10 to 12 years….

“We could wake up and our pension could be completely gone,” [Brown] said. “We don’t want to end up like AIG,” referring to the international insurance giant who got $173 billion since last fall in a U.S. government bailout.

Mr. Brown should not worry about that. AIG’s creditors (e.g., The Great Vampire Squid) were paid in full, because Tim Geithner and Larry Summers want a veto-proof Republican majority by 2012, if not 2010.**

Pensioners, otoh, are subject to “moral hazard.” Believing their contracts were viable, reasonable, and negotiated by people who were working in the best interest of the firm—that is, people who were not writing a check with their mouth that their pockets couldn’t cash—clearly causes them not to do enough to save. Because they don’t understand that mismanagement of their pension is their fault, and that the Pension Benefit Guaranty Corporation will only ensure that their pensions will be paid “up to certain limits,” no matter how much extra Roger Smith or Michael Eisner or Jack Welch took from the company for performing almost as well as the rest of the stock market.

So, let us say to Mr. Brown and the rest of the workers who depend on their pensions being funded: Don’t worry about being treated the way AIG was. You’re going to be dealt with as a “moral hazard” problem for believing that the contract you negotiated will be enforced.

Why, if those workers were at all sensible, they would have taken the money upfront the way those Captains of Industry did, instead of gotten a false sense of security (“moral hazard”) from contractual negotiations about future payments.

As noted by Dr. Black, while management claims that they are fulfilling their legal obligations, management’s pension fund is almost 25% better funded than the workers fund (53% v 65%).

This is, of course, A Good Thing. After all, we wouldn’t want workers to believe that what they think of as Contractual Obligations is anything other than a case of “moral hazard.”

UPDATE: I see, via David Wessel’s Twitter feed, that Ricardo Caballero puts forth standard Economics Reasoning:

His idea is likely to give heartburn to many economists and policy makers, who worry about “moral hazard” — the idea that if financial institutions know they’ll be saved in an emergency, they’ll take even greater risks that will inevitably lead to greater disasters.

Don’t fret, says Mr. Caballero: “this moral hazard perspective is the equivalent of discouraging the placement of defibrillators in public places because of the concern that, upon seeing them, people would have a sudden urge to consume cheeseburgers.”

After all, we just have to acknowledge that “moral hazard” exemptions are the rule, not the exception, for mismanaged businesses. After all, paying out more in bonuses than you make in a year is a Perfectly Reasonable Business Strategy.

*Seriously. The standard example is that people “don’t tell the whole truth” on health insurance applications, so companies need to charge them more. The logical extension of this is that people who tell the whole truth are leaving money on the table, since no insurance company would ever take an ex poste action against people who omit or forget that sprained ankle from thirty years ago. For an alternate view, see Malcolm Gladwell.

**There may be an alternate explanation, but this one requires the fewest outlandish assumptions.

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