Wednesday, November 23, 2011

What is a "Free Market?"

Paul Craig Roberts served as Assistant Secretary of Treasury in the Reagan White House — his claim to fame was being a co-founder of Reaganomics.” Roberts is former editor for the Wall Street Journal, Business Week, and Scripps Howard News Service. Roberts has been a critic of both Democratic and Republican administrations.  Click here to read his article

Another Reagan veteran with very clear writing on the free market concept.      My favorite quote:

"But markets don’t do anything. The market is not an actor; it is a social institution. People act, and it is the behavior of people that is regulated. When free market economists describe the ideal as the absence of any regulation of economic behavior, they are asserting that there are no dysfunctional consequences of unregulated economic behavior.

If this were in fact the case, why should this result be confined to economic behavior? Why shouldn’t all human behavior be unregulated? Why is it that economists recognize that robbery, rape, and murder are socially dysfunctional, but not unlimited debt leverage and misrepresentation of financial instruments? The claim, as expressed by Alan Greenspan along with others, that “markets are self-regulating” is an assertion that unrestrained individuals are self-regulating. How did anyone ever believe that?"

Sunday, November 20, 2011

Two thoughtful posts on tax policy

I am always looking for good clear writing on tax policy.   Two posts by Laura Tyson are worth reading.  I must admit, the second post on corporate tax policy may sway me to consider changing my point of view.

Thursday, September 15, 2011

Saturday, March 19, 2011

Madison Bus driver - Randy Hopper Ad

Randy Hopper is running a radio ad. You can listen to it here, it is listed under March 15, Hopper campaign.

In this ad, it cites the high salary of a union bus driver in Madison. Here is a link that digs deeper on that claim.

Here is a quote from the article:

The driver, John Nelson, was able to earn $160,000 in 2009 not because of his annual salary, but because he worked a huge amount of overtime hours. He was able to do this because of previous rules, negotiated by Teamsters local 695, that allowed drivers with most seniority — and the highest salaries — to rack up large amounts of overtime. As a result, in 2009, Nelson worked 1,896 hours of straight time, but he was also able to add on a whopping 2,012 hours of overtime. This, not the exorbitant salary public employees supposedly enjoy, is what accounts for his huge haul that year.

My first question, who sets the work schedules? wouldn't it be management?

My second question, why is there so much overtime available? I think I know the answer to this. It is cheaper to pay overtime when compared to hiring more workers because of benefit costs. This returns us to the rising cost of medical care and insurance costs. It is a systemic problem.

Later in the article:

According to Rusch, the city of Madison went to the bus drivers union last year and said the rules allowing the highest-paid bus drivers to snap up the most overtime had become a major problem. Turns out the union agreed, and renegotiated a deal to limit overtime in a way that has left Metro Transit happy. And guess what: That deal was negotiated through collective bargaining.

The complete story seems to be a positive argument for collective bargaining.

Next, let's take a look at the form of argument in this ad. Using a single egregious example (actually two, more on the second one to come) to broadly paint all public workers is a misleading device. We would be better served if we were told the median salary and the range of salaries.

I could make the same type of argument about the salaries of CEOs of charities, which are tax exempt organizations (thus subsidized by the taxpayer). Here is the highest paid for 2008:

Highest CEO Salary: Zarin Mehta, New York Philharmonic

Compensation (2008): $2,649,540

It would be wrong to paint all charities with this number. Here is a link to the complete data that we should look at:

I could make all kinds of arguments about charities and their actions and the cost to us as taxpayers. I encourage you to take a look at this website.

The second distorted fact in the ad is the Milwaukee Teachers union viagra claim. In the ad, the claim is that "it would have cost taxpayers almost a million dollars." Here is a quote of the number from Fox news webpage:

A consultant for the school board has estimated that reinstating the drug benefit would cost $786,000 per year.

I found the same quote in a Milwaukee Journal article that you can read here.

Notice in both articles that the number is an ESTIMATE from a consultant. Also, the ad says almost a million dollars, stretching the number a bit to cloud your perception. We also need to ask what is the policy on insurance coverage for other employees in the US.

That information is not very available. Here is what I found on the coverage of Viagra by insurance.

From the chart data for 2008, it looks like 30% of large employers exclude ED drug coverage. 37% cover with limits and 15% cover without limits. Again, we should compare the benefit in question with the rest of the market. Looks like about 50% offer some coverage.

This is a difficult issue that needs thoughtful discussion. Here is a link to an article abstract that is helpful in identifying the many interest groups involved and the moral issues.

A quote from the abstract:

Proponents of ED drug coverage included the Pharmaceutical Research and Manufacturers of America trade group and the American Urological Association. They argued that ED was a legitimate medical condition with recognized, effective treatments. They contended that because ED was typically a result of or a precursor to more serious health problems—such as diabetes, prostate cancer, and high blood pressure—coverage of ED drugs brought more people to the doctor’s office, where other health conditions might also be discovered and treated.8 The drugs’ manufacturers supported these arguments with substantial investments in lobbying and marketing. In 1998, Pfizer earmarked $35 million in the United States to promote sildenafil’s coverage by public and private insurance companies after several of them, including Kaiser Permanente of California, decided to deny ED drug coverage.9

I would love to know how much Pfizer spent on consumer advertising. I saw those Bob Dole ads constantly when it was first released.

I would love for the Governor and Sen Hopper to discuss how we or the insurance companies decide what to cover. Better yet, let's discuss the rising cost of medical care in this country, that is the core issue. Here is a link to a chart that shows the scope of this problem.

Can't we have a reasoned discussion of the real problem?

Monday, March 14, 2011

The power of a Tsunami

Our thoughts and prayers are with the people of Japan.

Below is is a remarkable video of the tsunami rushing through the city of Kesennuma in Miyagi prefecture, north-east Japan. It starts with the videographer on the street. The water rises and he moves up. The cars begin to float away. The water rises. The buildings float away. It is 6 minutes long, but well worth watching. I always wondered how the water came in. This brave person recorded it.

Monday, March 7, 2011

Understanding Public-Private Wage Comparisons

I've spent the week trying to understand the analysis of data on private/public wage comparisons. In a previous post, I cited the Keefe briefing paper on Wisconsin compensation.

Naturally, I wanted to dig into Keefe's numbers and understand how he did his analysis. I found a paper that does a step by step analysis with public/private wages. It does not address the total compensation (wages + benefits) but it is a good beginning to understanding how the analysis is done.

The paper by John Schmitt can be found here. It is highly readable, with great tables and figures to illustrate the data. This analysis is based on 2009 census data and it covers the US population, there is some information for individual states.

Here is a summary of the paper and the process.

1. Consider the educational level of the workers. Public sector workers are more educated that private sector workers. On page 4, the graph shows that and also a table shows you the ten largest occupations for state and local workers. It is no surprise that teaching professions top the lists.

2. Consider the gender of the workers. More women are public sector workers. On pg 5, he shows you the wage differential for all public workers is positive (+12.8) . Then he breaks it down for women (+19.2%) and men (+11.2%) Are you surprised that women have a larger advantage?

3. Control the data for gender, education level and age. Age is used as the variable that correlates with experience. If we believe that experience matters, you have to control for it. On pg 7, he shows that applying these controls, the wage differential for all public workers drops (it is -3.7%). For women (-1.9%) and men (-6.0%). Do the data reflects a gender bias against men? Are men paid poorly in the public sector compared to the private sector? Does the private sector discriminate against women? Can we know from this data?

4. Up to this point, the data was controlled for three variables, gender, age and educational level. Those controls are not applied in the next analysis. The next table on pg 8 shows the the differential for different wage levels. A wage distribution is done by percentiles. You can see the wage percentile along with the hourly earnings for that percentile and the differential. This chart also shows the differential broken out for men and women.

Let's take some time with this chart. For all employees, as the wage level goes up, the differential goes from positive to negative, (+5.9 to -11.3). This means that higher earners are paid less than their counterparts in the private sector. We assume these are the more educated and more experienced workers. Pg 9 shows this data in graphic form. It makes it clear that the differential changes from positive to negative for low and high wage workers respectively.

A side comment....The data is also broken out by gender. I find the 90th hourly earning percentile result interesting. For men it is $42.31, for women, $33.33. Is this gender discrimination? or could it be that men have more experience or more education? (Remember, this data isn't controled for education or experience, We assume that the higher wage workers are those who have more education and experience.) For the lowest wage workers, women have a much greater positive differential when compared to men. Is this gender discrimination? In the private sector? The public sector? Do we know? Isn't it an interesting question?

5. The appendix give data for individual states. On pg 14 you can see that Wisconsin is right in the middle of the pack with 13.5% of all employees working for the state and local governments. On pg 15, you get the actual numbers broken down to roughly 114,000 state employees and 220,000 local employees. On pg 17 you get the age differential, median worker age for private is 40 and 45 for state and local. Wisconsin public workers are older than public workers which we assumed means they are more experienced. You also get the % of workers with a college degree or more. Private is 27.4% and state and local is 54.9%. Wisconsin public workers are more educated that private workers.

Another side comment, do you believe these numbers? Take a few minutes to look at them and notice that there is no educational differential in DC (56.4% private vs 56.2 public%). Can you explain that unusual result? Does it seem reasonable.

Look at Arkansas, Wyoming and Missippi. The private sector educational % is below 20%. Do these numbers jive with your perceptions of these states?

I found the link to this paper here. This blog post addresses the all too common error of comparing the wages of private sector employees to public sector employees without addressing educational level and experience.

The blog post references the USA Today story that does give total compensation, but fails to control for educational level and experience. This is the only reference in the article to that argument:
"Economist Jeffrey Keefe of the liberal Economic Policy Institute says the analysis is misleading because it doesn't reflect factors such as education that result in higher pay for public employees."

I will return to the Jeffery Keefe (of the liberal Economic Policy Institute) paper with a better understanding of his analysis. I am grateful for the teachers and librarians who taught me to seek out sources of information. The internet puts all this at our fingertips!! They also gave me the confidence to know that I could look at statistical information and evaluate it myself. How does evaluation of government statistics on an important point of public debate makes one a liberal? I think that is name calling and it reflects a bias. I am happy to look at any analysis of this census data or BLS data that refutes that educational level and experience matter.

I have two questions for you to consider.

1. When you are compensated for your work, do you want to be compared to all workers? (70% of American workers do not have a college degree) Do we really believe a college degree is worth more compensation?

2. When you are compensated, do you want your employer to consider your work experience? or should you be compensated in comparison to all workers? (The older you are, the more experience you should have.) Do we really believe experience is worth more compensation?

Thursday, February 24, 2011

Compensation Statistics - Essential Links #2

Time for more numbers!

Here is an excellent article by David Kay Johnston. He makes many important points including that the discussion is about compensation, not wages and benefits. Also he discusses the efficiency of public pension funds, especially those in Wisconsin. If you haven't read his books, I highly recommend them.

I'm still waiting for someone to address the pension contribution on pg 46 of the LFB report that shows that executives and elected officials have a greater total contribution rate than regular union, higher rate? Especially in 2009 (effective 2011), when the total contribution jumps 12% for executive/elected and 4% for the regular employee. I am sure the overall total cost is what is significant, but I can't help thinking about the idea of shared sacrifice. I've emailed David Johnston. Would I be thrilled if he responded.

This is the Department of Public Instruction website with the wage and benefits data of every school district in the state.

Here is that same data in a searchable database so you can go and look up any public teacher. This information is totally transparent. Go play with it. See the real numbers.

This is the bureau of labor statistics. I put you on the page with 1 yr trends right on the right side. There is so much to look at here. Basically, looks to me like gov and private rate of change over the past 12 months, for what that is worth.

One of the most beautiful things about the internet is our ability to immediately access information!

Monday, February 21, 2011

More links on Wisconsin Pension Fund

January 2011 - Federal Reserve Bank of Minneapolis with great things to say about Wisconsin's State Pension fund.

From the Pew Center on the States
• In 2000, just over half the states had fully funded pension systems. By 2006, that number had shrunk to six states. By 2008, only four—Florida, New York, Washington and Wisconsin—could make that claim.

Wisconsin Public Employee Compensation Study

Here is a link to a recent paper by Jeffery Keefe. The paper compares the compensation of public and private employees in Wisconsin.

It is a detailed and interesting paper.

A few comments:

1. In the executive summary at the beginning of the paper (the very first page of the paper - go read it!) , he says Wisconsin employees are underpaid by 4.8% compared to private sector employees. This is the number you should look at it is the hour for hour comparison. (Not the 8.2% which doesn't take into account the number of hours worked.)

2. Public workers in Wisconsin are highly educated. Approximately 59% of full-time public workers have a bachelors degree compared to 30% in the private sector. When you compare workers, you need to compare apples to apples. In other words, since educational level is a main influence on compensation, you cannot group all workers in the private sector and compare them with all workers in the public sector.

3. You cannot just look at wages. You have to combine the wages with the benefits. Public workers take more of their compensation in benefits. Go look at the chart on pg 5 and you will see, as your educational level goes up, you are paid less and less (compared to the private sector).

I have one final comment. On Wall Street, the pay is big because we are suppose to be getting such good results. Why doesn't this same principle hold for public sector workers?

Wisconsin Budget Numbers- Links #1

If you want to look at the primary sources for the numbers floating around in the current budget debate in Wisconsin, this page is for you. I did this research as I wanted to see the source of Gov Walker's $3.6 billion deficit number. I kept hearing it, but couldn't find any primary document that showed it.

Wisconsin State Legislature - Legislative Fiscal Bureau Documents

Here is the document that gives the status of the state as of January 2011 (General Fund Condition Report). On page 2 you will find that the budget has an estimate $121 million surplus. You will also find discussion of factors that may affect that. Wisconsin owes Minnesota some $50 million. And there was a $200 million transfer from an outside fund to balance a previous budget that was ruled unconstitutional, so that liability has to be faced at some point, but it is still in the court, next action is in March 2011. Worst case, $250 million in obligations, so the budget is really $178 million in the hole.

I want to step in at this point and remind you that all of these numbers are estimates. Some are high, some are low. In general, the budget requests for the coming years are high... agencies ask for more that than know they will get. The next document is the agency requests. We are moving on to the new budget for 2012-13

Here is a link to the page for the agency budget requests for the remaining year's budget (2010-11) and the next bienium. Click here (Table 1) and you will see the summary for all agencies which shows you the total amount requested. This document shows a $3.9 billion deficit.

This is a link to a document that gives extensive information on the Wisconsin Retirement System.

On pg 20 you will find interesting numbers for 2009. About $79 billion in the fund, $30 million to the state agency managing it and $204 million to the board's administrative expenses that by statue are not included in the budget appropriations for the agency. "These types of expenditures include custodial and banking fees, legal fees, investment consulting fees, and external management fees."

On pg 50 you will find a chart of the total unfunded pension liabilities which shows that this obligation was greatest in 2000 and has steadily declined through 2009 to 10% of what it was in 2000. On the same page, it says that the State of Wisconsin has NO unfunded pension liabilities. It also says that 1223 of the 1469 entities (municipalities, school districts) have NO unfunded pension liabilities.

For more on the scope of the the pension crisis (is there one?)
On pg 14 it shows the Wisconsin Retirement System is 99.8% funded. Take the time to look at the various states. Seems like Wisconsin has done an excellent job with the pension system.

This document is a great explanation of the budgeting process in Wisconsin. On pg 51, you will find the appropriations and authorizations table. This shows you where the money comes from to pay the bills.

Generally, 1/2 of the budget comes from Wisconsin taxes with the largest sources being income, and sales tax, also known as General Purpose Revenue (GPR) If you want a finer picture of the sources of this revenue, look at pg 59. I was surprised that Wisconsin collects similiar amounts from corporate and cigarette taxes. The next biggest source is from the Federal government (FED) . The two other sources of income are program revenue (PR) and segregated revenue (SR).

Department of Administration Documents

There is a second agency that issues budget documents. The Department of Administration.
Above is the link to their 2012-13 budget document.

On pg 10 you can see how the GPR funds requests are separated from the total funds. This is done so you know what amount of taxes the state has to bring in. This shows projections for the 2012-13 budget.

On pg 12 you have another estimate of the current fiscal balance. This one gives $10 million effective Nov 2010.

Other Documents

Here is a link to what looks to be an official document, I couldn't find it on any state websites. This is the source of the Walker $3.6 Billion number. See page 3. Interestingly, this memo includes two budget scenarios. The first shows a deficit of $645 million. The second, the Walker scenario shows the $3.6 billion deficit.

A bit of perspective is in order....first, the entire budget is based on agency requests, in the last budget round the agency requests resulted in over a $6 billion deficit. Second, the governor and the legislature do not fully fund all requests. It would be like Santa Claus giving a kid everything on the list!! This is just the beginning of the process where the agencies, legislature and governor all negotiate.

Even Governor Walker acknowledges that 2/3s of the $3.6 billion deficit is due to Medicaid costs. Why is a medical cost crisis turning into a union crisis? It has nothing to do with collective bargaining. It has to do with the cost of medical services. Wait, I'm going to shout that out. IT HAS TO DO WITH THE COST OF MEDICAL SERVICES. That is what is going up year after year after year.

Finally, out of generosity and in the spirit of we are all in this together, the workers of Wisconsin have offered to pay more. Essentially they are offering to paying for the health care of the poor and old as that is what is causing the deficit. I have to say I am really proud of those folks. They are willing to sacrifice so we can take care of those who have less than us. I don't see the corporate community (or wall street who cause this crisis) doing that for the less fortunate in our state.

I am really really proud of the state workers of Wisconsin and all of the teachers in Wisconsin. You make this state the great place that it is.