The federal deficit is a huge public policy problem that must be understood, confronted, and solved. Federal deficits run in these last five years dwarf any precedent in U.S. post-world-war history. The Congressional Budget Office (CBO)’s latest projections warn that without legislative corrections, deficits will rise to untenable levels with severe consequences for our economic well-being.
This essay is the third in a series examining income trends for middle-class and poor households. In the first, I showed that once federal safety net programs are fully considered, the incomes of the middle class and poor are no lower today than they were in 2007, prior to the Great Recession.
State and municipal governments across the United States know that they are facing a looming financial crisis because of their pension obligations. Politically popular yet financially reckless decisions have left many of these governments with rapidly escalating pension costs. The situation is clearly unsustainable in the long term, which is why the issue of public-sector pensions is now front-page news from California to New York to Illinois (where legislators’ wages recently were suspended for their perpetual failure to resolve that state’s pension crisis).
These days, everyone knows that public-sector pension reform is essential. But what kind of reform? And how is it to be achieved? There is no shortage of debate (and a number of jurisdictions claim that they have put reforms in place). Much of this discussion, though, is marred by misinformation and half-truths. These misconceptions are confusing the public discussion about pensions and facilitating the enactment of pseudo-reforms that are politically attractive but financially inadequate.
This paper identifies these nuggets of misunderstanding and inaccuracy—the myths of public-sector pensions.
Rising oil and natural gas production in North America is outpacing the transportation capacity of our pipeline infrastructure. As one of us (Green) discussed in a previous study in this series, The Canadian Oil Transport Conundrum, Canada is poised to dramatically increase production of bitumen from oil sand deposits in Western Canada (2013). In the face of expanding production and pipeline bottlenecks, more oil is moving by rail in both Canada and the United States, but transport of oil by rail (or other non-pipeline transportation modes) carries its own set of risks. While pipelines may leak, trains and trucks can crash, hurting individuals, as we saw in Lac-Mégantic in July 2013, and barges can sink. There is no perfectly risk-free way to transport oil, or anything else for that matter.
Few serious scholars believe that middle class and poor households have seen the income growth experienced by the top in recent decades. Both the ubiquitous estimates from economists Thomas Piketty and Emmanuel Saez and figures from the Congressional Budget Office show dramatic increases in the share of income received by the richest 1 percent of Americans. Between 1979 and 2007, the Piketty-Saez numbers rise from 10 percent to 24 percent, and the CBO share increases from 7 to 17 percent. Attempts to deny that the top has pulled away generally have been wholly unpersuasive and in more than a few cases conducted with minimal regard for the truth of the matter.
When conventional wisdom coheres around some accepted truth and most of the non-adherents are easily debunked, it becomes that much easier to casually dismiss any challenge as unserious and unimportant. However, a commitment to empiricism means not only refuting sketchy claims but taking seriously well-supported ones.
Scholars, journalists, and policymakers are now confronted with such a responsibility in the inequality research of Cornell economist Richard Burkhauser and his colleagues. If their latest research holds up—and there are good reasons to think that it will—we will have to rethink whether inequality has really increased since the 1980s.
Columbia University professor questioned the wisdom and necessity of macro-prudential monetary policy. ()
Mickey Levy of Blenheim Capital Management criticized the Federal Reserve’s forward guidance inconstancies in light of faulty FOMC forecasts. ()
Rutgers University professor suggested that financial crises usually recover quickly and that real estate is dragging this particular recovery down—not the severity of the crisis. ()
Carnegie Mellon University professor discussed the merits and types of nominal GDP targeting as a Federal Reserve policy. ()
Boston College professor evaluated the Federal Reserve’s quantitative easing exit strategy and offered his preferred actions. ()
Carnegie Mellon University professor proposed criteria for confirming the new Federal Reserve Chairman which focused on the scope of the bank’s legitimate functions and actions.()
In recent years, large, publicly traded American corporations have increasingly faced pressure from a subset of shareholder activists that introduce proposals on the companies’ proxy ballots for consideration at annual meetings. This report draws upon information in the Proxy Monitor database to assess the 2013 proxy season in historic context. Among its key findings:
- The number of shareholder proposals introduced is up.
- Support for shareholder proposals is down.
- The overwhelming majority of shareholder proposals are sponsored by a small subset of shareholders.
- The most frequent sponsors of shareholder proposals, labor-union pension funds, could be targeting companies for reasons other than shareholder value, including the companies’ political participation.
- Shareholder proposals related to corporations’ political spending or lobbying constituted a plurality of all proposals in 2013 but continued to attract little support.
The FDA’s Misguided Regulation of Stem-Cell Procedures: How Administrative Overreach Blocks Medical Innovation
The current biomedical revolution has its most tangible application to ordinary people in the new cutting-edge techniques devised by individual physicians for the cure and palliation of chronic and degenerative diseases. The rate of advance in this area is a testimony to the creative forces unleashed by the decentralized control over medical procedures. But that progress is now threatened by the federal Food and Drug Administration (FDA), which seeks to extend its statutory authority to subject these practices to the same oversight that is given to large drug manufacturers in the design and production of new products for the mass market. One area over which the FDA has asserted its power is private adult stem-cell treatment, which has developed treatment protocols that were not possible a generation, or even a decade, ago.
The FDA has taken the aggressive position that it has oversight authority over any stem-cell procedure that reinjects harvested stem cells into the same person from whom they were removed, so long as those cells were grown and cultured outside the human body....
States across the nation have recently turned considerable attention to reforming retirement programs for public school teachers. Such efforts have been spurred by the widely recognized need to address the crisis of unfunded liabilities and the escalating annual payments that states must make to their teacher pension systems. But there is another compelling reason to consider reforming these systems: They work poorly for many teachers, particularly those who remain in the profession for less than the 30 years that is often required to become eligible for the maximum payout.
From our analysis of compensation in the nation’s 10 largest school districts, we find that two simple reforms—neither of which would increase spending—would allow school districts to:
- Raise teacher salaries, in some cases substantially;
- Give teachers more retirement security than they now have;
- Make teaching a more attractive option for people who are unsure that they will work for decades in the same school district; and
- Offer teachers more control over when they stop working.
What changes would allow schools to make teaching more attractive in these ways?
Seven states have specific clauses in their constitutions that protect public employee pensions: Alaska, Arizona, Hawaii, Illinois, Louisiana, Michigan, and New York. These seven states hold 20 percent of state governments’ total pension debt, and many billions more in local pension debt. These states should amend their constitutions to remove language guaranteeing pension benefits for public workers.
Constitutional amendments generally require a supermajority vote by the legislature and voter approval. All seven states have amended their constitutions in recent decades, in some cases dozens of times. The amendment process is worth pursuing, because protecting pensions in state constitutions is bad public policy. It limits the flexibility of bankruptcy negotiators, elevates the interests of workers over taxpayers, and prevents insolvent cities from discharging obligations that they cannot afford.
Across the nation, municipal budgets are tight, as annual cost increases in many spending categories continue to exceed revenue growth. Default will likely remain rare among the 90,000 local governments in America, but states should expect it to become more common than it has been in the past. Though the causes of distress can be difficult to isolate, it always commands significant public attention, even in the case of small communities. States cannot stand idly by. New policy solutions at the state level will be necessary to anticipate, prevent, and manage distress. While some mandate relief is important, in general the solution is neither more local autonomy nor municipal bankruptcy. States should develop new oversight, intervention, and takeover policies.
The Obama administration’s decision to delay approval for the construction of TransCanada Inc.’s proposed Keystone XL pipeline was based, in part, on concerns over the safety and reliability of oil and natural gas pipelines. The pipeline is intended to transport oil from Canada to U.S. refiners on the Gulf of Mexico. In announcing his decision, the president called for a full assessment of “the pipeline’s impact, especially on the health and safety of the American people.”
Pipelines have been used to transport American natural gas or oil, including from Canada to the United States, for three quarters of a century. Almost 500,000 miles of interstate pipeline crisscross America, carrying crude oil, petroleum products, and natural gas. This extensive and operational infrastructure network is heavily regulated by the Department of Transportation, which monitors the very issues central to the Keystone controversy: safety and reliability.
President Barack Obama's first term was defined by the battle over, and the passage of, the Patient Protection and Affordable Care Act, the landmark health-reform legislation known popularly as Obamacare. Along the way, Obama, the law's supporters, and independent analysts such as the Congressional Budget Office (CBO) made specific claims or projections about how the law would affect consumers, patients, and businesses.
Now, three years after Obamacare’s passage, many key provisions of the legislation are beginning to be implemented. Whether implementation succeeds or fails will be strongly influenced by the reactions of states, providers, insurers, businesses, and consumers to the law’s provisions and to the thousands of pages of new health-care regulations.
THE ECONOMIC EFFECTS OF HYDROFRACTURING ON LOCAL ECONOMIES: A Comparison of New York and Pennsylvania
In 2013, New York's state government will decide whether to permit extraction of natural gas by hydraulic fracturing or, instead, turn its current moratorium into a permanent ban on this technology. In weighing their choice, New York officials have an abundance of useful data from neighboring Pennsylvania. There, nearly 5,000 wells have been hydrofractured since 2002. If New York lifts its moratorium, companies will be drilling the same type of wells to exploit the same subterranean source of gas—the Marcellus Shale. Pennsylvania's experience is a good guide to what would happen in New York.
In this paper, we analyze the effect of hydrofracturing—at modest, moderate, and high levels—on jobs and income growth in Pennsylvania counties. We then use these data to project the benefits that New York counties stand to gain if the state again permits hydrofracturing.
THE CASE FOR EXPORTS: America's Hydrocarbon Industry Can Revive the Economy and Eliminate the Trade Deficit
he world has changed since the passage of the 1975 Energy Policy and Conservation Act, a law that set the tone for energy policy for nearly a half-century. Technology and demographics have eviscerated old ideas of limits and import dependency. Given the new abundance, the United States now has the opportunity to become a major energy exporter.
America is now the world's fastest-growing oil-and-gas-producing region and has the capability to become a net energy—and even a net oil—exporter. Meanwhile, China has become the world's largest importer of oil. Imports are, in fact, rising across the Asia-Pacific region. This new energy reality is fundamentally reversing the trade and economic positions of China and the United States.