Friday, December 6, 2013
- by New Deal demorat
Duncan Black a/k/a Atrios, acknowledges that part of his campaign to espand Social Security benefits, is to put "doing nothing" on a firmer footing.
In fact, over the next 20 years, unless job creation and real wages suddenly accelerate on a secular basis, "doing nothing" isn't enough. There is a real, albeit small and fixable, problem with the Trust Fund. Bruce Webb of "Social Security defenders" has acknowledged that this is why he came off the "doing nothing" fence and endorsed the "Northwest Plan" which solves the shortfall by increasing tax withholding.
As I've shown in the last few weeks, the problem can be fixed for so long as the grandchildren of today's children live, by a reasonable combination of small tax withholding increases, increases in the percentage of income subject to the tax, an increase of about 3 to 4 months in the ultimate retirement age, and alternatively, if necessary, about a 3% cut in benefits over the next 20 years. Atrios disagrees with me, but he's wrong.
But there is simply no reason to enter into a bargain, Grand or otherwise,with a GOP that wants to destroy Social Security, whether in small steps or all at once. Making the Social Security Trust Fund solvent forever can abide the election of a democratic majority in both Houses of Congress.
- by New Deal democrat
In November 203,000 jobs were added to the US economy. The unemployment rate dropped sharply, down 0.3% to 7.0% -- and for once it included an increase in the labor force as well as a decline in the number of people without jobs. There is little in this report for Doomers to latch onto - although the percent of the working age population that is employed remains near its post-recession low, and this November's reading was 37,000 less than last November's +240,000 report.
First, let's look at the more leading numbers in the report which tell us about where the economy is likely to be a few months from now. These were all positive.
- the average manufacturing workweek rose 0.1 hour from 40.9 hours to 41.0 hours. This is one of the 10 components of the LEI and will affect that number positively.
- construction jobs increased by 17,000.
- manufacturing jobs rose by 27,000.
- temporary jobs - a leading indicator for jobs overall - increased by 16,400.
- the number of people unemployed for 5 weeks or less - a better leading indicator than initial jobless claims - fell by 300,000 reflecting the return to work of those laid off during the government shutdown and is near its post-recession low.
Now here are some of the other important coincident indicators filling out our view of where we are now:
- The average workweek for all nonsupervisory workers increased by 0.1 hour from 33.6 hours to 33.7 hours.
- Overtime hours increased from 3.4 hours to 3.5 hours.
- the index of aggregate hours worked in the economy surged by 0.5 from 98.8 to 99.3. This is also a post-recession record.
- The broad U-6 unemployment rate, that includes discouraged workers declined from 13.8% to 13.0%, also a post-recession low.
- The workforce rose by 561,000. Part time jobs fell by -331,000.
- the alternate jobs number contained in the more volatile household survey increased by 818,000 jobs, reversing the government shutdown -735,000 in October, for a net gain of 83,000.
- Government jobs once again decreased by 7,000.
- Combined revisions to the September and October reports totalled a net gain of 8,000 jobs.
- average hourly earnings increased $.04 to $24.15. The YoY change decreased from +2.2% to +2.0%, meaning that YoY average real wages probably actually declined in November, given the epected +0.3% rise in consumer prices..
- the employment to population ratio increased 0.3% to 58.6%, which again just reversed October's decline likely due to the government shutdown. The labor force participation rate actually rose 0.2% to 63.0%
All in all, this was a solid report. Everything moved in the right direction, and for the right reasons. The employment-to-population, however, remains stuck near its all time low. There is no reason to doubt that this continues to be partly due to people simply giving up on the idea of ever working again, and partly due to burgeoning Boomer retirements. And of course, even a solid report like this simply isn't good enough to put a big dent in the population-adjusted lost jobs since the onset of the Great Recession.
Thursday, December 5, 2013
- by New Deal democrat
Yesterday a bankruptcy judge decided that, Michigan's Constitution notwithstanding, the city of Detroit could be admitted into bankruptcy and its pensions attacked.
As an initial matter, the decision is probably correct as far as it goes, i.e., Federal laws are supreme over state laws, so US bankruptcy law trumps Michigan's Constitution. Where I have a real problem is that Michigan, at its most fundamental level, sought to make it ultra vires (outside of their lawful powers) for any actor to file for municipal bankruptcy in that State. You an I can't simply march into US bankruptcy court and put General Electric into bankruptcy. We have to have the lawful right to make the filing. Michigan said that nobody had the right to make a lawful filing as to its municipalities. In my opinion, that should have been enforced against the State-appointed city manager who made the filing.
But there is a deeper problem, and that is the cavalier attitude towards pensions that has been allowed to exist in US bankruptcy courts for 25 years. If you haven't seen it yet, watch the interview with the elderly, retired Detroit municipal worker who worked for his pension for 40 years and now faces having his retirement income severely cut (and remember that many of these workers do not qualify for Social Security). He asked, "What do they expect me to do now?"
Since pensions were allowed to be cut in bankruptcies, Congress - including Democrats - has simply shrugged and said, "Too bad." That doesn't have to be the case, and it shouldn't be the case.
In many cases in private industry, corporate raiders attack a well-functioning company sitting on a pile of cash, including its pension funding. After the corporate treasury is raided, the company files for bankruptcy and the pensions are cut or even entirely negated.
There is simply no justifiable reason for this rule. Pension liabilities are publicly known and quantifiable. In many cases the contractual benefits were earned years, and maybe decades, before. All subsequent contractual liabilities are made (and should be deemed made) with full knowledge of those pre-existing liabilities to employees. If there is a bankruptcy, nobody who became a creditor after the vesting of the pension benefits should be allowed to participate in any distribution until those prior contracts are honored.
This doesn't mean that pensions are sacrosanct. It simply means that creditors who obtain their rights under subsequent contracts have to stand in line behind pensioners who earned their rights in previous contracts. In the case of Detroit, it means that somebody who bought a bond issued by Detroit 5 years ago shouldn't get paid until that retired worker's pension previously earned benefits are honored in full.
There are public entities, and corporations as well, that promised too much in pensions. Further, in the case of a necessarily ongoing entity like a municipality, pensions can't be honored in full at the expense of providing necessary municipal services to current residents. But there is simply no reason to put recent bondholders on the same footing as, let alone ahead of line as, pre-existing pensioners.
Under the rule I am discussing here, if I am a potential new bondholder for a city or company that has huge pension liability, I am either not going to buy their bonds, or else I am going to demand a very high interest rate to hedge against the likelihood that the bond issuer is going to default. The net effect is that profligate municipalities will go into bankruptcy sooner, when their finances are in less dire straits - which is a good thing.
In short, there is a federal legislative fix for this problem. It ought to be on the Democrats' agenda, and applicable prospectively to any contracts entered into subsequent to its enactment.
In the meantime, the last several decades have taught workers a brutal lesson: never trust assurances of future payment. I want the retirement funding up front, hived off in a defined contribution account that belongs to me, not my employer.