Charter Schools and Educational Entrepreneurship ... Facts are Stubborn Things

A solid and widely available educational opportunity for all children is of vital importance to the continuing progress of our egalitarian oriented American society.

Not only will the opportunity to receive a quality education help an individual achieve success later in life, but a better informed society is a more prosperous and caring society as well. Accordingly, pursuing the national goal of providing equal opportunity in education is an absolute must.

And in that regard, an abundance of irrefutable evidence clearly supports the conclusion that free choice for parents and students will result in better educational outcomes at a lower cost to the public.

Charter schools are one such vehicle that support free choice and equal educational opportunities which result in better outcomes at a lower cost. What's not to like about this entrepreneurial approach to educating our nation's youth?

And the evidence is now becoming overwhelming that all this is doable if we'd just unleash the power of competition and free choice in education.

But then there's the politics of the matter. And the opposition to charter schools provides us with just one more reason demonstrating clearly why the politics surrounding our American system of public education sucks.

Will Obama's Budget Recognize Charter Schools? is subtitled 'Less than 1% of federal education dollars go to these demonstrably successful networks:'

"President Obama will soon release his federal budget for 2014, and a top priority is likely to be early-childhood education, particularly for the poor. But will the proposal seek much funding for the growth of charter schools—at least more than the paltry 0.4% of federal education spending that currently supports these exciting and demonstrably successful schools?

Last month, the respected private firm Mathematica Policy Research published a multiyear study of students enrolled in KIPP (the Knowledge Is Power Program), a network of 125 charter schools serving 41,000 students in 20 states and the District of Columbia. The study found that after three years students in the KIPP program were 11 months ahead of their traditional-public-school peers in math and eight months ahead in reading. Also after three years (or four for some children in the study), KIPP students were 14 months ahead in science and 11 months ahead in social studies.

These gains are substantial. For every three (or four) years they spend in the program, KIPP students are benefiting from almost a full year of greater learning growth than they would if they remained in traditional public schools.

This success is even more remarkable given that KIPP draws from some of the most disadvantaged communities in the country. Some 96% of KIPP students are black or Hispanic. More than four of five come from households with annual incomes low enough to qualify for subsidized school lunch.

What's more, the typical incoming student at KIPP scores in the 45th percentile in district-wide reading and math exams. That initial achievement level is much lower than for the typical student entering the traditional public school system.

Other studies have found similar results. . . . In 2012, 87% of students in the Uncommon Schools charter network—which operates 15 New York City schools serving 3,900 kids—scored advanced or proficient in math. That is 27 percentage points above the city average. In English, more than half of Uncommon's kids were advanced or proficient, beating the city average by eight percentage points.

What is the key to the success of schools like KIPP and Uncommon?

For starters, as independent public schools, charters aren't weighed down by onerous regulations that stifle innovation. Administrators and teachers have the freedom to develop new and creative teaching methods. Charter schools have also attracted a new generation of talented, motivated teachers, school leaders and entrepreneurs through the promise of a new approach to educating underserved children.

Policy makers should encourage such educational entrepreneurship. One way they can do so is by eliminating state caps on charter schools, which currently apply in 21 of the 43 states (including Washington, D.C.) that have charter laws. With over 600,000 students on waiting lists to attend charter schools nationwide, this should be an easy task. . . .

At the same time, all charters should be regularly and rigorously reviewed. Those that consistently fail to meet achievement standards should be closed. . . .

The data are in. Charters can—and do—deliver top-notch education even to the most disadvantaged of American students."

Summing Up

Freedom of choice must come to America's educational system.

Better outcomes and lower costs will result in a more informed society.

And providing kids with better opportunities to acquire a solid education is obviously one of the best things we can do for them.

Besides, it won't cost us as taxpayers one single dime, and it will help to make the American dream become a reality for those who don't have much of a chance today.

What we have to do is stop the power and dominance of teachers unions and their political allies.

That's the challenge --- and it's very much a political one.

But We the People can and must make it happen for our nation's children. It's our duty.

Thanks. Bob.

Pressure to Approve Keystone XL Pipeline Grows

First, let's review a few of our nation's current and longer term 'needs.'

We need jobs. We need energy independence. We need government reveunes. We need more energy supply which will lead to lower energy prices. We need less inflationary pricing for consumers. We need less costly transportation expenses for business. And we need to do what's right by our neighbors and allies in Canada, too.

And approving the Keystone XL Pipeline's construction will help us achieve all of the above. So where is President Obama on this issue? Hiding in plain sight, it seems.

But we're making progress as the political winds are shifting and public opinion is now very much in favor of the pipeline's approval.

The Keystone Converts is subtitled 'Seventeen Senate Democrats vote for the pipeline. Mr. Obama?:'

"An evolving political consensus persuaded President Obama to come out for same-sex marriage last year. Here's hoping the shifting political tides will also inspire a personal evolution on the Keystone XL pipeline.

Last week 17 Senate Democrats voted with all 45 Republicans for a budget amendment supporting the TransCanada pipeline, which would transport crude from the Alberta oil sands to Gulf Coast refineries (oil from North Dakota's Bakken Shale would hop along for a ride). A similar measure last year garnered support from 11 Democrats but fell short of the 60 votes to overcome a filibuster.

 

 

Voting in favor then and again last week were the usual Democratic suspects representing red states. They include Max Baucus and Jon Tester (Montana), Mark Begich (Alaska), Kay Hagan (North Carolina), Mary Landrieu (Louisiana), Mark Pryor (Arkansas), Claire McCaskill (Missouri) and Joe Manchin (West Virginia). All are up for re-election next year save Senators Manchin, Tester and McCaskill, whose votes last year helped distance themselves from an Administration unpopular in their states.

More noteworthy are the six Keystone converts, which include South Dakota's Tim Johnson, Virginia's Mark Warner, Colorado's Michael Bennet, Florida's Bill Nelson and Delaware's Chris Coons and Tom Carper. . . . the pipeline enjoys huge public backing: 70% of registered voters support its construction, according to a recent Fox News poll.

Four government environmental impact statements in the last five years have concluded that the 1,700-mile pipeline would present no significant harm to the environment. The Alberta oil sands produce a mere 0.01% of the world's carbon emissions, and the crude will find its way to foreign markets one way or another. If not via pipeline, then by tanker or rail, whose emissions could exceed Keystone's.

The Senate vote is symbolic since the budget outline lacks the force of law. Still, the vote reflects the growing bipartisan consensus that a private investment creating tens of thousands of jobs trumps the scare tactics of environmentalists. The politician out of the mainstream here is Mr. Obama."

Summing Up

In Washington it's all about politics.

And politically, jobs and energy independence are deemed to be pretty important matters these days.

With respect to the Keystone XL Pipeline, the politics seem to be aligning properly for the project's approval.

So it's looking better for We the People that President Obama will finally be forced to do the right thing and approve the pipeline's construction.

But when? Let's hope soon.

That's my take. I hope it's the right one.

Thanks. Bob.

Competitive Markets Mean Better Products at Lower Costs ... More on the Good News of Indiana Supreme Court's Ruling on School Vouchers

Competitive markets result in better product offerings and lower costs for those products and services being offered --- higher quality at a lesser price than monopolies would provide.

Those competitors who are able to offer that winning combination to free choosing customers manage to stay in business. Those who fail to do so eventually close their doors. The customer always wins, and the relative cost and quality equation always improves.

And that cost and quality improvement will now come to ALL Indiana schools (public and private alike) because of yesterday's Indiana Supreme Court ruling upholding legislation which allows school vouchers for families whose household income is below a certain prescribed level.

For those families of modest income whose children opt out of attending public schools, the taxpayer supported vouchers will range from 50% to 90% of the amount taxpayers would pay if those children had chosen to remain as students in Indiana's public school system. In other words, through the 'magic' of competitive markets and free choice, We the People will win again.

That is, everybody will win except the teachers unions, of course. You see, my bet is that the public schools will show considerable performance improvement as well. It's an existential thing as markets work to the benefit of customers and the better competitors.

On the other hand, monopolies don't work that way at all. That's why we're in the mess we're in with the government knows best monopolistic system of public education that we have now. Happily, that's about to change in Indiana.

Of course, the teachers union is loudly crying foul to allowing parents and students to have anything to say about which schools their children will attend, but that's not surprising. The unions don't represent the kids or their parents, and they have no vested interest in the quality of the education that the kids receive.

Indiana Voucher Victory is subtitled 'Unions lose another challenge to school reform for the poor:'

"Indiana passed one of the nation's most ambitious education reforms in 2011, so naturally teachers unions sued to kill it. The unions lost big Tuesday when the Indiana Supreme Court ruled unanimously that the state's Choice Scholarship Program is constitutional.

The Indiana State Teachers Association and the National Education Association sued to stop the statewide program, which allows families with household income below 150% of school lunch eligibility to receive vouchers equal to between 50% and 90% of state per-pupil education funding to use at any school. According to the lawsuit in Meredith v. Pence, letting families use the vouchers at religious schools violated the state constitution's religion clauses.

Ah, no. The Indiana constitution says "No money shall be drawn from the treasury, for the benefit of any religious or theological institution." But under the Choice Scholarship Program, state dollars go directly to parents who decide where to spend it.

"We find it inconceivable," the justices wrote, that the framers meant to prohibit government spending from which a religious institution could ultimately benefit. Everything from police protection to city sidewalks benefit religious institutions, but "the primary beneficiary is the public," and any benefits to religious groups are "ancillary and indirect," said the ruling. "The direct beneficiaries under the voucher program are the families of eligible students and not the schools selected by the parents for their children to attend.". . .

As for the unions, they've shown again their concern is their own power, not the well-being of students."

Summing Up

Congratulations to the parents and students of Indiana's K-12 schools.

And yesterday's ruling also is a good opportunity for We the People to learn more about who unions really want to help and who they could care less about assisting, either educationally or financially.

Hint: For the unions, it's not about helping the parents, students or the taxpayers.

For the unions, it's all about the power and prestige of the union leadership and union revenues, aka membership dues.

Thanks. Bob.

Home Prices Continue Climb ... If You Haven't Done So Yet, The Time to Refinance Is Now

Home prices rose again last month, and the housing recovery looks real and lasting as well. That's good news for the U.S. economy in lots of ways.

And while I don't certainly want to be a pest, I do encourage anybody who owns a home and has a mortgage to investigate refinancing possibilities for that loan. Why not reduce the monthly payments by $150 or more just by replacing your existing loan with another lower interest rate borrowing? Maybe even consider a shorter maturity as well.

And if you apply for a fifteen year or so new loan, the monthly payment probably won't increase but the time to pay off the loan will become much quicker than the schedule you're on now.

Besides, interest rates are pretty much at rock bottom and look likely to be substantially higher a year from now than today's level. That's because the economy is improving. But that's more than enough preaching from me, so now let's look at today's good news on home pricing.

Home Prices Post Biggest Rise Since 2006 has the details:

"U.S. home prices rose in January from a year earlier, registering the biggest increase since the summer of 2006, according to Standard & Poor's Case-Shiller home-price indexes.

On a year-on-year basis, the 20-city index improved 8.1% . . . .

"This marks the highest increase since the housing bubble burst," said David Blitzer, chairman of S&P's index committee.

The 10-city index grew 7.3% year over year. . . .

Low mortgage rates, a reduction in foreclosures and a shrinking inventory of homes on the market—along with an improving economy—have been supporting a gradual housing-market recovery.

Still, the two indexes remained about 30% below their June/July 2006 peaks through January....

Separately, the number of new homes listed for sale in the U.S. rose last month, a sign that builders are boosting construction to meet increasing demand.

At the end of February, there were 152,000 homes listed for sale, adjusted for seasonal factors, which is the most since November 2011, the Commerce Department said. Sales of new homes, meanwhile, fell 4.6% in February after surging the prior month.

The data showed 411,000 homes were sold last month, nearly matching expectations. Economists surveyed by Dow Jones Newswires forecast an annualized sales rate would fall to 415,000 in February.

Many economists believe housing will be one of the main economic drivers this year as prices rise, more homes are sold and builders break ground on new projects.

In a survey published last week, home builders said they were seeing stronger demand from potential buyers. Still, they said they were discouraged by a lack of land available, rising costs for building materials and tightened credit conditions that can make it difficult for potential home buyers to secure a mortgage.

Tuesday's data showed the median price for a new home sold in February was $246,800, up 2.9% from a year ago.

Despite the upward trend, home sales remain well below historical levels. New-home sales peaked in July 2005, when they hit an annualized pace of nearly 1.4 million, and declined to a low of 273,000 in February 2011."

Summing Up

Housing has been in the dumpster for a long time and still has a very long way to go to reach previous peaks in terms of both sales and prices.

That said, interest rates are probably about as low as they'll get, so if you haven't refinanced yet, now's the time.

Either keep the monthly payment the same and pay off the loan earlier with a shorter maturity loan or keep the maturity and reduce the monthly payment.

Either way it makes sense to do.

That's my take.

Thanks. Bob.

Free Choice Comes to Indiana Schools

School choice, charter schools, voucher programs and the like all promote individual freedoms for parents of K-12 age students. And they are able to do this simply by introducing the element of competition into the system of education, coupled with the MOM approach to spending for that education.

Competition for how and where taxpayer dollars are spent on educating our children is the result, and that's a good thing.

Having said that, strong and politically powerful teachers unions are unalterably opposed to anything changing the status quo and giving parents and their children the right to attend a school of their choosing by using taxpayer money, whether that be a public, private or religiously affiliated institution.

Big news is coming out of Indiana today in the form of a state Supreme Court ruling unanimously upholding the right of people to choose how to spend taxpayer dollars on their children's education.

Indiana School Voucher Program Is Upheld has the breaking news:

"The Indiana Supreme Court on Tuesday upheld the law creating the broadest U.S. school voucher program, which allows students to attend private schools at taxpayers' expense.

In a 5-0 vote, the justices rejected claims that the law primarily benefited religious institutions that run private schools and accepted arguments that it gave families a choice and allowed parents to determine where the money went.

The court said the law didn't violate the state constitution's guarantee of religious freedom or a ban on the use of state funds for religious institutions. It noted that while the Indiana Constitution doesn't allow direct spending on religious institutions, it doesn't prohibit them from receiving indirect government services, "such as fire and police protection, municipal water and sewage service, sidewalks and streets."

The Indiana case has received national attention because the program has wide eligibility. Middle-class families are allowed to participate in Indiana, while in most states, such programs are limited to low-income families or those in failing schools. . . .

The Indiana State Teachers Association had filed suit over the program, saying it drained money from public schools. Its attorney, John West, told the court in November that virtually all of the voucher money goes to schools whose primary purpose is to promote the teachings of their affiliated churches.

Teacher Teresa Meredith, the main plaintiff in the lawsuit and vice president of the Indiana State Teachers Association, called the ruling a setback for public education.

"I still very much believe that public schools are where most of our society is educated and we need to be investing and making those the best they can be," she told the Associated Press in a phone interview. "The vast majority of students will be robbed so that a group of students can get religious education on taxpayer dollars," she added.

Solicitor General Thomas Fisher, defending the law, told the court in November that parents were free to send their children to any school they wished, public or private, religious or not.

The state Supreme Court agreed with that, saying in its 22-page opinion that the program primarily benefited parents, not schools, because it gave parents choice in their children's education."

Summing Up

The teachers unions sound like a broken record. And a most insincere one at that. What's wrong with free choice and competition? I thought that was the American way.

And it is for the most part, other than with respect to things such as our government run system of public education. But now even that monopolistic situation may be beginning to change as well.

Today's unanimous Indiana court ruling is a biggie.

So let's all stay tuned as other states and many of our larger cities and school districts wrestle with the issues of education's overall affordability and quality while simultaneously trying to fend off the onslaught of teachers unions and their political allies.

It's going to be a long hard struggle to bring competition and free choice to taxpayer supported education throughout America, but going from a change resistant status quo monopoly to freedom always is difficult. The vested interests in maintaining the educational status quo are formidable indeed.

But in the end the fight will be well worth the effort, as fighting for freedom, competitive markets and providing equal opportunities for kids and their education is definitely a fight worth having.

That's my take.

Thanks. Bob.

Too Much Housing Related Debt for Individuals, Including Oldsters

Excessive debt is holding back economies from growing today. And that debt is held by far too many individuals, cities, states and national governments, one and all.

Since houses are the most expensive asset most people own and are mostly financed with long term debt, the bursting of the housing bubble caused terrible financial problems for many Americans. We all learned that home prices can go down as well as up. Unfortunately, too many of us learned one extremely valuable piece of personal financial knowledge far too late --- that debts owed on a mortgage and a home equity loan aren't reduced as the value of the house decreases. We find that we've put ourselves in a hole from which there is no easy way out. And more 'easy' money from our creditors isn't available to bail us out.

When we were young, the idea of owning a home was sold as a 'can't miss' American dream. But when the housing bubble burst a few years ago, that dream became a nightmare.

Hopefully, we'll seriously rethink as a society whether loading up with debt at an early stage in life to purchase a big ticket item such as a house is a good idea, but that rethink won't help lots of people today who are underwater NOW.

And maybe we'll also learn that the government isn't doing us any favors by in essence making available low interest fixed rate loans for thirty years, the interest on which is tax deductible to us, as are the property taxes paid on those homes. And that the deductibility of interest on subsequent home equity loans isn't such a good deal either. Debt is always debt. And maybe a house is just another big ticket purchase where debt isn't necessarily cheap and easily repaid.

In any case, and largely as a result of the dream turned nightmare of housing, lots of oldsters are having home related debt troubles these days.

So now that we've all come to learn that housing prices aren't a one way street where prices only climb, let's look into the troubling debt position of many older people today.

Older Households Loading Up on Debt has the story:

"America's seniors are becoming more likely to increase their debt—and saw the biggest percentage jump in borrowing relative to other groups over the past decade.

The median level of debt among households led by someone 65 and older—the level at which 50% are above and below—rose nearly 120% between 2000 and 2011 from roughly $12,000 to $26,000, due largely to rising mortgage debt, according to a Census report released Thursday.

The report raises concerns about the financial health of older Americans at a time when many are worried they lack the savings and investments to retire comfortably. The recession damaged many seniors' nest eggs and fewer Americans are saving as much for retirement. The Federal Reserve's strategy for spurring the economy—low interest rates—has the impact of reducing returns for seniors on safer investments.

Older households "are less likely to own their homes free and clear than was once the case," said Richard Fry, an economist at the Pew Research Center. Increased homeownership by seniors explains some of the increased debt, but older Americans have also ramped up use of "home-equity" loans, where consumers borrow against the equity in their homes, he said.

Granted, older Americans tend to be wealthier and survived the housing crash in relatively better shape than younger households. Younger people also owe more relative to their incomes than older people. And seniors are also working more, making paying off debt easier.

Still, the new figures show seniors have grown more likely to be in debt, even as other groups pare back. People 65 and older were more likely, for example, to have a mortgage in 2011 compared to 2000, while people under 55 were less likely to have a mortgage—or any debt, the Census said.

Those 65 and older saw their typical "secured debt," largely mortgages, rise from around $25,000 to $50,000. Seniors started taking on more "secured" debt early in the 2000s, ramped up dramatically between 2005 and 2009—and then eased off borrowing around the end of the decade, Census data show.

The rising debt load also comes as seniors' wealth has fallen due to the recession. The median net worth of American households—the value of assets like homes and stocks, minus debts—was around $69,000 in 2011 compared with $82,000 in 2000 and $107,000 in 2005. In a report last year, the Fed also noted a "marked increase" in debt among older families.

The burden of more debt isn't limited to just seniors. People ages 55 to 64 saw their typical or median household debt rise 64% to $70,000. Younger people, meanwhile, are borrowing more to pay for college, even as they cut credit-card use. Those under 35 saw their typical debt rise 13%. Overall, the typical U.S. household's debt rose 37% between 2000 and 2011 to $70,000."

Summing Up

The facts are clear. We're a nation of debtors.

And that's not a good thing to be, especially if we're among the oldsters.

Of course, home loans, including home equity loans taken out during the housing bubble, are the biggest reason for the oldsters' financial dilemma.

But then there are student loan obligations for the youngsters, which many oldsters signed on for as well.

Debt becomes exponentially a bigger problem as we age. Our earnings have peaked and may even be over, and our retirement income isn't likely to be sufficient to take care of our financial needs in our older age. And this income shortfall is made bigger by the low interest rates being paid to savers today.

Thus, the last thing oldsters or near oldsters should have burdened ourselves with is new or added debt, but unfortunately, that's the situation in which too many of us are in today.

And there's not a whole lot that can be done about it now.

That's too bad, but that's the truth.

Thanks. Bob.

The Reality of the Cyprus 'Solution' Begins to Set In on Other European Countries

The celebration of the Cyprus bailout was both short lived and premature, to say the least.

When banks have insufficient resources to clean up bad loans, which they always do in a crisis, people get hurt. It's just a matter of which people.

And since Cyprus is but one small example of one very big European problem with financial solvency and the bad loans of its financial institutions, there's more to come. So watch out, Spain, Italy and others. The Cyprus 'solution' may be headed your way sometime soon.

Eurogroup head: Cyprus deal template for banks has the breaking news:

"FRANKFURT -- The rescue program for Cyprus reached on Monday is a new template for addressing banking problems in the euro zone, said Dutch Finance Minister Jeroen Dijsselbloem, the chair of the Eurogroup of euro-zone finance ministers, according to Reuters. "If there is a risk in a bank, our first question should be 'Okay, what are you in the bank going to do about that? What can you do to recapitalize yourself?' If the bank can't do it, then we'll talk to shareholders and the bondholders, we'll ask them to contribute in recapitalizing the bank, and if necessary the uninsured deposit holders," he said, according to the report."

Summing Up

Reality is reality.

Taxpayers will no longer be the first ones called on to come up with bailout money for banks if the Cyprus template is followed.

The bank's shareholders and bondholders will be 'bailed-in' instead.

Thus, only after the bank's shareholders and the bondholders have been tapped for funds when the bad loans come due, will the bank's uninsured deposit holders be asked to foot the bill.

In the future, taxpayers will get a well deserved break, for once.

As a result, European companies and investors will become much more selective concerning which banks they choose to do business with in the future. In the end, that will prove to be a very good thing.

And it would be a good habit for us to adopt right here in the U.S. as well.

And while during the transition period, it would undoubtedly be painful for many banks, as well as their owners and bondholders, it would be great for the financial system as a whole.

These 'bail-ins' make much more sense for taxpayers than bailouts.

That's my take.

Thanks. Bob.
 

Governments Gone Broke ... The Issue of Cutting Public Sector Pension Payments Isn't Even the Bulk of the Problem

Public sector pensions are promises with constitutional guarantees by many states.

Required contractual payments to city and state bondholders are equal to the claims of other unsecured creditors, including contractually mandated public employee pension contributions, in bankruptcy cases.

So do pension recipients have a higher claim in bankruptcy proceedings than other creditors, including bondholders? Logically, the answer has to be no.

Nevertheless, that's the practical question facing California courts this week in the case of Stockton's bankruptcy. Thus, cities, states, public sector union leaders and pension plan officials across America will be tuning in to try to better assess how this issue of prioritization may be decided in their own specific situations in the future.

Pension Funds Wary as Bankrupt City Goes to Trial has the story:

 

"Wall Street is taking America’s biggest pension fund to court this week, for a long-awaited battle over who takes the losses when a city goes bust — workers and retirees, municipal bondholders, or both.       

 

Stockton, Calif., declared Chapter 9 bankruptcy last year after suffering one of the country’s sharpest riches-to-rags swings when the mortgage bubble burst. Struggling to stay afloat, Stockton has slashed tens of millions of dollars’ worth of city services — firefighters, senior centers, library programs for at-risk children — and said it would cut its municipal bond repayments to a degree never seen before in a municipal bankruptcy.

 

But it has drawn the line at slowing down its current workers’ pension accrual, or cutting the benefits its retirees now receive.

 

Mutual funds that hold the threatened bonds, and the insurers that guarantee them, have cried foul, citing the principle that in bankruptcy, similar classes of creditors must be treated the same way.

 

Their objections have prompted the federal bankruptcy judge handling Stockton’s case, Christopher M. Klein, to schedule a four-day trial this week, starting Monday.

 

The immediate question before the judge is whether Stockton qualifies for Chapter 9 at all; unlike companies, cities must meet certain criteria before they can get federal court protection from creditors.

 

But there is a looming, larger question that has pension funds around the country nervous: Will a victory by bondholders in Stockton pave the way for cuts in its workers’ pensions and its payments to Calpers, which, in turn, could lead to the demise of other public pension plans?

 

One small city in Rhode Island, Central Falls, has already cut its pensions severely, but legal experts say Rhode Island’s laws made it easier there than it would be in most other places — particularly California, where the huge state pension system has deep pockets to fight legal battles. Central Falls was not part of any state system, and its pension fund for police officers and firefighters nearly ran out of money. . . . 

 

Cities, school districts and local governments all over the country have promised their workers pensions that looked reasonable in better times, but have turned into budget-busters since the financial crisis. Local taxpayers are increasingly unwilling to shoulder the rising costs, yet conventional wisdom has it that public pensions cannot be reduced. Some officials are quietly wondering if that means not even in bankruptcy.

 

“Every member of every city council that’s struggling with these issues, who takes their job seriously, is looking for solutions,” (bankruptcy lawyer) Mr. Sweet said. “No one wants to talk about it, and no one really wants to go there. But if Calpers can be forced to take a haircut in Stockton, then what’s to stop another city from saying, ‘Gee, we’ll file for bankruptcy and cut in half our $10 million pension contribution?’ ”. . . 

 

Calpers is a $252 billion giant that administers pensions for California state employees and many municipal workers. It calculates how much its member cities must set aside each year, bills them, collects the money, invests it and sends retirees their benefits. When Calpers’s investments lose money, as they did in the stock market crash, the bills increase.

 

In 2011, Stockton paid a little more than $20 million to Calpers — about double what it paid to run its public libraries. Its payments are expected to nearly double in the next 10 years, making Calpers the city’s biggest creditor. Stockton says it has no choice but to keep paying, even as it pares other costs, including its payments to bondholders. . . .

 

“They’re scared to death,” Mr. Sweet said. “Calpers says, ‘You can’t give us a haircut, because if you do, the world is going to collapse. If it happens in Stockton, it’s going to happen in San Bernardino, and if it happens in San Bernardino it’s going to happen in Modesto, and if it happens in Modesto it’s going to happen in Bakersfield, and if it happens in Bakersfield it’s going to happen in Fresno.’ ”

 

In fact, San Bernardino filed for Chapter 9 bankruptcy not long after Stockton did, then simply stopped making its contributions to Calpers. Calpers geared up to sue, but the judge handling San Bernardino’s case, Meredith M. Jury, stopped it, saying she would address the issue of pension contributions later in the bankruptcy.

 

A spokeswoman for Calpers, Amy Norris, praised Stockton for keeping up its pension contributions in bankruptcy, saying it had made “the right business decision.”

 

But the Wall Street creditors say Stockton is getting the money for Calpers by shortchanging its bondholders."

 

Summing Up

We can't spend the same dollar twice, and taxpayers feel like they're spending enough dollars already.

Pensioners want paid, and so do bondholders. Meanwhile, citizens want their various public services continued uninterrupted. But to repeat, the same dollar can't be spent twice.

And this realization that limited funds are available to pay unlimited claims is now happening everywhere throughout the world, and seemingly all at once.

Cyprus is broke. Stockton is broke. Detroit is Broke. Chicago and Illinois are broke. Spain and Italy are broke. And so on.

The U.S. is 'sequestered' and our entitlements are underfunded by at least $100 trillion while our acknowledged national debt approaches $17 trillion. The politicians are acting like a deer in the headlights. They don't know what to do, and even if they do, they're afraid to do it for fear of backlash.

Many U.S. public sector city and state pension funds are also broke and taxpayers, employees and retirees will be sharing the pain with bondholders and other creditors for years to come. Exactly how that pain will be shared by all has yet to be determined, of course.

And so it goes with underwater home mortgages and future foreclosures, teachers pay, retirement funding, future hiring and so forth. And lest we forget, student loans as well.

Throughout the world, we've tried to live beyond our means, and now the bills are coming due. The fact is that we're not as rich as we thought we were.

City, state, federal and even international government entities will wrestle with these issues for years to come. And that means so must we as individuals.

Living within our means will of necessity become the future norm.

But in the interim, the road ahead will entail lots of financial pain which will be spread and shared far and wide.

And that inevitable pain will be spread and shared unevenly and unequally, respectively.

However, in some meaningful and lasting way it will be experienced by all of us.

That's a necessity.

Thanks. Bob.

 

The Cyprus Story ... A Tale of Why Small Government Can Work for Free People but Big Government Doesn't

The problem with any system of big government is both ideological and practical. The Cyprus story teaches us that. {NOTE: See Cyprus Gets New Bailout Deal for the broader story behind the latest bailout.}

Ideologically the problem is that the bigger the role of the government plays in our lives, the fewer the God given individual freedoms we retain to ourselves. On the other hand, as a society we need a strong government for such vital necessities as national security, of course, as well as the few things that can be better done collectively than individually, such as environmental protection.

But when it comes to most other things, we're better left to our own devices and there are very practical reasons for why that's true. A political system that's too big and intrusive simply doesn't function well and more importantly, isn't able to act on behalf of all of We the People.

Accordingly, the Founding Fathers gave us a system of limited government. And for very good reason, too. They correctly decided that a nation with three million citizens and thirteen individual states would best be centered locally with a small central government. And of course, the three hundred million plus citizens and fifty states that make up the U.S. today were impossible to even imagine at the time of our nation's beginning.

Over the course of 300 plus years, the times do change, but the fundamentals of good governance don't. Big government isn't practical, because government invariably becomes centered on politics and not governance.

Let's turn to Europe and Cyprus for why this is so.

Sympathy for the Devil Named Angela is revealing in many instructive ways:

"Good policy is not good policy if it can't be put into effect democratically.

To get a Cyprus bailout past German voters, European politicians included a tax on Cypriot bank deposits, a big chunk of which are held by Russians. They didn't reckon on the Cypriot parliament, in response to public outrage, refusing to approve the deal. What was supposed to be a rescue of tiny Cyprus and its two big troubled banks has blown up into fresh doubts about the survival of the euro itself.

John Makin of the American Enterprise Institute touches on the important question of sanity: "Why would Europe's leaders that have spent trillions of Euros protecting the confidence in Europe's shaky banks risk a collapse for the sake of saving €10 billion in aid to Cyprus?"

Answer: German Chancellor Angela Merkel faces an election in September and bailouts are not popular with German voters.

 

German Chancellor Angela Merkel

Policy makers will always seem idiots and knaves if the political constraints on their actions are ignored. This makes life easy for pundits but for real wisdom Thomas Sargent, in words spoken as he collected his 2011 Nobel Prize, is your man.

Mr. Sargent spoke at the time of the U.S. need for good long-run reform plans that didn't impose severe fiscal stringency in the short-run, but he might as well have been speaking of Europe too.

"These are not very original ideas," he added. "I think 80% of the economics profession would agree. The problem is to figure out how in the real world to get these things done."

Ah, the real world. The challenge has been hard enough for U.S. institutions, with their serial production of fiscal cliffs. Europe's institutions have been catastrophically incompetent. Europe's institutions have consistently turned wise advice on its head, delivering short-term fiscal stringency and no long-run reform. This ought to tell us something.

There are no "Europeans." The problems of sovereignty and democracy intrude. Germans don't like bailing out Greeks etc., and Greeks etc. don't like taking orders from Germans. Plus, most European countries are parliamentary societies. To embark on a policy not supported by domestic voters is to risk a "no confidence" vote followed by a new government committed, by definition, to blowing up whatever is the latest scheme to save the euro.

The result has been Merkelism, frantic improvisation aimed at keeping the euro zone together for another day, with the Cyprus improvisation being an especially ignominious example. By the lights of almost everyone involved, at least when talking out of the hearing of domestic voters, the policies followed never even pretended to be optimal or desirable. They were the best that could pass political muster.

It just so happens that two economists, Luigi Zingales and Paola Sapienza, have lately asked why the gap is so wide between what economists think is good policy and what the public will support. Their surveys find that the more economists agree with each other, the more they're out of sync with the general public.

It's easy to imagine reasons. Voters may believe the optimal policy is suboptimal for them. The problem may be the visible versus the invisible: Jobs that would be lost through useful reforms are easier to identify than jobs that might eventually be gained. Optimal policy may offend against justice: Why should hardworking Germans bail out Russian tax evaders?

But, as authors Zingales and Sapienza conclude, the generalizations that appeal to economists simply are not very helpful to politicians when they go about the job of trying to reconcile the demands of the electorate.

The argument for limited government is really an argument for not overburdening politicians. Leave as much as possible to the market, to the law of contracts, to the courts. Don't pile up on politicians more and more impossible choices they have to make on our behalf.

Though it won't please some to hear it, this is why the euro has been a failure. France's government is 56% of GDP. Italy's is 50%. Germany's is 47%. Greece's is 50%. It requires too much of politics.

Look at Europe's paralysis, in its hour of need, to exploit the shale bounty at its feet because Europe's mineral rights are controlled not by landowners but by politicians.

Look at Europe's inability to cut spending, so governments raise taxes instead, driving their private sectors deeper into depression. Look at its vast opportunity to make its workers competitive through "fiscal devaluation"—not by cutting wages but by cutting wage taxes and costly labor regulations.

Yet governments have been unable to move.

Most Europeans, even today, probably would be better off if over-indebted governments were allowed to default in accordance with the relevant bankruptcy precepts. But it can't happen in societies so trained to look to politicians to overrule the laws of arithmetic and economics whenever those laws are inconvenient."

Summing Up

Government officials and politics combine to give us the lowest common denominator in governance on a large scale.

Not good government and not efficient or effective government. And certainly not government which prioritizes individual freedoms.

The need for small and limited government is both a practical and moral issue for free people.

Freedom necessarily mandates that individual 'self rule' must always be the top priority of self governing societies and receive higher priority than the collectivism of a government knows best approach.

Over the next several years, Cyprus doesn't have a chance, and longer term the Euro probably doesn't either.

Limited government is always the best form of government. So is self government.

The Founding Fathers had it right.

That's all there is to it.

Thanks. Bob,

The Future Paths of Social Security and Medicare Explained

Everybody seems to have an opinon about the future paths of Social Security and Medicare, respectively.

Unfortunately, most of these opinions are based on what people have heard from others rather than reliable information.

So let's get into the facts and learn what's likely to be the good and bad associated with the future of these two vast but poorly funded entitlement programs.

Making Sense of Social Security and Medicare provides a good basic background explanation of the situation as it is and likely will be in the future:

"Social Security, Medicare and other earned benefits make up, by far, the largest portion of the federal government's expenses.

They also are among the most misunderstood. . . .

Q: Will I receive Social Security benefits?

A: That's a big "It depends." If you're over 65, no sweat. If you're 45-65, you might see some changes from the relatively generous benefits enjoyed by your parents. If you're under 45, you have plenty to worry about.

The problem is more money is being paid out of the system than is going in. The shortfall, now about $200 billion a year, is being made up by drawing on the $2.73 trillion Social Security Trust Fund. {MY NOTE: There is no 'real world' trust fund. It's an accounting fiction. The government actually has no money of its own. We owe $16 trillion instead and are adding to the debt each year by running deficits.}

The fund is U.S. government bonds that have been bought by the Social Security Administration for 30 years with money paid by baby boomers. They have spent most of their working lives paying more into the system than it spent.

The extra money was lent to the government, which used it to offset some of the huge deficits of the 1980s and 2000s. (Without the overpayments, the government surplus in the late 1990s wouldn't have happened.)

Now, the retiring boomers are taking out more than younger workers are putting in. According to current estimates, the trust fund could be fully tapped as soon as 2033.

 

Q: So what's going to
happen?

A: Time is running out, and the gridlock in Washington isn't helping.

Among possible solutions? Changing the way cost-of-living adjustments are figured, reducing benefits slightly now, but far more over the long haul. Other suggestions range from raising the eligibility age to 70, to reducing benefits for wealthier retirees, to raising taxes.

Count on Social Security, in one form or another, being around for a long, long time. But don't count on it to be as generous as it was in the past.

Q:What can I do about that?

A:Save. Save. And save some more. Social Security was always meant to be a supplement to savings, family support and pensions.

A recent survey from Banker's Life and Casualty found that two-thirds of middle-income wage earners believe Social Security will pay at least half and some as much as 75% of their retirement costs. Some Americans consider Social Security their major income stream during retirement. Bad idea.

Social Security alone isn't going to cover the lifestyles they are accustomed to—not including health-care costs.

Q: Speaking of health care. I understand Medicare is in worse shape than Social Security.

A:You bet it is. The Government Accountability Office estimates the 75-year funding gap will be a staggering $76.4 trillion. The Medicare Security Trust Fund could run dry as soon as 2016, according to a 2011 report from the trustees. And the system is rife with fraud and abuse, costing us nearly $100 billion a year—yes, a year—according to some congressional estimates.

To make matters worse, the government can't seem to get its long-term projections in line. Just last month, the Congressional Budget Office slashed its 10-year budget projection by $143 billion, or 2.2%. It noted that spending was "significantly lower" than projected the last three years, thanks mostly to technology and somewhat to legislation. Is that a trend or a recession-related blip?

By some estimates, we will receive health care that costs three times what we paid into it in our lifetimes. Clearly, that's unsustainable and the only way out is to cut benefits or up the individual ante—neither of which garners much enthusiasm from, well, anyone.

But, like Social Security, some form of Medicare will be around for some time though you can expect that it will be parceled and pared down considerably."

Summing Up

It's always a good idea to know the facts.

And the facts are that our current Social Security and Medicare programs (before ObamaCare) are programs that have long been underfunded.

And now with the aging of the baby boomers and the introduction of ObamaCare, the underfunding has reached the crisis stage. Political and societal can kicking is about over.

So as we begin to fund these programs with more money, we will of necessity take that money from the paychecks of America's current workers.

And as we tax current workers more, we will need to be careful not to leave them with less money to spend and invest in the U.S. economy.

Of course, that lower spending and investment would mean fewer jobs than would otherwise be the case, as well as lower tax receipts for the government.

Accordingly, as individuals we need to understand that this simply means that our government entitlement programs won't fully take care of our retirement and health care needs. We the People will have to do more of that for ourselves.

More of us working, saving and investing will be vital to the well being of future generations of Americans.

And we will also need to provide affordable and high quality educational opportunities for our youngsters.

That's the daunting challenge for all Americans in the years to come.

But we'll get it done and all be the better for having done so. At least that's my take.

Thanks. Bob.

The American Retirement Crisis Is Real ... Doing Nothing Is Not an Option

We know about the problems with Social Security funding. We also know about the shortfalls of public employee pension funding. And we know too about the lack of adequate funds in our 401(k) accounts. In other words, we know we have a problem with retirement funding.

Add in the aging of our society and the picture is a disturbing one indeed. Providing for our oldsters and providing solid opportunities for a sound education and a prosperous future for our youngsters seems to be an impossible situation. But it's not. Not if we take the time to educate ourselves and prepare properly for our financial futures, both individually and collectively as a self governing society.

That said, the head in the sand approach now being followed by the government knows best gang and too many of our fellow Americans is a sad commentary on our current dysfunctional American system of self governance.

So let's discuss this retirement crisis problem in a straightforward way instead of running away from it or even worse than that, pretending that it doesn't exist.

3 ways to solve the retirement crisis in the U.S. helps the cause of DIY investing and financial self education, so let's take a look at what it has to say:

"You might think it’s impossible to avoid a retirement crisis in this country, especially in the wake of a report this week that shows Americans are not very confident about their prospects for having a comfortable retirement.

But Matt Greenwald, the president Matthew Greenwald & Associates, the firm which conducted the research for the 23rd annual Retirement Confidence Survey for the Employee Benefit Research Institute, thinks otherwise. Read Survey: Retirement confidence still lags.

In an interview, Greenwald outlined what it will take for the U.S. to avert a retirement crisis.

Watch Powell’s interview with Greenwald here.

Calculate how much you need

If you want to avert a personal or national retirement crisis, there’s one surefire way to do that: Calculate how much you need to save for retirement, and get others to do the very same. . . .

 

“Doing a retirement plan helps,” said Greenwald. “People make more accurate assessments of what they need. Most people don’t do any retirement planning and that’s something that’s very important. The people less prepared (for retirement) are the people who do less retirement planning.”. . .

How much will you need above and beyond your Social Security benefit is, of course, somewhat tricky. But Greenwald said 20 times (your salary) is a safe bet.

“When making a decision about how much to save and even how much to spend you are really making a decision about giving up some spending now to get a better lifestyle later,” he said. “And it’s the trade off that people really have to (assess).”. . .

Greenwald said studies suggest that if people make better decisions about managing their money in retirement they could get 29% more income. “That’s free money,” said Greenwald. “If we get people to be more educated about how to manage their assets, they will have more financial security…without costing the taxpayer anything.”"

 

Summing Up

Getting ourselves educated about retirement planning and thereby increasing our income by 29% at no cost sounds pretty good to me. {NOTE: My guess is that we can in fact do much better than the 29% of 'free income' estimated by Greenwald, but let's not quibble. The key is to spend the time to take care of our future selves while there's plenty of time to do so.}

It also seems eminently doable, especially the younger we are when we get the education. Watching the Greenwald interview take 9 minutes. So take the time and invest 9 minutes in learning more about the need for personal retirement planning and how simple and easy it can be.

Unfortunately, when we're young, we all too often think and act as if we'll never get old. Thus, we don't prepare for retirement properly and perhaps not at all. This must change.

The formula for a comfortable retirement is simple. Start saving early, invest with the long term in view, be prepared to work into your older years and don't take on unnecessary debt at an early age.

Then keep learning why too much debt can be harmful, and saving and investing for the long run will be very beneficial to the health and well being of your future self.

By doing those things, you'll understand the dangers of time inconsistent behaviors and instead use time to your advantage.

That's my take.

Thanks. Bob.

The Cost of "Fringe" Benefits Can't Be Ignored

What we used to call 'fringe benefits' can no longer be referred to as fringe, if they ever could. In fact, the cost of indirect pay is generally an adder of 50% or more to the cost of employment.

Or if you prefer to use a lower number than a 50% adder, the fringe costs are at least one third of the total. It's just how we choose to do the math. The result is the same either way. Fringes aren't on the fringe.

Hence, adding an employee to the payroll represents a serious commitment on the part of an employer. My guess is that the cost of benefits to the employer is a big part of the reason hiring is not picking up at a faster pace as the U.S. economy expands. And with these pretty much open ended 'fringe' benefit costs certain to escalate even more in the years ahead, the headwind for additional job creation will become more severe over time.

To take just one example, ObamaCare is a reality. Its costs will be much greater than estimated, both during the short term and over the longer term as well. That's just the way the government knows best gang does things. They lowball the estimates and then pass the costs along to insurance companies, employers and taxpayers. Of course, mandatory government programs such as Social Security, Medicare and unemployment compensation are also big employment cost adders as well.

But even after the politicians make every effort to disguise these costs as costs to be incurred by greedy insurance companies and uncaring employers, they're not, never have been and never will be. In the end, employees, consumers, taxpayers and We the People always get the bill.

Employers' Benefits Costs compares costs for public sector and private sector workers, as well as the various components of employment related costs:

"31%: The percent of employer costs that goes to paying for benefits.

Nearly a third of employers’ costs per worker goes to benefits on top of regular wages and salaries, and the share is even greater in some industries.

In December 2012, the most recent month for which detailed data are available, the average employer costs for each worker per hour was $30.84, according to the Labor Department. Of that total, $21.35 or 69% was for wages and salaries, the remainder went to benefits. The lion’s share of benefits’ costs is for health insurance, which on average makes up 8.5% of the total. That’s followed by legally-required benefits, at 7.8% of the total, which include Social Security, Medicare, workers’ comp and unemployment insurance. . . .

A greater share of state and local government’s costs per employee goes to benefits — 35% — compared with 31% for full-time private-sector workers. The costs to the government are greater per worker at $41.94 with $27.24 going toward salaries, while private employers on average pay $33.63 overall per worker and $23.22 on wages.

The makeup of benefit expenses is also widely different between private and government workers. Government benefit costs are higher for health and retirement contributions than their private counterparts, while private employers pay more in overtime and bonuses.

Though the disparity is clear, it is largely due to the types of jobs most common for state and local governments. More government workers are professionals, such as teachers, whose wage-to-benefit ratio is similar whether they are in the private or public sector.

Meanwhile, the average for all private-sector employee costs is dragged down by the large number of sales and service workers, who receive less in benefits. Service jobs in the public sector include police officers and fire fighters who generally have more generous benefits.

The disparity may narrow in coming years, as the new health-care law forces more employers to offer insurance to workers. Meanwhile, public pressure and difficulties with state and local pension systems could weigh on governments’ contributions to retirement and savings plans."

Summing Up

The cost of ObamaCare and the cost of funding retirement benefits will receive a great deal of attention in the coming years.

Health care is by far our largest financial problem to be solved, and the costs of retirement will explode as a result of our aging society. The demographics and the math are undeniable.

And of course, the cost of government will be scrutinized as never before as well.

So will the responsibility of providing for our old age benefits. Will it be 401(k)s or pensions, and will the money invested be in stocks or bonds?

All these questions and answers will be important ones for the general financial health and well being of our self governing society.

"Fringe" benefits will be no longer be considered as a sideshow, and should never have been one anyway.

Costs are costs, dollars are dollars, and we can't spend the same dollar twice.

If we spend it on health care, there's less available to be paid in salaries. And if we spend it on the public sector, there's less remaining to be spent and invested by the private sphere. And if we spend it on the oldsters, there's less remaining for the youngsters.

We the People are now in, and will continue to be, living in very interesting times. Very interesting times indeed.

That's my take.

Thanks. Bob.

We Need to Work Longer, Save More and Invest Better ... It's Simple Math

Let's talk about something that undoubtedly won't be a popular idea with many of We the People.

But here it is anyway. Americans on the whole need to work longer before retiring. Otherwise we can't expect our retirement benefits, including Social Security, to provide adequately for us as oldsters.

Working longer means three good things: (1) more pay while continuing to work; (2) bigger benefits upon retiring; and f(3) fewer total dollars required to fund retirement years.

Working longer would be a gift by oldsters to future generations as a result of lengthening the working years, having more money for retirement and shortening the number of years spent in retirement. That would lessen the burden on taxing the younger workers to pay for the oldsters in retirement.

It's either that or we must be willing to accept reduced benefits, make higher contributions while working or some other combination that will make the numbers work for America's future generations. Because the numbers sure don't work now. Not even close.

The simple facts are that retirement investing should be increased and improved, and our working years need to be increased. The various retirement plans that exist now are simply unaffordable to current taxpayers and can't be sustained over time.

Politically and socially, however, it's a tough issue -- a real tough issue. And if there's one thing politicians don't like to deal with is that -- a real tough issue that's not going to win them votes.

The Payoff in Delaying Retirement has the story:

Opposing cuts in Social Security, Medicare and other benefits for seniors last month in Ohio.

 

" . . . the impasse between Democrats and Republicans . . . follows to the letter the most ironclad rule of American politics, which has held sway for the last three decades: spare the old.

 

The impasse was . . . the consequence of an intractable divide in Washington over taxes and spending. It led to the so-called sequester, the product of a longstanding bipartisan reluctance to tinker with the social safety net erected to maintain the living standards of the elderly. Why? Because the old vote at much higher rates than the young.

 

It’s true that Republicans have offered plans to limit spending on Medicare and Social Security by turning them into voucher-type programs, letting seniors buy their own health insurance with a set amount of money and manage their own pensions. But they never dared pay the political cost of turning these ideas into law even when they controlled Congress and the White House.

 

Democrats, meanwhile, have been reluctant to put up an all-out fight for the large tax increases needed to pay for the expanding entitlement programs demanded by an aging population, without any cuts. Usually champions of progressivity, they have nonetheless resisted proposals to direct benefits for the elderly more specifically to low and middle income Americans.

 

This fixation on defending entrenched positions is getting us nowhere. The problem — a growing cohort of retirees, born during the baby boom, now claiming Social Security and Medicare — is only getting bigger.

 

But what if there were a way for the government to ease the strain that the aging place on the budget while actually increasing their income in retirement, at little or no cost to their benefits? A well-designed reform would even improve the nation’s rate of economic growth. The way to do it is simply to encourage older workers to spend a larger share of their increasing life spans in the work force. . . . 

 

Spending on Medicare, Social Security’s old age pensions and retirement programs for civilians and military on the federal payroll . . . will consume about 38 percent of the federal government’s entire budget, up from 25 percent four decades ago, according to the Office of Management and Budget.

 

Meanwhile, the C.B.O. expects the discretionary part of the budget — which includes every program requiring annual appropriations, from the budgets of the Pentagon and the National Science Foundation to worker training programs and early childhood education — will shrink . . . . Forty years ago discretionary programs . . . consumed more than half of the budget. In 10 years they will consume less than a quarter.

 

Senior citizens, to be sure, merit protection. Social insurance to keep retirees from dropping out of work and into poverty is as necessary today as when President Franklin Roosevelt signed the Social Security Act in 1935. But an income support system meant for a society where people retired in their late 60s and died in their late 70s is under strain as Americans take to retiring earlier and living well into their 80s and beyond.

 

Encouraging more senior workers of able body and sound mind to remain in the work force, many economists suggest, would not only improve their finances and those of the government. It could underpin higher economic growth over the long term. . . . 

 

For instance, a study published several years ago by C. Eugene Steuerle, Barbara A. Butrica and Karen E. Smith of the Urban Institute found that working just one more year would increase retirees’ income in retirement by 9 percent. Working an additional five years would lift their incomes by 56 percent.

 

Retirees wouldn’t receive fewer Social Security benefits, on average, because their annual benefit would increase with each year they delayed retirement. Nonetheless, government finances would improve through increased income tax revenue.

 

What’s more, a growing cadre of older workers could counter to some extent the slowing growth of the labor supply, which in the next decade is expected to expand at less than half the pace of the 1960s, 1970s and 1980s, slowed by the retirement of the boomer generation and the tailing off of women’s long march out of the home and into the workplace. The C.B.O. expects that slow growth in the labor supply will reduce our potential growth rate over the long term, to 2.25 percent a year, a full percentage point less than the average since 1950. . . .      

 

Encouraging workers to work longer won’t be politically easy. . . . In any event, a real debate over how to ease the strain on the American economy caused by increasing longevity would undoubtedly be more fruitful than cutting the budget for park rangers."

 

Summing Up

 

We can't solve our financial mess without addressing and solving the issue of oldster entitlements.

That means that voting oldsters are going to have to accept lower retirement benefits, work more years, contribute more to their retirement funding, or some combibnation thereof.

 

My guess is that both the oldsters and the nation's economy would be better served by oldsters working longer. The younger workers certainly would benefit from paying less in taxes to support oldsters in retirement. And perhaps the older workers could teach or replace various public sector and private sector administrative workers.

 

In turn that would free up more workers to participate in the private sector of our economy. There are lots of areas of the U.S. economy that would be able to grow nicely through private sector innovation and entrepreneurialism if the government taxed less of our citizens' income.
 

See how easy this could be? And how appreciative our kids and grandkids would be? And how much sense it makes?

 

In any event, that's my view, unpopular as it may be. It's a simple way to get out of our intergenerational financial dilemma, and it's just simple math.

 

Thanks. Bob.

More on Long Term Stock Investing's Benefits

I'm an advocate of owning shares of good companies for the long haul. Some think of this approach as simple minded, but I prefer to think of it as just using simple common sense.

It costs little, takes little time, its tax benefits (for taxable non 401(k)s) are huge and the compounding effects of dividend growth and share appreciation make it a winner in every way. Besides, its results are superior, and that's the most important reason of all to become a self educated, self reliant individual investor.

It's a winner for the individual, that is, but not so for the commissioned stock broker or fee based 'expert' financial advisor. But that's just another difference between the MOM and the OPM approaches to personal financial management.

Here Comes the Slow Stock Movement captures the essence of the individually directed long term approach to investing very well. It says this in pertinent part:

"The renowned investor Benjamin Graham often pointed out that small investors have great advantages over professionals: Individuals can choose not to measure their results over the short term, and they can invest at will in unfashionable stocks.

So you don't have to have ants in your pants just because everyone else does.

Research by University of California economists Terrance Odean and Brad Barber has shown that investors who traded the least outperformed those who traded the most by a remarkable 6.8 percentage points annually.

So buy an index fund and hold it forever. Or find a mutual fund with expenses under 1% and a turnover rate of 33% or less, meaning it holds its typical stock for at least three years. Or pick a few stocks yourself, buying on bad news and then holding stubbornly through all the short-term noise.

Before you buy, write down at least three reasons why you believe the company is a good investment; sell only if those reasons have become invalid.

"If you are fortunate enough to invest in one of those rare companies that are great long-term investments," Mr. Winters says, "the best reward is just owning the shares for years on end.""

Summing Up

And one more thing. Establish the habit of saving and investing as early as possible in your working career.

Having some 'skin in the game' early will help immensely with achieving personal financial literacy and growing knowledge over time. The rule of 72 works with respect to knowledge, too.

Then acquire the habit of periodic dollar cost averaging saving and investing.

After that, it's ok and even better to be a passive and even lazy investor.

Nevertheless, you should actively monitor the actual performance of the companies you own and not focus on the short term fluctuations in the price of those companies' shares.

But if you're uncomfortable buying shares in individual companies, just invest in a low cost S&P 500 Index fund instead. It may be boring, but it works, too.

The key is to start early, save and invest regularly and then stay put for the long haul.

That's my take.

Thanks. Bob.

The Key to Successful Long Term Investing ... Start Early

Far too many of us choose to enjoy today to the fullest to the extent that we forget all about how we're going to feel about things tomorrow. Economists refer to that "todayism" preference as time inconsistency.

Time inconsistency simply means that we don't pay sufficient attention to our future needs when making choices about what we do now versus the subsequent effects of those decisions. The 'wants' of our present self are prioritized at a higher level than the 'needs' of our future self.

And that not fully considered choice of satisfying our present wants versus making provisions for our future needs generally works to our detriment over time.

As examples of time inconsistency in relation to our personal financial well being, borrowing too much on credit in order to buy such things as new cars, new houses, and even attend an expensive college as far away from home as possible are all part of the mix.

Time lost is gone forever, and tomorrow is never just twenty four hours later.

What we do NOW matter greatly to what we're able to enjoy TOMORROW. It's that simple.

Compound interest: You're doing it wrong has the sobering but all too true consequences of the "buy now, pay later" way of life:

"The latest data on our retirement readiness is out and it is, of course, very gloomy.

I won't drag you through the entire report from the Employee Benefit Research Institute (EBRI), since you likely know the bottom line: 57% of working Americans have less than $25,000 in non-pension, non-real estate savings and a shocking 28% have less than $1,000.

Nevertheless, 40% of us believe that we will need $500,000 saved up to retire well. The remainder picked lower numbers.

The figures suggest that the baby boomers are in for a seriously problematic retirement. They'll be more dependent on their adult children, on government programs and continued employment in their old age to get by. This we know.

The really troublesome part of the survey, however, is that younger people aren't saving enough, either, at an age when saving is most effective.

The EBRI study found that for workers ages 25 to 34 just 56% said they had saved money for retirement. Ten years ago, the number was a bit better; 65% of young workers were saving then.

It's after age 35 that most workers begin to take retirement seriously. The numbers reporting that they save money shoots up to 77% and remains high until the mid-50s.

That's getting it exactly backwards.

Yes, it's hard to save money when you're young and struggling. Jobs don't pay enough, students often carry college debt and the cost of living in places that generate jobs, our larger cities, can be high.

Nevertheless, it's during those five to 10 years right after school that people should hit their savings strategy head-on. The reason is compounding.

Let's assume a 25-year-old gets an entry-level job in a mid-sized bank as an accountant, making the average national salary for beginning accountants of $44,965.

There are a bunch of tax withholding assumptions here, but for simplicity's sake let's say our young saver puts aside $5,000 a year for 20 years — then stops saving completely.

At a market return of 7%, you can expect the roughly $100,000 set aside from her paycheck to more than double, reaching $218,500 by the time she reaches 45.

From ages 45 to 65, our accountant's retirement target, that money will compound twice more, that is, it will double and double again, ending up at $875,396.

Remember, she stops saving completely at age 45. The money grows on its own over the second, 20-year period.

Compare that outcome to the more likely scenario: Same accountant, same salary, but no savings at all until age 45.

How much must the second accountant save annually to get the same outcome? Double, maybe?

No, the second accountant must save four times as much money to hit the target by 65. She must scrimp and put away $20,000 a year to come up to $874,000 at retirement.

Here's the rub: Those 45-year-olds, increasingly, have to foot the bills that come with caring for aging parents with little or no savings and, somehow, also finance their own kids' lives and educations, on top of their own needs.

If you are under 30 and reading this now, you know your mission: Save more, pronto. If you're over 45 and find yourself staring at an empty bank account, that mission is not doubly urgent, but quadruply so.

And if you haven't sat down and made a serious plan — and EBRI reports that 46% of workers have at least attempted to do so — now is the time."

Summing Up

The sooner we understand and internalize the compounding effects of the rule of 72, the better our future financial lives will be. It's that simple.

But the evidence is overwhelming that the basics of compounding are not well understood and  that poor choices to live in the now versus preparing properly for later (aka time inconsistency) combine to work to the detriment of younger individuals as they enter and experience adulthood.

In fact, some over 45 year olds decide that it's too late to provide properly for themselves, so they essentially do nothing to prepare financially for their years as an oldster.

On the one hand, these very same individuals complain loudly about the evils of government spending, while at the same time they're complaining that their Social Security benefits should be higher. Go figure.

The bottom line is that financial literacy at a young age is absolutely essential for the future well being and prosperity of all Americans.

The baby boom demographics are real, and the financial problems affecting older Americans and the rest of society are going to be immense if we don't get a grip on all this, and soon.

At least that's my take. And if you agree, spread the word. It's up to us to do the right thing -- NOW.

Thanks. Bob.

Are the Republicans Finished? ... Is President Hillary Next? ... Does It Matter?

Lots of people don't especially like the way President Obama and the Democrats are running the country. Count me in.

Of course, even more people didn't like the idea of Mitt Romney and the Republicans running the country in the last election. Well, that made sense to me, too.

So how do people feel about the way things are going today? While it seems that most of We the People are still dissatisfied with the way the country is being governed, we're even more unhappy about the prospects of Republicans taking control.

First, the presidency.

Florida's Golden Gal says this about the 2016 presidential sweepstakes:

"Senate Minority Leader Mitch McConnell took some heat from Democrats last week for comparing Hillary Clinton's potential 2016 presidential bid to "a rerun of 'The Golden Girls,'" the 1980s sitcom about a group of distaff retirees living in Florida. But it's the former secretary of state who could have the last laugh.

A new poll shows the former first lady outperforming top GOP presidential prospects not only nationally but also in their home states. "Mrs. Clinton, who shows the most strength of any potential 2016 aspirant in Quinnipiac University's national polls, leads Jeb Bush 51-40 percent and bests Sen. Marco Rubio 52-41 percent in a poll of Sunshine State registered voters," said Quinnipiac. Mrs. Clinton is also viewed much more favorably than either man, with a 62-33 edge over Mr. Bush and 41-34 edge over Mr. Rubio.

In a speech to the Conservative Political Action Conference last week, Mr. McConnell said, "Don't tell me that Democrats are the party of the future when their presidential ticket for 2016 is shaping up to look like a rerun of the 'Golden Girls.'" He continued: "We've got Rand Paul, we've got Marco Rubio, we've got Paul Ryan and a slew of smart, young and energetic governors. And the other guys? They've got Hillary and Joe Biden."

Given the key role that Florida could play in Republican efforts to take back the White House, Hillary may be all that the Democrats need."

Next, the governorships.

And the prospects for Republican governors aren't looking so great either. Vulnerable GOP Governors says this:

"Republicans are laser-focused on preserving their House majority and picking up the Senate in 2014. But equally important are the gubernatorial races in which polls give Democrats an early advantage. . . .

While the GOP took 11 governorships in 2010 (Kansas, Tennessee, Oklahoma, Wyoming, New Mexico, Iowa, Ohio, Pennsylvania, Wisconsin, Michigan and Maine), several of the GOP's freshmen appear vulnerable. They include:

•Florida Gov. Rick Scott. He won election by just 70,000 votes, and his approval rating has since hovered in the 30s. A Public Policy Polling survey this week showed Mr. Scott trailing former Republican Gov. Charlie Crist, who switched parties last year, by 12 points. Mr. Crist has hinted at a run.

•Pennsylvania Gov. Tom Corbett. Democrats have accused the former state attorney general of dithering on the Penn State child-sex abuse scandal while preparing for his gubernatorial bid in 2009. The charges of political expediency have stuck. A PPP survey last week showed the governor trailing potential Democratic candidates by double digits, including Rep. Allyson Schwartz, former Rep. Joe Sestak and state Treasurer Rob McCord. . . .

•Michigan Gov. Rick Snyder. The governor has kicked up a beehive by approving right-to-work legislation in December and appointing an emergency manager this month to run Detroit. Fifty-four percent of Wolverines give him bad marks, according to a recent PPP survey. The poll also shows him trailing Rep. Gary Peters and Lansing Mayor Virg Bernero, two potential Democratic candidates."

Summing Up

We the People don't have the ability to choose "none of the above" when electing our "public servants" or we'd probably do exactly that.

At least that would get my vote.

Politics sucks, and most of the candidates who run for office suck, too.

Maybe we'll get a nice surprise one of these days and somebody who genuinely deserves our support will run for office.

Oh well, let's not worry too much about it because, after all, it's only politics.

And meanwhile, We the People are still in charge.

So let's start acting that way.

Thanks. Bob.