A Sample Question for Economics Students

This might make for a helpful test question at the end of this semester:

Jobs are essential for Americans to access health care and feed their families. And no rational employee would risk their job and career because their workplace culture is disadvantaging their ability to parent — especially in a precarious labor market. Today, the unemployment rate is about 3.2 percent — suggesting that jobs are far and few to come by and, should someone get laid off, another person would be able to take the job with ease. Tie that with the fact that wages are flattened and costs of living are rising, and the masculine structures that surround work are able to persist — and have implications wider than the workplace itself.

“When So-Called Work Ethic Replaces Productivity, American Families Suffer”

Let me know if you use it.

Kentucky Teachers Stand Up to Big Taxpayer, Issue Demands

Edit (04/07/18): I want to clarify that I sincerely hope that this list of demands (likely produced by a group called “Teachers in the Lead”) doesn’t represent the views of the average teacher. If you are a teacher, please comment and let me know if you support this list.

It’s been fun observing the fight over state pensions in Kentucky. What teachers don’t want seems pretty clear to me. What they do want is more of a mystery. A massive banner that reads “We’ve Had Enough” isn’t often accompanied by a white paper.

This is the closest thing I’ve seen to an actual substantive policy proposal from teachers. I saw it here originally. I invite anyone who does or does not endorse this document to say so in the comments. My comments on each of these demands are in bold.

We are experiencing a historic moment of positive change driven by educators in West Virginia, Oklahoma, Arizona, and elsewhere. Rather than waste this moment by merely standing guard over the status quo or reacting to incessant depredations, we want to move Kentucky education forward in ways that will benefit all stakeholders. We can no longer allow the Koch brothers, the American Legislative Exchange Council, and their lapdogs in Frankfort (who don’t even bother to read the legislation written on their behalf!) to dictate the agenda for our commonwealth. Therefore, we present this list of demands in support of Kentucky education.

Make sure you file your state tax return before you sign the petition, because this shopping list looks pretty pricey.

1. We demand that our pension and retirement plans be improved, not dismantled.

1a. We want the inviolable contract for past, current, and future teachers to be honored in order to make teaching in Kentucky an attractive option for talented potential teachers inside and outside of the Commonwealth.

1b. Pension and retirement plans should be fully funded for current, retired, and future teachers. This fund should be legally off-limits for raiding to address revenue shortfalls.

1c. Teachers should be able to retire after 25 years of service, regardless of teacher age, or five years of service at age 65. No “Rule of 87.” Older teachers should be incentivized, not penalized, for working past 25 years.

The inviolable contract essentially is a contract that the state cannot break. What these teachers want is to make that contract essentially open-ended. They want the current pension system (currently running pretty heavily in the red) to apply to all future teachers for the foreseeable future. I do wonder if financial economists can even estimate these kinds of costs out to, well, I guess infinity. It’s laughably absurd that an open-ended individual benefit be contractually extended to people who do not yet work for the government.

Also, I’m not aware of any field of work outside the public sector where you simply retire with most of your salary until your death after a mere 25 years of service. Can you? Genuinely interested to know if these jobs exist. I might like one of them.

2. We demand that public funds only be spent on public schools.

2a. Research shows that overall, charter schools do not improve educational outcomes for students. Too many charter school operators have taken public tax money for profit and left their students struggling. Public funds should go to public schools.

2b. No public education funds should be diverted to for-profit or non-profit charter schools or for vouchers to attend private schools.

2c. No tax credits should be granted for donations or tuition payments to private schools.

This seems like the core of what teachers want. The first demand on this list is essentially that generous open-ended benefits be given to all future teachers forever and never mind about the cost. The second demand is essentially that the state prohibit Kentucky’s low-income parents from ever having the kinds of choices that those same parents would have in the vast majority of other states.

While I secretly suspect that these teachers really just don’t want parents to know what they’re missing in terms of educational choice, they’re clearly concerned that some revenues earmarked for education might someday be used by (gasp!) someone else to (gasp!) do just as good a job for (gasp!) less money. It’s got to be a horrifying thought if you’re a member of a well-coddled group of workers in Kentucky.

Of course, the most enduring difference between a failing charter school and a failing public school is that failing charter schools usually close when students no longer want to go there. Why on earth would teachers be afraid of a business model like that? I have a few thoughts.

It’s worth noting here that charter schools are public schools, they abide by many of the same regulations, and opening one in Kentucky is a gargantuan task that requires at least one level of government approval.

These teachers might want to study up on Kentucky’s state constitution, as well. It already prohibits some of the choices that these teachers demand must never, ever, ever, ever be made available to Kentucky’s parents.

3. We demand that legislators prioritize new funding sources over cuts to existing programs. Finding funding for pensions/benefits in our inviolable contract is not the job of teachers. It is the job of legislators. But part of the reason we’re at this historical juncture is that both political parties have raided teachers’ retirement funds to cover state expenses because they were afraid to raise corporate and income taxes. The governor and his allies argue that low taxes will attract new businesses; we argue that those same businesses expect well-educated employees for that reason ought to be willing to finance public education through taxation. The success of Kentucky’s students depends on the state’s ability to hold up its financial commitments to the education system. To that end we demand:

Raise taxes. Do it now. Don’t look at the state budget. Stop it. There’s literally nothing wrong with any spending in the state budget. We looked. Well, OK, we didn’t look very hard. OK, fine, we didn’t look at all. We just don’t want to annoy anyone who currently receives a special state privilege to get miffed at us for trying to transfer that benefit over to us. Solidarity! We want new money. Fresh money. Now go get our money!

3a. No imposition of new sales taxes. Sales taxes are regressive taxation that disproportionately hurt small businesses, the poor, and the middle class, and should not be raised on non-luxury goods or services. The state should seek out new forms of revenue that don’t come at the expense of the poor and middle class while cutting taxes for the wealthy and corporations.

Why on earth would teachers care about where the money they extract from the private sector actually comes from?

3b. No imposition of regressive flat taxes. The tax rate should remain 5.8% of federal Adjusted Gross Income for those earning between $8000 and $75000. In addition, rates should increase for the those earning above $75000 with the creation of at least two new tax brackets for the super-wealthy. For example, 6.5% for those earning above $150000, 7% for those whose federal AGI is between $250,000 and $999,999, 8% for those whose federal AGI is above a million dollars. Corporations based in Kentucky should pay taxes to Kentucky based on their earnings, not merely based on their in-state revenue and the rate should be progressive, and not flat, so as not to disproportionately burden small businesses.

Ditto here. I admire the substance, but I can’t for the life of me understand why these teachers care about where the brackets break down for the purposes of revenue.

3c. Pensions should remain tax-free up to $50,000. This tax exclusion should not be lowered by one cent (much less by $10,000 as the current tax bill proposes).

Raise taxes, sure, just not on us. Thanks.

3d. Find new funding sources by raising taxes, closing tax loopholes, and/or legalizing and taxing the same revenue sources that are already legal in other states (for example, recreational cannabis or casino gambling).

OK, guys. I could have sworn I just read somewhere in this list of demands that you don’t want any new sales taxes.

4. We demand that our students’ safety, health, and educational needs be prioritized. We demand that our students be provided a safe and welcoming educational environment. We understand that for some of our students, our schools are the only place they can count on for support, nourishing meals, counseling, and safety. We demand an end to the school-to-prison pipeline. In addition, we demand:

4a. No more state funds devoted to building new juvenile detention centers, public or private.

4b. An end to zero-tolerance policies that disproportionately target underprivileged youth, LGBTQ youth, and youth of color. Eliminate SB 169.

4c. Increased funding for Family Resource and Youth Service Centers and funding for full-time trained therapists, youth service workers, effective restorative justice discipline programs, and crisis intervention specialists instead of armed school resource officers, regardless of Title I status. If we must have armed school resource officers, we want them to receive ongoing nonviolent conflict resolution training.

4d. Increased funding for all school breakfast and lunch programs.

4e. Increased funding for textbooks, classroom supplies, and technology.

4f. Increased funding for teachers’ professional development including maintaining funding for KTIP and increased funding for subsidization of teachers’ continuing education, National Board Certification and tuition reimbursement.

4g. Provide state-funded preschool for all three and four year-old children.

More funding. These are the least controversial demands mainly because they’re leveled every single year.

5. We demand an end to the Windfall Elimination Provision and the Government Pension Offset. These laws, which both took effect in 1983, basically eliminate Social Security benefits for Kentucky pension recipients and their spouses. Eliminating the WEP and GPO have to be a priority for Kentucky’s senators and representatives in Washington DC. If our legislators stab us in the back again, we want to be able to count on the same Social Security that everyone else in the nation has.

5a. Teachers who have already paid into Social Security in their early careers should be allowed to collect their benefits upon retirement.

This is probably the most salient point in this list. When Kentucky teachers were removed from Social Security, they were guaranteed a pension. That’s a promise that really ought to be taken very seriously given the fact that there’s no true fallback option. This is where future reforms should tread carefully.

Unfortunately, I believe Kentucky teachers, at least the ones behind this list of demands, are utterly and completely unconcerned with anything outside their sphere of influence, and they’re not exactly brimming with ideas about how to get more bang for the buck in the classroom. There’s absolutely nothing in these demands about improving outcomes, raising Kentucky from its below-average performance for all that above-average pay to teachers.

After watching the fights in Frankfort over all of this, I’m increasingly confident that sphere of influence won’t include my own children. I should get a hearty “thank you” when I save the public school system from spending that money, but I won’t hold my breath.

Kentucky Teachers Have Had Enough

There’s a banner that pops up occasionally around the Kentucky Capitol that seems to work for virtually every protest. It says, “WE’VE HAD ENOUGH” in all caps. It’s really kinda brilliant. It works for virtually any protest. If I had a sign-making business in Frankfort, I’d make sure to have a couple “WE’VE HAD ENOUGH” banners ready for any given protest group. Why yes, we do have various sizes and colors. Step into our showroom. What group did you say you’re with?

It’s worth taking stock of precisely what Kentucky teachers (at least the ones protesting in Frankfort today) have struggled to endure.

They’ve had enough of presiding over an education system that consistently ranks near the bottom for academic achievement while receiving pay that’s the 7th highest for teachers in America (when adjusted for cost of living). That’s well above the median household income for the commonwealth.

They’ve had enough of lawmakers and a governor insisting that the best time to reform pensions was twenty years ago and the second best time is now.

They’ve had enough of being told by financial economists that the pension promises of the past are putting a rather large hole in the Kentucky ship of state that won’t be alleviated for decades even with a substantial reform.

They’ve had enough of any efforts to give low-income parents in Kentucky any choice among schools.

They’ve had enough of the growing realization that there’s not much moral or constitutional justification for compelling their fellow teachers to support a union, and that the practice may come to an end this year.

In short, I suspect the protesters have had enough of the complaints from people who just don’t want what they’re selling. Lawmakers, parents, taxpayers, and even presumably many of their own colleagues, I believe, have had enough.

Trade War Intensifies

In my humble opinion, this is the winning argument for free trade. Imports are, as often as not, inputs into other manufacturing. These intermediate goods, if you care about employment in domestic industries that need these products, should be sourced as competitively as possible. Enterprising reporters should note which local businesses make extensive use of these inputs and find out what they think.

The tariffs that POTUS wants to impose on steel and aluminum will make products made by Americans that make extensive use of steel and aluminum more expensive.

Public Pensions: Risk Finds A Way

What’s missing from almost all discussions about pension reform is the idea that every time the market goes down, taxpayers are on the hook. Unfortunately, given the current structure of state pensions, that outcome is unavoidable and likely to be repeated.

The case for keeping public pensions in their current form hinges on, among other things, the idea that a portfolio weighted heavily in stocks provides something of a “free lunch” to taxpayers and it makes some sense. Taxpayers pay a relatively small amount into pension funds for each government worker, the market will very likely go up over that worker’s career, and taxpayers don’t have to pay the difference between their contribution and the benefits paid to the worker.

But there ain’t no such thing as a free lunch.

What has happened in Kentucky and other states is this: Lawmakers watched as markets boomed in the 1990s and chose to pare back contributions in order to fund more immediate spending desires. Lawmakers also found small ways to boost benefits for public workers because, after all, look at all the money in that fund! When markets tanked, as they inevitably sometimes do, taxpayers suddenly found themselves in the position of responsibility for the gap. The money that should have gone to maintain pension funding levels had already been spent elsewhere.

This kind of grasshopper thinking might not be much of a problem if that retirement plan were owned and funded by the same single individual. If you choose not to contribute to your own retirement fund, that’s your choice and I wish you the best of luck. No one else should be on the hook for your shortsightedness. But that’s very different from how public pensions operate. In short, the pensioners must be paid as a matter of contractual obligation.

Commentators and would-be reformers are almost entirely focused on getting that funding back to the exclusion of changing the system. The problem is that this time, decades later, the costs can be absorbed by precisely two groups: taxpayers and pensioners.

The Wall Street Journal notes that public pensions are still heavily weighted in stocks, and at least one of the biggest funds in Kentucky is more heavily into stocks than most pension funds.

The $19.9 billion Teachers’ Retirement System of Kentucky now has 62% of its assets in equities, close to the 64% it had in 2007. It sold $303 million in stocks Jan. 19-20 to rebalance its portfolio following gains. From Feb. 6-8, as U.S. markets plunged, the fund bought another $103.5 million of stocks.

“We are definitely a long-term investor and look to volatility as an investing opportunity,” said Beau Barnes, the system’s deputy executive secretary and general counsel.

Lawmakers are giving precious little attention to the idea that getting taxpayers out of the public employee retirement business should be the overriding goal.

Frank Zappa, Conservative

Here’s a remarkably clear description of the entrepreneur’s role from Frank Zappa. In short, the risks are big, the rewards are uncertain and the personnel should be focused on the mission or they should leave.

In the late 1980s, I recall Zappa appearing on “Crossfire” to discuss the problems associated with attempts to limit or punish artists who use off-color language or produce work that deals with off-color themes. At one point in the discussion, he defiantly calls himself a “conservative.” Given this description of what an entrepreneur actually does, I now more fully understand what he meant.

This should be required listening for anyone (*cough* Republicans *cough*) who claim to admire those who take big financial risks in pursuit of big rewards.

Net Neutrality Rhetoric, Reality

First, I love The Oatmeal. Matt Inman’s comic regularly speaks my mind on all manner of life’s little complaints (and solutions). Sadly, when he tried to explain net neutrality, I think he missed the mark. By a lot.

Then the President decided he’d offer some free advice to the FCC on how that agency should proceed with regulating the internet. Same problem.

So I sat down with Berin Szoka of Techfreedom to try to separate the aspirations of activists from the realities of how markets and the internet actually function and what kind of regulatory regime will serve consumers best.

The Burning Man Tax

“Burning Man, like any city or nation, requires funding and organization to function. When people buy tickets, they help to pay for the event’s needs as a price of citizenship. It’s exactly the same as a tax.”

– Tom Berman, “Here’s Why Republicans Should Not Be Getting Into Burning Man

You see, it’s just like when I pay my annual CostCo tax or the occasional Concert Tax or Batting Cage Tax. It’s exactly the same thing. Except I don’t have to pay any of those taxes. Now, actual taxes? Yeah, you pay those or go to jail.