A billionaire targeting contrarian, underappreciated causes
bloomberg.com
bloomberg.com
Pensions are going to be an issue that deeply divides younger and older liberals. State and local governments face existential crisis. Meeting pension obligations is going to require trading away the future prosperity of these places. What young millenials will want to move somewhere they have to pay high taxes, but get few services in return because all that money is going to paying pension obligations?
It's also going to be a major headwind to the trend of millenials moving back to urban areas. Cities have particularly screwed up their finances. E.g. Georgia pensions are pretty well funded, but Atlanta's is a disaster. As millenials get older and have kids, the cuts to public safety and education that will be necessary to meet pension obligations is going to drive many of them to the suburbs.
Pensions are an issue that divides rich and poor. This guy is rich. We are not. This article seems to be about him trying to destroy our pensions.
The so called existential crises were created by the financial sector he hailed from. They did not appear out of thin air. For example:
https://www.wsws.org/en/articles/2014/01/14/swap-j14.html
When the financial sector is in trouble, they get given virtually unlimited bailout money and they have interest rates set to accommodate their desires.
When municipalities and pension funds are in trouble they are told to go fuck themselves.
- sun-belt city has a lot of young people moving to it, not so many kids, not much infrastructure
- city hires young workers, builds infrastructure, assumes a high return to pension funds
- city has older people over time, more kids, more infrastructure, needs to raise taxes
- taxpayers resist, city assumes even higher return on pension funds, raids pension funds to balance budget
- early hires are ready to retire, pension is broke, taxes go up
- taxpayers move away to new city or suburb, sun-belt city faces rust-belt city dynamics and can't afford pensions
financial market returns have if anything been unusually good the last 30 years regardless of the crisis, volatility, financial sector shenanigans... if you see a true bear market like the 70s God help those new rust belt places.
whatever the problems with the financial sector, there's an unstable dynamic where new growing places have a virtuous cycle, and once you cross a threshold and growth slows, it reverses and you have a vicious cycle of decline.
The industry left for China because, again, the government is placing the interests of financiers over the interests of average Americans.
They do this by following a strong dollar policy (the polar opposite of China's weak yuan policy).
That's not so much the government as it is the companies doing the moving, it's all about the cost of labor and in developing countries that cost is a small fraction of a developed one, no matter what their currency policy.
The 'strong dollar' is only strong relative to other currencies, and is mostly strong because it is the reserve currency for many and the currency in which oil is being traded.
The companies are doing the moving because the Chinese government pegs its currency very low and the US allows its currency to float very high.
There's nothing at all inevitable about all that ridiculously cheap stuff coming from China or those abandoned factories in Detroit. It's all the result of a set of very deliberate policy choices.
>it's all about the cost of labor and in developing countries that cost is a small fraction of a developed one, no matter what their currency policy.
If labor were all that mattered all of the new factories would be built in the middle of Bangladesh rather than in the Pearl River Delta. Their labor is far cheaper.
Most of the world has lower cost labor. The work goes to China specifically because it has infrastructure of a rich nation but the currency of a poor nation.
Even with that there is no requirement for us to trade with them.
US elites also made a deliberate choice to drop trade barriers with China despite the repressive nature of the country. Again, because it serves the interests of US oligarchs.
>The 'strong dollar' is only strong relative to other currencies
What exactly did you think I meant by strong?
Governments can influence their currencies only so much before they too become overstretched and their limits are tripped well below the level at which the developed/not yet developed part would no longer make sense. We're not talking about 10 or 20% here.
The work goes to China because right now for some goods that makes the most sense to companies that have the option to choose. But this does not hold true for all goods and it will not hold true forever.
There is absolutely no requirement for you to trade with them, simply stop buying anything made in China.
As far as the lack of trade barriers goes, wasn't the US the biggest proponent of a free market worldwide?
I couldn't see jack shit going on when I visited. Just clothing factories. Clothing always migrates to where the labor is cheapest because it is one of the least capital intensive industries and most labor intensive.
Even then it was only in the area around Dhaka (and close to the container port).
North of Dhaka there was basically nothing except poverty (which is pretty much what it's like in most of Central China, too). No infrastructure = no industry.
>Governments can influence their currencies only so much before they too become overstretched
What you meant to say was "governments can push the value of their currencies up only so much before being overstretched". Pushing them down isn't all that hard.
Right?
>As far as the lack of trade barriers goes, wasn't the US the biggest proponent of a free market worldwide?
A) There's no such thing as a free market. It's an economic fairy tale.
B) US oligarchs are big proponents for tearing down trade barriers. Union leaders not so much.
C) Just how much do you think they cared about destroying US industry in the process?
Not all that long ago, China could make clothing, basic machinery and some consumer goods that were not too capital intensive.
It's an incremental process.
> Just how much do you think they cared about destroying US industry in the process?
Not a whole lot. But then again, that's their prerogative under the system you have in place. If someone wanted to keep the jobs local and to exclusively source their half-fabricates from local producers under exclusive contract stating that they were required to maintain this all the way up their supply chain then such a person might have cornered the market against those willing to sell out your countries manufacturing backbone.
The most likely outcome of such a plan would have been bankruptcy. It's an arms race and everybody that buys 'made in China' stuff because it is slightly cheaper is complicit.
It is indeed an incremental process. An incremental process some countries never begin.
>that's their prerogative
Why is it the prerogative of American elites to set trade policy that benefits them and fucks the rest of us over?
you don't want to have free trade and get cheap stuff from China, slap a massive tariff on them, you pay $2,000 for your iPhone, you deal with massive smokestack industries here, and of course become a manufacturing ghetto since you can't export anything if you refuse to import anything.
the flip side of strong dollar is a free lunch and influence since everyone around the world wants dollars. run a closed economy and forget about that.
in fact all of Silicon Valley is a product of globalization. Design in California, manufacture in Pearl River delta, sell globally, create a dominant tech culture and ecosystem, most of profits come back to California.
yeah, Wall Street is a problem, they're doing a few things like Dodd Frank, CFPB etc. to reduce the free lunch Wall Street gets, could do more.
honestly poor muni governance, idiots who refuse to pay taxes for services is a bigger reason pensions are broke.
If my rent dropped by 5% and my smartphone price spiked to $2,000 I'd still come out ahead.
If this policy continues indefinitely eventually the US industrial ecosystem will be destroyed completely. When that happens China will abandon its "keep the yuan low" policy and your smartphone will suddenly cost $2,000 but the US won't have the expertise or the infrastructure to suddenly rebuild all its factories. That will take decades.
Then the US will end up like Argentina - a pale shadow of its former wealth.
If a mercantilist trade policy was the only thing keeping the USA wealthy we're not going to stay on top anyway. You don't stay rich by trying to keep the rest of the world poor. That is the attitude that gets you to Argentina politics though.
It would be a shame if the richest country in the world were to say economic and civil liberties are great at home, but we're not going to lead by example and deal that way with the rest of the world.
Cheap yuan policy is history and has been for a few years, people don't seem to have caught up to that yet.
The $15 minimum wage is another example of this 'war on poverty.'
Some countries make an effort to be let hard-working poor people live with dignity if not much wealth. But here they pay 15.3% FICA on the first dollar they earn, and then people rant about the 47% who don't pay taxes and should have 'skin in the game.' And communities are designed with no transportation, housing options for the poor.
This is US-centric.
And blaming the financial sector for the pension crisis is ridiculous. States and municipalities entered into very risky financial arrangements because for years they made very optimistic actuarial assumptions about pension fund growth, and committed to benefits that could not be sustained once population growth plateaued.
Investing in those risky assets was a gambit to get the kind of returns they needed to stay solvent. That gambit failed, but financial companies didn't create the underfunding that led to the need to invest in risky assets in the first place.
Whatever your political slant, in this case it looks like class warfare, it can be turned against itself when debt starts limiting the degrees of freedom political action can take. Conservatives will do the same thing -- for them the argument will be something like "if we can't fund the national defense/LE, why do we need a government in the first place?"
Long term, this debt problem, whether local or national, is some nasty, radioactive stuff.
The middle class is gone.
>They are way better off than the young people who will be paying for them.
As opposed to the oligarchs who are trying to leech wealth from both groups?
>And blaming the financial sector for the pension crisis is ridiculous.
Did you read the link? What happened to Detroit was looting and fraud. Plain and simple.
>States and municipalities entered into very risky financial arrangements because for years they made very optimistic actuarial assumptions about pension fund growth
Optimistic == We assumed that interest rates would not be dropped to zero to bail out the financial sector. This was a reasonable actuarial assumption pre-2008 and it should have been a reasonable actuarial assumption post-2008.
>Investing in those risky assets
Investing in those risky assets largely happened after the government decided to drop interest rates to zero in order to bail out the banks. Much of it was also driven by un-prosecuted fraud.
That's the problem, isn't it. If you can use debt or a surplus to game the system, everyone loses at someone else's benefit.
If you want to force companies to support retirement, force them to pay into employee's retirement accounts.
The benefit of individual accounts is that they're a lot harder to raid or defund.
Your idea of only individual retirement accounts is a terrible one.
Uh, then choose a different financial firm? I have $100k+ in my brokerage and pay about $10 a year in fees...
I am not rich, but I am young. And I despise the fact that I'm paying for retirement programs and pensions for people who just happened to be born at the right time with the right job.
It's fundamentally unjust that we're forced, by law, to pay for benefits we will never receive.
I'm young-ish, I have no pension, I work for myself, and I'm definitely not well-off by any stretch. I have no horse in the pension game, except that I'm largely in the same boat as you (I'm guessing).
The difference is, I look at the people with pensions and I don't think, "oh those pension-holding fat cats". I look at them and think, what happened to the rest of us?
Why is it only the people whose decent standard of living was locked in by law or extensive contracts, why are they the only ones who definitely get to retire now?
There is a big con going on here, but it's not those folks with pensions, it's that the rest of us are now reduced to fighting over scraps.
Most of the private economy switched to individual retirement accounts (401Ks/IRAs) so that you don't have to depend on the ability of a private company that may or may not exists 40 years from now (when you retire) and you can instead depend on yourself.
Save some money. It's simple. You'll be fine.
Except, it obviously isn't working out in practice. People can't save enough, and it's not just down to a personal failing--it's systemic.
People can't save enough because our wages have been separated from our productivity--and kept down--for the last four decades. That's bigger than the individualistic "every man for himself" type of advice that "save some money" sounds like.
Besides, the realistic view suggests that something bigger is wrong, and something better should be done, when simplistic advice like that isn't working.
I was talking about you. Personally. Frondo.
You're right: that is rather impolite.
> what happened to the rest of us?
Pensions are a fundamentally stupid system. You shouldn't be depending on an employer to fulfill a defined benefit. Even if everything works perfectly (ie. the employer remains solvent and doesn't raid its pension fund), it provides a HUGE disincentive against pursuing job opportunities or entrepreneurship.
The solution is that everyone should be saving for themselves. I fail to see the "con" in people saving for their own retirement.
The con is that pensioners can use the threat of violence to force me to simultaneously save for my own retirement and pay for theirs when they never saved a penny.
Even if defined benefit pensions still existed, I would never get one as I have precisely 0 interest in working for the same employer 10+ years. I don't see why I should be forced to pay for people who are lifers.
You're right, people shouldn't have to depend on an employer for retirement (or health care)--that should be up to our government to provide us.
As for "violence," I have no idea what you're talking about, unless you're actually suggesting that the pensioners are wheeling their walkers up to you and shaking you down. Remember, taxation isn't violence.
http://calcoastnews.com/2014/12/slo-countys-six-figure-pensi...
This is the attitude American oligarchs have been trying to inculcate among the young. This was notably the goal of Pete Peterson's "the can kicks back" astroturfing campaign as well as Stan Druckenmiller's college campus campaigns, and even this neat piece of astroturf: http://www.quickmeme.com/Baby-Boomer-Dad/?upcoming
The idea is to keep young and old divided so that they will not form a cohesive political bloc that will not fight for each other's interests. The young will be complicit in strip-mining the pensions of the old. The old will be complicit in the absurd ramp up of student debt and the removal of pension rights from the young.
Embrace reason.
The battle isn’t between pensions and the financial sector. That is infighting. The real battle is between the people paying into government and those getting money from the government.
It doesn't make sense to me to worry about the knock-on effects of this loss (like unfunded pension liabilities) when this problem is still in place.
Someone upthread suggested that Detroit was an example of how unfunded pension liabilities were the product of looting and corruption. I submit that Detroit is a better example of how artificially provoked demographic shifts can kill a city. However corrupt Detroit is, nobody can argue that it was better off after "white flight".
Does real median family income include non-cash compensation, particularly healthcare?
Literally? To Steal, from Websters: "to take (the property of another or others) without permission or right, especially secretly or by force"
Not sure this is a liberal/conservative thing, although I'm sure it will be framed as such. At the end of the day, it is possible that the overall debt situation forces voters to either walk away from the debt -- or walk away from representative democracy. The two may not work together.
Of course, like everyone else I'm wrong about most every sort of prediction, but I note that Jefferson, observing revolutionary France, was quite concerned that inter-generational debt was quite capable of strangling any sort of revolutionary activity or peaceful refactoring of the way government works. I doubt his observations are any less accurate now than when he made them.
Which, in a post-financial crisis world, also obviously involves relying on government-backing of the insurance companies and bailouts when ratings agencies hand out AAA ratings like candy. Ultimately, only the government can guarantee people a retirement. Which is why I personally think we should say "screw it" and just guarantee everyone a reasonable (livable) payout from social security...
In contrast to the structured products ratings, the corporate ratings have held fairly well. For life insurance subsidiaries, which are the units that sell annuities, there is even further protection. The law requires insurance subsidiaries to be bankruptcy remote from their parents, and regulates the types of risks they can take on.
To take a famous example, even if AIG had been allowed to go bankrupt, it's life insurance subsidiary -- American General Life Insurance Company -- would not necessarily have been insolvent, and indeed retrospective analysis seems to indicate it would have been fine.
I should mention that all this safety comes at a cost, implied return rates for annuities aren't terribly impressive. But that's the nature of the beast, return and risk are proportional.
(Or perhaps we can imagine that every single state or municipal pension system can make up the shortfall by taking money from all the billionaires they have lying around. Ha.)
I'll tell you what, though. The "billionaire-financial leech" is spending money that he already has on a cause, and he will never see it again. The politician is spending someone else's money, and as thanks for this, he will earn campaign contributions from the relevant unions. Draw your own conclusions.
Probably some of it from pension funds.
He is now using that money to lobby politicians to strip wealth from the working classes. He is paying PR companies to burnish his image for doing so (this article did not come out of nowhere).
What. a. hero.
>Or perhaps we can imagine that every single state or municipal pension system can make up the shortfall by taking money from all the billionaires they have lying around.
Yes, god forbid we should consider raising taxes on the 0.01% and using it to pay pensions for the working classes after they had so much of their money stolen by rapacious oligarchs like him.
So you could raise rather a lot more than you needed, actually.
Raising those taxes will also significantly drag down the cost of property (and consequently rents) which is the main outgoing for lower and middle class families.
39.6% (Fed) + 12.3% (CA) = 51.9%
There are city taxes as well in some places, for example add an additional 1.5% to that if you live in SF.
Thinking about this, I suppose that the fact that you can deduct state taxes on your fed taxes brings this down a bit so maybe it does dip below 50? Not sure about the math. Real close though.
Whether you pay the AMT or not isn't really based on how much money you make. It's based on how many deductions not allowed under the AMT you take (deductibility of state taxes being the biggest one).
False.
Some claim that the top 1% have as much as the bottom 90% but even that claim is disputed.
http://www.vanityfair.com/news/2011/05/top-one-percent-20110...
That article is discussing wealth (net worth) versus the article you cited which discusses income. No surprise that the lines between rich and poor differ when you measure it different ways.
I found that via: https://en.m.wikipedia.org/wiki/Wealth_inequality_in_the_Uni...
One question: aside from arguing the specific numbers, it is irrefutably true that a small minority hold the majority of the money, and it is widely reported that the gap is currently growing, not shrinking. Is this a good thing? Do the specific numbers change the outcome or what our course of action should be? Even that Vanity Fair article concludes the situation is bad.
"In terms of wealth rather than income, the top 1 percent control 40 percent."
> Do the specific numbers change the outcome or what our course of action should be?
Of course the data matters! Especially when (as crdoconnor did) you report data that is incorrect by an order of magnitude!
Jesus.
To make my point more clearly, you (and vanity fair, and Wikipedia) say the top 1% is two orders of magnitude larger than its relative size (40x). Some claim, and Vanity Fair doesn't exactly refute that the top 1% are two orders of magnitude larger than its relative size (90x). Crdoconnor appears to have misquoted by one order of magnitude, saying that the unfairness ratio is three orders of magnitude (900x).
So, ignoring crdconnors accidental misquote, and playing devils advocate for a moment, what substantive policy decisions should differ across the line between two orders of magnitude inequality versus three?
Put more simply: Just taxing the rich more isn't enough to pay for everything.
That doesn't seem to contradict anything said up-thread.
If the top 0.1% control 20% of the wealth, the next 0.9% control another 20% of the wealth, and the bottom 90% control 20% of the wealth, then the claim you objected to is true. That would mean the remaining 9%, between the top 1% and the bottom 90%, control the wealth that remains - 40%. I don't think these amounts violate any of the ordering constraints, given the relative size of the groups; in reality there will be variation within the individual groups, but if we assume there isn't the math checks out fine: 20/0.1 > 20/0.9 > 40/9 > 20/90
I'm not saying the original claim was correct - I don't know. Just that what you quoted doesn't refute it.
Really?
You accused someone of being wrong "by an order of magnitude" and the "evidence" you produced did not even demonstrate that it was likely that they were wrong. If the data matters, fucking understand the data.
I'm just not really interested in doing the legwork to provide you with perfectly cited sources. This is Hacker News not the US Congress. You know how to use Google.
You might not be wrong. You manifestly don't understand the data. Observe that, learn from it, update your confidence.
"I'm just not really interested in doing the legwork to provide you with perfectly cited sources."
I was not disputing the citations of your sources, and I wasn't demanding perfection. I was demanding that what was provided as evidence that someone was wrong "by an order of magnitude" actually be evidence they were wrong at all.
"This is Hacker News not the US Congress."
Exactly! So we're agreed that we should expect at least a modicum of decency, and respect for argument and informed discussion?
"You know how to use Google."
I do, and I know that it doesn't do a very good job answering these kinds of questions.
I engaged more deeply with your evidence (including the article you drew it from) precisely because I hoped it would inform me in the ways you'd indicated that it should. I was left disappointed.
Unfortunately, you seem quite a bit more interested in rhetoric and posturing than in actually engaging intellectually, so unless your replies are inordinately better than those above I won't be responding further.
It's a somewhat extreme measure by the standards of modern tax schemes though, and it would cause a much higher number of super wealthy people to expatriate than just raising income and capital gains taxes would.
Even assuming tapping billionaires' wealth is a zero-impact answer, that doesn't necessarily help you if you're in a random municipality which has overpromised on its pension plan. As one example, take San Jose, which is Bay Area but not prime Bay Area (and beginning to see pension problems) and could easily see its richest citizens moving a few cities away to somewhere like Cupertino or Mountain View if it means a 5% savings on income tax. And what of cities like Stockton, CA, which was already bankrupted by its pensions and doesn't exactly have a bevy of billionaires to tap?
I guess you could hope for the day that the federal government decides to send a bunch of its money to your own local government, but the rest of the nation is likely to resent that so they might not approve of the measure.
The richest citzens always make this threat but they don't actually follow through on it:
http://www.npr.org/sections/money/2011/04/29/135813061/studi...
Apparently if you tell a lie big enough and keep repeating it, people will eventually come to believe it.
And that still doesn't help Stockton.
I'm pretty sure that people on pensions are in fact not working.
Also, it's the people "who work for a living" who are forced to pay for these pensions. Someone who sat in a cushy DMV job for 30 years working 40 hours a week gets a better retirement than I will ever have? No thanks.
No corporation would stand by this in terms of major signed projects or debts without a massive fight. If renegotiation was required for payment to occur, either in the form of bankruptcy or reduced rates, then it would be a crushing asset grab, with no quarter given. The person who took on a contract they could not afford rightly should be squeezed to crap.
But because it's poor people, they are the ones who have to make the sacrifice when someone wants to renege on their contract?
Hilarious.
You mean steal money from other people to pay for promises they had no say in making.
That's what's fundamentally unjust about government pensions: I'm being forced to pay for promises made before I was even old enough to vote.
Reducing the pension burden is exactly Arnold and others are trying to do. The result of that is that some people are not going to get the pensions they thought they were. That sucks, but it's better than dissolving the government altogether.